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I don't know enough about the Slack product or business model to comment authoritatively, but I'm really confused how they're losing money (and so much of it) a

I don't know enough about the Slack product or business model to comment authoritatively, but I'm really confused how they're losing money (and so much of it) and I sense a bit of "weirdness" around unit economics/user conversion/pricing. I've long thought that they've essentially built beautiful native/mobile/web clients for IRC-type chats and provide hosting/IRCOp services. Charging per-seat to enterprise seems like a very, very lucrative proposition for this type of product/service. There are a couple of eyebrow-raising financials: 1.) 100,000 paid users @ $6.67-$15/mo = $667k-1.5m MRR = $2m-$4.5m QRR 2.) 13m DAUs @ $0/mo (free tier) 3.) They lost $30m Q3 '18 4.) They lost $300m Q4 '19 due to 'stock based compensation' (which from my perspective should have been accrued Q4 '15 onwards) And for all the above... a $5billion unicorn valuation considering chat is a solved problem? Three major questions: 1. Has any other SaaS or company in human history ever had a 1:130 ratio of paid:free users with a hard cap of $15 on MRR? 2. Does quarterly losses between $30-$300m on $4.5m in revenue make sense considering the unit economics of cloud-based chats? 3. Does 100k paid subscribers seem a bit low for a 6 year old company? Really weird situation from my "knows enough to be dangerous" perspective and I'm all ears because from my perspective: 1.) There's really not enough innovation or a big enough TAM (considering competitors) to drive a unicorn valuation 2.) Which shouldn't matter because this is still a potentially lucrative market 3.) And yet... they're losing money hand-over fist Weird, weird weird. Feel free to share your thoughts, I just ask that you consider this message comes from a perspective of "confused guy trying to make sense of these crazy times"

jmull 7y ago
It's over 100000 paid customers, not paid users. E.g., your revenue number is way off... the article says their revenue for the quarter was $145 million. So I guess the average revenue per customer was approaching $1500 (well, unless I dropped a zero or three somewhere, which is possible). For Slack customers are organizations with potentially multiple users. Likewise, I think your 1:130 number is perhaps comparing apples to oranges.
- SeeDave 7y ago
  Thanks for the clarification! I was really scratching my head there based on the apples to oranges comparison of 'customers' to 'users' and you were right... my revenue estimate was indeed way off. Upgrading Slack from 'WTF' to "Let's see how this plays out and if it's priced accurately' because $30m in losses on $145m in revenue for cloud enterprise chat with a long-tail of free-tier users seems pretty promising! Thanks again!
  - SolarNet 7y ago
    One problem they do have is - compared to discord - a poor strategy for monetizing non-enterprise communities. Discord will allow individuals to upgrade their discord plan (for small benefits everywhere) and then they can give a boost to a server they appreciate. This means discord can monetize any community. Slack on the other hand has communities with thousands of members in them that have zero monetization. No one is going to shell out 60k for their open source project's slack to be monetized.
    - kbar13 7y ago
      Do you think slack with its b2b model where companies pay per user or discord where users pay only if they want to makes more money? I would bet that the free plan for slack is basically free advertising for them to on board people to their paid plans
techslave 7y ago
> 1.) There's really not enough innovation or a big enough TAM (considering competitors) to drive a unicorn valuation TAM includes competitors.
chrisseaton 7y ago
> 100,000 paid users It can't possibly be just 100,000 paid users. That's clearly nonsense. Oracle uses it and they have 80,000 employees alone!
- deleted 7y ago
  [deleted]
- GordonS 7y ago
  Thing is, Slack makes it far too easy for orgs to use it for free. I work at a megacorp, and we use Slack without paying a single penny. We have a Slack account setup per project, which typically have 5-50 members. We don't care too much about search or history, we just want a simple chat and audio call solution that isn't horrible to use. Slack fits that bill. To be clear, this doesn't sit well with me; we should be paying for a service we make good use of - but Slack makes it so damn easy for us to get away with it! Maybe this is part of some long-term strategy, to basically give it away until it becomes ubiquitous, and then scale back the free tier?
  - unphased 7y ago
    I feel like that is an outlier. For most companies the benefits of having all the data logged is worth the cost.
    - propogandist 7y ago
      It was GDPR and data privacy that wrangled the megacorp I know to kill all channels and workspaces that seemed affiliated with megacorp with help from Legal... until then everyone was making and using slacks free tier. It's still used to communicate with people outside megacorps SSO environment. Most users don't know nor care about the paid tier, especially if CHQ isn't footing the bill and the cost for each user license is passed to a business unit or department (which can be how megacorps are setup). The change over was funded by corporate and it's becoming the standard form of comms in the enterprise.
    - GordonS 7y ago
mikekchar 7y ago
> 4.) They lost $300m Q4 '19 due to 'stock based compensation' (which from my perspective should have been accrued Q4 '15 onwards) I haven't looked at this, but if this is a large part of their loss, then you can possible find the answer to why it was declared in one chunk by looking at the timing of option grants. The schedule should be available. Normally when I see "Our company is losing money" and the money it is losing is a one time loss that would normally be spread out over a long period of time, it's because they timed the announcement to coincide with the granting of options. It causes the price to drop precipitously, they grant the options -- "No funny business here! We scheduled the option grant 6 months ago!". Then the price rebounds. It has happened in every large company I've ever worked for. I always wonder how they get away with it...

