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I struggle to see where Slack is spending all of that money. It's a chat application with a few million active users at any given time. Even with absurd AWS bi

I struggle to see where Slack is spending all of that money. It's a chat application with a few million active users at any given time. Even with absurd AWS bills, they should still be raking in profits.

foxyv 6y ago
I'm betting it's mostly recurring development costs. As far as I can tell Slack is constantly adding features and integrating new Apps.
- toomuchtodo 6y ago
  They should buy a company that has already built integrations with most of the services users would rely on.
goldenchrome 6y ago
They’re probably staffed like a company that’s 10x larger than they seem because they want to be 10x larger ASAP.
- mywittyname 6y ago
  I just checked, and in 2019, they had $401MM in revenue with 1664 employees. That's ~$240,000 in revenue per employee. Pinterest looks to have earned about $1.1 billion in revenue during the same time with roughly the same number of employees. Fastly is at $250MM in revenue with just 630 employees. So it looks like Slack is at least twice as large as it should be for its given revenue. But why? Are they supporting too many platforms/devices? Or are chat applications just not that valuable to companies?
  - athms 6y ago
    >1664 employees What do they do? I am curious on the breakdown of engineering versus everybody else. I am always reminded of Craigslist, which operates with a skeleton crew. In 2017, it was reported they had 50 people on revenue of almost $700 million.
    - dublinben 6y ago
      According to their 10-Q for this latest quarter, their operating expenses are 42% sales and marketing, 37% research & development, and 21% administrative. https://investor.slackhq.com/financials/default.aspx https://investor.slackhq.com/financials/default.aspx
  - ponker 6y ago
    Pinterest is not a useful comparable for B2B SaaS.
ericb 6y ago
Typically in a SaaS business you would avoid profitability until the last possible minute and plow back every bit of cash into customer acquisition (sales and marketing) until you reach a point of market saturation. So long as retention is good, and your unit economics are profitable, it is like running those dollars into a money-printing press by buying an annuity that will pay out for years.
- socalnate1 6y ago
  Ding Ding. This is exactly it. Mostly people don't understand the economic model of fast growth SaaS companies, even when working for one. Thanks for explaining it so clearly.
- Thorentis 6y ago
  The issue is that slack has passed the point of market saturation. There are lots of competitors now as well as a shift towards decentralised options. I think slack should have entered that next stage already if they ever want to have a chance at getting back enough money.
  - ericb 6y ago
    The definition for saturation isn't "is there are lots of strong competitors and other options?" or even "a given percentage of the market is our customer." Instead, the rule is more like: is CaC sufficiently lower than Customer Lifetime Value so that each customer is profitable. This ratio tells you if your money-printing machine is working. As the low-hanging leads dry up, CaC gets higher. Your argument might be rephrased as "their customer lifetime may be shorter than they think." Possible. There's some amount of switching cost (lost history, webhooks and integrations) there, though.
    - Thorentis 6y ago
      I disagree. Market saturation is absolutely determined partly by competition, and partly by how much consumers are , well, able to consume. In terms of competition, we've seen plenty of alternative pop up recently such as Mattermost and MS Teams, both of which have gained popularity. In terms of consumption, it is only feasible to really have a single chat application at a time, maybe two if one is being tested. Having more than 1 defeats the purpose of having an org wide chat. Maybe individual teams will choose their own in large companies, but the general assumption is you try and sell your chat solution to the company, not to the individuals. And so we have a situation where the presence of strong competition directly effects the consumption of the product (Slack's offering). My opinion is that Slack was previously somewhat synonymous with company chat, but that is no longer the case. They peaked, and now that Discord, MS Teams, Mattermost, etc. are viable alternatives, their market saturation is on the decline. They let their grasp slip away, and they will pay for it.
ponker 6y ago
This comment comes up for basically every company. It's very surprising that virtually every successful B2B startup in Silicon Valley is 10x overstaffed and the VCs and investors aren't bothered by that!
0xy 6y ago
Lately, they've been spending that money on legal fees suing Microsoft over Teams, because they are unable to compete. This was after they took out a huge New York Times ad encouraging the competition. Before that, they spent a significant amount of time and resources on the new WYSIWYG editor that was extremely unpopular and caused them to do a public 180 after saying they wouldn't go back. In short, it's being wasted on sour grapes and untested ideas.
fakedang 6y ago
Their marketing is bad. Great product, but piss poor brand awareness.

