Lovable underdog Slack fights off fierce messaging rivals like Microsoft

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SAN FRANCISCO — Slack is the classic Silicon Valley accidental success. Born three years ago, with roots in a failed video game, the messaging software is now used by 5 million people.

The company behind it, Slack Technologies, found success by combining something that Silicon Valley fetishizes — rich data on how people use a product — with something it often overlooks: How do people actually feel while using it?

This combination produced an unlikely hit that, when it became available in 2014, grew mostly by word-of-mouth, which is unusual for corporate software. Last year, the privately held company was valued at nearly $4 billion.

Headquarters: San Francisco

CEO: Stewart Butterfield

Employees: 800

Users: 5 million daily

Now Slack faces a significant new challenge. It has become big enough to draw a competitive response from giants like Microsoft, but not big enough to have the roster of large corporate clients that it needs to compete with the giants.

Last fall, Microsoft announced a direct Slack rival called Teams, to be given free to all 85 million users of its Office 365. At the same time, Facebook made its work collaboration tool, Workplace, widely available free. Atlassian, a smaller company, has signed big customers, too.

As a result, Slack, which built up momentum as a lovable underdog, must fend off some of technology’s largest and fiercest competitors if it wants to be more than a niche tool for small businesses and teams.

Microsoft already offers ways for employees to collaborate. And while its offerings have not been viral hits, they have offered boring but important features that big companies demand, like strong data security and regulatory compliance controls.

There is no illusion within Slack that success is certain. But Stewart Butterfield, the chief executive, said small tech companies with new ideas had long defeated larger rivals that tried to copy them. Think of Apple beating IBM in personal computing, Google beating Microsoft in search and Facebook crushing Google in social networks.

One advantage Slack has is focus, Butterfield maintains. Microsoft, for example, has Slack-like products including Yammer, SharePoint, Skype for Business and now Teams. The executives who run those businesses within Microsoft must “compete for budget and mind share and attention,” he said, providing an opening for Slack to gain users while Microsoft managers wage internal wars.

Microsoft said users would embrace Teams because it had strong encryption and global support and worked seamlessly with software they already used, like Excel. “We think customers value coherence,” said Bryan Goode, general manager of Office 365 at Microsoft.

Born from games

Slack is the product of Butterfield’s second failed attempt to make a video game. His first, Game Neverending, had a photo-sharing feature that became more popular than the game. It became Flickr, which was sold to Yahoo for $25 million in 2005.

In 2011, he introduced another game, Glitch, in which people cooperated to build a shared world. At its height, the game was costing the company $500,000 a month and bringing in $30,000, so Butterfield shuttered it in late 2012. A few employees stayed on to build out the messaging platform that Glitch engineers had used to talk among themselves. That project became Slack.

5 million daily users

Slack was officially introduced in February 2014 and today has 5 million daily users, up from 4 million in October. Most users are on a free version, but about 1.5 million pay Slack $6.50 to $12.50 a month for features like message storage and search. The 800-person company is on track to generate more than $200 million in revenue this year, but it is not profitable.

Initially popular with small teams of software engineers who wanted to work remotely without cumbersome videoconferences or email, Slack was not designed for big companies. Users chat in “channels,” typically organized around a few well-defined tasks.

“The overhead of working among different offices becomes less of an issue” with Slack, said Nick Coronges, chief technology officer at R/GA, a 1,000-person design and marketing agency with offices in several cities.

Collaboration software like Slack is not new. Google’s Wave, which started in 2009 and shut down in 2012, was supposed to replace email with a messaging tool, but conversations were too hard to follow and track. Atlassian, an Australian software company, released a team collaboration platform in 2004 and acquired Slack’s nearest startup rival, HipChat, in 2012.

But Slack has focused on making a product that people love, a strategy that is more common among consumer companies like Apple, Snap and Spotify.

Slack modeled itself after consumer-messaging apps that let users communicate with GIFs, stickers and emojis. One Slack emoji is a cartoon raccoon with its palms pressed in respectful greeting. Called “raccooning,” it signifies, “Please take this conversation someplace else. You are getting off topic.”

Slack designers also think about things like color choice, layout and Slack’s sign-in greeting, and how they might affect a customer’s peace of mind.

Unlike some Silicon Valley companies, Slack believes humans are as important as robots. All executives, including Butterfield, have fielded the 6,000 customer-support calls and 2,800 Twitter messages that come in each week. The average turnaround time for a help request is under an hour.

If Slack can dovetail seamlessly with how people behave, feel like second nature to use and strongly appeal to employees, taking it away could become “like taking off your astronaut helmet in space,” Butterfield said.

The battle between Slack and its rivals is essentially over who will make the next piece of workplace software that no one can live without. Many businesses, large and small, depend on Excel from Microsoft, Photoshop from Adobe and Gmail from Google.

Slack wants to be in that pantheon — as the place where people collaborate and hang out online, the world’s virtual conference room and water cooler.

Slack’s name — an acronym for Searchable Log of All Conversation and Knowledge — underscores its big ambition. But to become a Microsoft-size success it needs workers to choose Slack over its competitors.

“Companies want their employees to collaborate more, because better collaboration reduces the need to jump ship,” said Sean Ryan, head of partnerships at Facebook’s Workplace. “The No. 1 reason people leave their jobs is they feel isolated.”

Being a good host

“We’re trying to build empathy at scale,” Butterfield said. Company engineers say being a good designer is like being a good host, and they use shorthand like “set out the towels” as they create new user features.

“I’ve been building software for 15 years, and I’ve become more attuned to how the average person will interact with and experience software in the last 18 months here than in the prior 13 years,” said April Underwood, who joined Slack as vice president of product in 2015.

Whether this approach translates into profits for Slack depends largely on how fast the company can expand into more countries and whether employees at big companies push their information-technology departments to pay for it. That would necessitate an unusual level of devotion to a piece of workplace software, which is why Slack says it is so devoted to its users’ well-being.

“There are people who will die, get divorced, have children with cancer,” Butterfield said. “You really have to put yourself in their frames of mind. If we preoccupy these people for a minute longer than we have to, we’ll lose them.”