jmull 7y ago

It's over 100000 paid customers, not paid users. E.g., your revenue number is way off... the article says their revenue for the quarter was $145 million. So I guess the average revenue per customer was approaching $1500 (well, unless I dropped a zero or three somewhere, which is possible). For Slack customers are organizations with potentially multiple users. Likewise, I think your 1:130 number is perhaps comparing apples to oranges.

SeeDave 7y ago
Thanks for the clarification! I was really scratching my head there based on the apples to oranges comparison of 'customers' to 'users' and you were right... my revenue estimate was indeed way off. Upgrading Slack from 'WTF' to "Let's see how this plays out and if it's priced accurately' because $30m in losses on $145m in revenue for cloud enterprise chat with a long-tail of free-tier users seems pretty promising! Thanks again!
- SolarNet 7y ago
  One problem they do have is - compared to discord - a poor strategy for monetizing non-enterprise communities. Discord will allow individuals to upgrade their discord plan (for small benefits everywhere) and then they can give a boost to a server they appreciate. This means discord can monetize any community. Slack on the other hand has communities with thousands of members in them that have zero monetization. No one is going to shell out 60k for their open source project's slack to be monetized.
  - kbar13 7y ago
    Do you think slack with its b2b model where companies pay per user or discord where users pay only if they want to makes more money? I would bet that the free plan for slack is basically free advertising for them to on board people to their paid plans

techslave 7y ago

> 1.) There's really not enough innovation or a big enough TAM (considering competitors) to drive a unicorn valuation TAM includes competitors.

chrisseaton 7y ago

> 100,000 paid users It can't possibly be just 100,000 paid users. That's clearly nonsense. Oracle uses it and they have 80,000 employees alone!

deleted 7y ago
[deleted]
GordonS 7y ago
Thing is, Slack makes it far too easy for orgs to use it for free. I work at a megacorp, and we use Slack without paying a single penny. We have a Slack account setup per project, which typically have 5-50 members. We don't care too much about search or history, we just want a simple chat and audio call solution that isn't horrible to use. Slack fits that bill. To be clear, this doesn't sit well with me; we should be paying for a service we make good use of - but Slack makes it so damn easy for us to get away with it! Maybe this is part of some long-term strategy, to basically give it away until it becomes ubiquitous, and then scale back the free tier?
- unphased 7y ago
  I feel like that is an outlier. For most companies the benefits of having all the data logged is worth the cost.
  - propogandist 7y ago
    It was GDPR and data privacy that wrangled the megacorp I know to kill all channels and workspaces that seemed affiliated with megacorp with help from Legal... until then everyone was making and using slacks free tier. It's still used to communicate with people outside megacorps SSO environment. Most users don't know nor care about the paid tier, especially if CHQ isn't footing the bill and the cost for each user license is passed to a business unit or department (which can be how megacorps are setup). The change over was funded by corporate and it's becoming the standard form of comms in the enterprise.
  - GordonS 7y ago

mikekchar 7y ago

> 4.) They lost $300m Q4 '19 due to 'stock based compensation' (which from my perspective should have been accrued Q4 '15 onwards) I haven't looked at this, but if this is a large part of their loss, then you can possible find the answer to why it was declared in one chunk by looking at the timing of option grants. The schedule should be available. Normally when I see "Our company is losing money" and the money it is losing is a one time loss that would normally be spread out over a long period of time, it's because they timed the announcement to coincide with the granting of options. It causes the price to drop precipitously, they grant the options -- "No funny business here! We scheduled the option grant 6 months ago!". Then the price rebounds. It has happened in every large company I've ever worked for. I always wonder how they get away with it...