Stewart Butterfield, the boss of Slack, a messaging company, has been wonderfully unlucky in certain ventures.
In 2002, he and a band of colleagues created an online-video game called “Game Neverending.” It never took off, but the tools they used to design it turned into Flickr, the Web’s first popular photo-sharing website. Yahoo bought it in 2005 for a reported $35 million.
Four years later, Butterfield tried to create another online game, Glitch. It flopped as well. But he and his team developed an internal messaging system to collaborate on it, which became the basis for Slack.
Today, Slack is one of the fastest-rising start-ups around, with $540 million in funding and a valuation of around $3.8 billion. “I guess the lesson should be, pursue your dream and hope it fails, so you can do something else,” said Cal Henderson, Slack’s chief technology officer.
It is rare for business software to arouse emotion besides annoyance. But some positively gush about how Slack has simplified office communication. Instead of individual e-mails arriving in a central inbox and requiring attention, Slack structures textual conversations within threads (called “channels”) where groups within firms can update each other in real time. It is casual and reflects how people actually communicate, eschewing e-mail’s outdated formalities, said Chris Becherer of Pandora, an online-music firm that uses Slack.
Its other selling point is efficiency. A survey of users, admittedly conducted by the firm itself, suggests that team productivity increases by around a third when they start using the software, primarily by reducing internal e-mail and meetings.
Today Slack has 2.7 million daily active users, up from 1 million last June. Around 800,000 of them are paying subscribers; their firms pay around $80 or more a year for each employee using the service. The firm has $75 million in annual recurring revenue and is breaking even, Butterfield says.
Slack’s rise points to three important changes in the workplace. First, people are completing work across different devices from wherever they are, so they need software that can work seamlessly on mobile devices. Messaging naturally lends itself to this format. Second, communication is becoming more open. Just as offices went from closed, hived-off rooms to open-plan, Slack is the virtual equivalent, fostering a collaborative work environment, said Venkatesh Rao of Ribbonfarm, a consultancy.
Third, software firms are trying to automate functions that used to be done by people in order to make employees more productive. Slack has made a big push into “bots,” algorithms that can automate menial tasks. Slack offers bots that compile lunch orders and projects’ progress reports, or generate analytics on demand.
Butterfield isn’t the typical leader of a striving start-up. Called “Dharma” by his hippie parents, he spent his early years on a commune with no running water or electricity; he changed his name to Daniel Stewart when he was 12. A self-professed introvert, he values efficiency and candor. After Yahoo bought Flickr, he worked there for a few years. “Everything was horrible, ugly, slow, difficult to use and confusing,” he said.
In retrospect, Flickr was sold too soon. The sale marked the beginning of the technology industry’s resurgence after its crash in the early 2000s.
Now Butterfield has a second chance. Investors do not want to see him sell Slack too early. Earlier this year there were reports that Microsoft considered bidding around $8 billion for the company.
Butterfield said that Slack has never received a formal offer from anyone and is planning to go public. But it seems more likely that a large tech giant will see the strategic value of Slack and try to snap it up first.
Butterfield said Slack could achieve $10 billion in revenue if it signs up 100 million knowledge workers, of which there are around 850 million worldwide. That is far easier said than done. For one thing, Slack still needs to woo larger companies outside the technology world. Currently it holds particular appeal among workers at firms in the Internet, media and advertising industries, and among teams of software developers within larger firms.
Conquering traditional businesses might prove harder. Slack’s yearly minimum of $80 per employee is steep for companies with tens of thousands of workers.
For another, Slack is facing rising competition. Already, rival products are taking aim at the market for workplace collaboration, including one from Atlassian called HipChat. There is also Symphony, a start-up backed by several banks that specializes in highly regulated industries such as financial services, which require more compliance controls.
Slack’s greatest challenge might be people’s own habits. To some, its endless stream of chatter might be worse even than e-mail, because the barriers to commenting rapidly are lower. The introverted Butterfield should welcome the chance to appeal to people who do not want constant interaction, even when it comes in textual form.
Copyright 2013 The Economist Newspaper Limited, London. All Rights Reserved. Reprinted with permission.