foxyv 6y ago

I'm betting it's mostly recurring development costs. As far as I can tell Slack is constantly adding features and integrating new Apps.

toomuchtodo 6y ago
They should buy a company that has already built integrations with most of the services users would rely on.

goldenchrome 6y ago

They’re probably staffed like a company that’s 10x larger than they seem because they want to be 10x larger ASAP.

mywittyname 6y ago
I just checked, and in 2019, they had $401MM in revenue with 1664 employees. That's ~$240,000 in revenue per employee. Pinterest looks to have earned about $1.1 billion in revenue during the same time with roughly the same number of employees. Fastly is at $250MM in revenue with just 630 employees. So it looks like Slack is at least twice as large as it should be for its given revenue. But why? Are they supporting too many platforms/devices? Or are chat applications just not that valuable to companies?
- athms 6y ago
  >1664 employees What do they do? I am curious on the breakdown of engineering versus everybody else. I am always reminded of Craigslist, which operates with a skeleton crew. In 2017, it was reported they had 50 people on revenue of almost $700 million.
  - dublinben 6y ago
    According to their 10-Q for this latest quarter, their operating expenses are 42% sales and marketing, 37% research & development, and 21% administrative. https://investor.slackhq.com/financials/default.aspx https://investor.slackhq.com/financials/default.aspx
- ponker 6y ago
  Pinterest is not a useful comparable for B2B SaaS.

ericb 6y ago

Typically in a SaaS business you would avoid profitability until the last possible minute and plow back every bit of cash into customer acquisition (sales and marketing) until you reach a point of market saturation. So long as retention is good, and your unit economics are profitable, it is like running those dollars into a money-printing press by buying an annuity that will pay out for years.

socalnate1 6y ago
Ding Ding. This is exactly it. Mostly people don't understand the economic model of fast growth SaaS companies, even when working for one. Thanks for explaining it so clearly.
Thorentis 6y ago
The issue is that slack has passed the point of market saturation. There are lots of competitors now as well as a shift towards decentralised options. I think slack should have entered that next stage already if they ever want to have a chance at getting back enough money.
- ericb 6y ago
  The definition for saturation isn't "is there are lots of strong competitors and other options?" or even "a given percentage of the market is our customer." Instead, the rule is more like: is CaC sufficiently lower than Customer Lifetime Value so that each customer is profitable. This ratio tells you if your money-printing machine is working. As the low-hanging leads dry up, CaC gets higher. Your argument might be rephrased as "their customer lifetime may be shorter than they think." Possible. There's some amount of switching cost (lost history, webhooks and integrations) there, though.
  - Thorentis 6y ago
    I disagree. Market saturation is absolutely determined partly by competition, and partly by how much consumers are , well, able to consume. In terms of competition, we've seen plenty of alternative pop up recently such as Mattermost and MS Teams, both of which have gained popularity. In terms of consumption, it is only feasible to really have a single chat application at a time, maybe two if one is being tested. Having more than 1 defeats the purpose of having an org wide chat. Maybe individual teams will choose their own in large companies, but the general assumption is you try and sell your chat solution to the company, not to the individuals. And so we have a situation where the presence of strong competition directly effects the consumption of the product (Slack's offering). My opinion is that Slack was previously somewhat synonymous with company chat, but that is no longer the case. They peaked, and now that Discord, MS Teams, Mattermost, etc. are viable alternatives, their market saturation is on the decline. They let their grasp slip away, and they will pay for it.

ponker 6y ago

This comment comes up for basically every company. It's very surprising that virtually every successful B2B startup in Silicon Valley is 10x overstaffed and the VCs and investors aren't bothered by that!

0xy 6y ago

Lately, they've been spending that money on legal fees suing Microsoft over Teams, because they are unable to compete. This was after they took out a huge New York Times ad encouraging the competition. Before that, they spent a significant amount of time and resources on the new WYSIWYG editor that was extremely unpopular and caused them to do a public 180 after saying they wouldn't go back. In short, it's being wasted on sour grapes and untested ideas.

fakedang 6y ago

Their marketing is bad. Great product, but piss poor brand awareness.