Slack must use cash hoard to find new ways to keep competition at bay

Published August 22, 2018

It was quite a week for Slack, wasn’t it? The enterprise communications platform confirmed this publication’s earlier report that it had scored another $427 million investment on an over-the-moon valuation of over $7 billion. Slack took a market that had once been in the doldrums and turned it into something significant by making itself more than a communications tool.

It changed the game by making itself a work hub. Through APIs and UI updates, it has made it simple for countless third parties (like Evernote) to integrate with Slack and provide the long-sought workplace hub for the enterprise. Instead of task switching, you can work mostly in one place and keep your focus on your work.

It’s quite a value proposition and it has enabled Slack to raise $1.2 billion (with a b) across 11 funding rounds, according to data on Crunchbase. They have grown to 8 million daily active users. They boast 70,000 teams paying to use it. Whatever they are doing, it’s working.

Competing with corporate behemoths

That said, Slack’s success has always been a bit surprising because it’s facing off against giants like Microsoft, Facebook, Google, Cisco, Salesforce and many others, all gunning for this upstart’s market. In fact, Microsoft is giving Teams away for free to Office 365 customers. You could say it’s hard to compete with free, yet Slack continues to hold its own (and also offers a free version, for the record).

Perhaps that’s because it doesn’t require customers to use any particular toolset. Microsoft Teams is great for Microsoft users. Google Hangouts is great for G Suite users. You’re already signed in and it’s all included in the package, and there is a huge convenience factor there, but Slack works on anything and with anything and companies have shown there is great value in that.

The question is can Slack continue to play David to these corporate behemoths or will patience, bushels of cash on hand and a long view allow these traditional tech companies to eventually catch up and pass the plucky newbie. Nobody can see into the future, but obviously investors recognize it takes a lot of capital to keep up with what the competition is bringing to the table.

Expanding their reach

They also clearly have some confidence in the company’s ability to keep growing and keep the titans at bay or they wouldn’t have thrown all of that moolah at them. Up until now, they seem to have always found a way, but they need to step up if they are going to keep it going.

Alan Lepofsky, an analyst with Constellation Research, who keeps a careful eye on the enterprise collaboration market, says in a recent video commentary that it’s great they got all this money, but now that someone has shown them all of this dough, they have to prove they know what to do with it.

“For Slack to continue to be successful, they need to expand beyond what they are currently doing and really, truly redefine the way people communicate, collaborate, coordinate around their work. They need to branch out to project management, task management, content creation — all sorts of things more than just collaboration.”

What comes next?

Lepofsky says this could happen via a build or buy scenario, or even partnering, but they need to use their money strategically to differentiate the product from the hefty competition and stay ahead in this market.

The other elephant in the room is the idea that one of the competing mega corporations could make a run at them and try to acquire them. It would take a boat load of money to make that happen, but if someone had the cojones to do it, they would be getting the state of the art, the market share, the engineering, the whole package.

For now, that’s pure speculation. For now, Slack is sitting comfortably on a huge cash pile, and perhaps they should go shopping and expand their product set with their newly found wealth, as Lepofsky suggests. If they can do that, maybe they can keep the technology wolves from the door and make their way down the path to their seemingly inevitable IPO.