Slack follows a freemium model, where a free version is offered, and users can convert in paying customers if they want more usage or advanced functionalities. Slack combines the free model with a direct sales force to acquire enterprise customers with yearly recurring revenue of over 100K. Those customers were 575 in 2019, and they accounted for 40% of its revenues.
Slack background story
Stewart Butterfield is a serial entrepreneur, co-founder of the photo-sharing website Flickr. He went through the founding of several companies, in particular, when he founded Glitch (an online game).
When he was running Tiny Spek, which comprised a set of companies Butterfield and his team needed a communication system to handle the teams within his organizations. That tool was developed in-house, and it eventually became Slack.
When Slack launched, back in 2013, more and more companies signed up, until its growth kept compounding. Where did this opportunity come from? The timing was right!
As Butterfield said in an interview for CNET: “In the last 15 years, the Microsoft hegemony and Office and Windows worship has broken down, and as a result, we’ve gotten a lot of new and, in most cases, better tools…But that means information is scattered across a bunch of different tools and there’s no one search tool that you can go through to search across all of this.”
From that stage, Slack kept inviting larger and larger groups of companies.
Breaking down Slack vision and mission
Our vision is a world where organizational agility is easy to achieve, regardless of an organization’s size
Therefore, the challenge for Slack is to organize larger and larger groups of people within organizations. Indeed, Slack has been using its enterprise customer base more aggressively in the last years.
Our mission is to make people’s working lives simpler, more pleasant and more productive
The value proposition and mission of Slack starts from its willingness to reduce fragmentation within tools used by organizations. One of the critical elements of Slack is the integrations with other apps and tools, to bring this information together.
How does Slack make money? Slack Freemium subscription model
- And Enterprise Grid.
Enterprise Grid also allows paid customers to:
- Create and manage an unlimited set of connected workspaces and channels;
- Search across multiple workspaces, making it easy for workers and administrators to tap into their organization’s collective knowledge at scale;
- Access centralized controls to ensure a company’s data remains secure, giving administrators a single point of visibility to provision and manage Slack; and
- Integrate with third-party e-Discovery and data loss prevention tools to help meet security and compliance requirements.
- The Slack free version easily attracts a large number of users
- Self-service users become leads for salespeople
- Salespeople convert free users in paying customers, usually within larger enterprises
- These larger enterprises that join in, create organic awareness of Slack inside and outside of their organizations
- Slack keeps investing in its product, and customer experience
- It also employs after sales customer success representative, which makes it easy to trigger referral customers
By looking at the company financials Slack has invested substantially in sales and marketing efforts. Indeed, the company spent almost 99% of its revenues in 2017 for Sales and Marketing activities. This number stabilized to 63.5% in 2018 and 58% by 2019.
Once the pipeline is ready, the sales team and the overall organization, instead, focuses on two key metrics:
- Free-to-paid conversion
- And the net dollar retention rate
- Field sales force,
- Solution engineers
- Demand generation campaigns
- Analyst relations
- C-suite events
- Partnership marketing and co-marketing
- Annual user conference
Who are Slack’s paid customers?
- Individual entrepreneurs,
- Emerging small businesses,
- Multi-national corporations.
- 88,000 Paid Customers, including more than 65 of the companies in the Fortune 100,
- and more than 500,000 organizations on Slack Free subscription plan.
Source: Slack Financial Prospectus
Who’s the customer that really matters to Slack?
That is used as a key indicator for the growth of the business. In 2017, 2018, and 2019, those represented approximately 22%, 32%, and 40%.
Slack functionalities and product
- Messaging and Channels:The channel is the fundamental unit of Slack. Indeed, through the channels people are organized to collaborate on specific tasks, to share information, and get work done. Channels are organized by project, topic, team, or based on the organizational structure and situation. Channels can be public, thus accessible to anyone in the Slack organization. Or private, so that they are available only to certain people within the organization. Messaging happens through the channels.
- Integrations: Integrations help companies to gather information from other applications. Integrations with software like Salesforce help salespeople be more productive. Advanced use cases can help design custom workflows, to perform tasks and actions in Slack. For instance, by integrating Slack with the invoicing system reports and digests can be pulled up from Slack.
- Shared Channels: Shared channels connect Slack workspaces of different organizations. Shared channels can be public or invite-only.
- Search: Everything in Slack, is searchable, so that information within those channels can be retrieved easily.
Is Slack blitzscaling?
Key facts and statistics from Slack business model
- Of the over 500K free users, 88K are paid accounts.
- Within the paid accounts, there is the category of businesses that make over $100K per year in recurring revenues. Those were 575 in 2019, and they represented 40% of its revenues.
- Slack spent almost 99% of its revenues in 2017 for Sales and Marketing activities. This number stabilized to 63.5% in 2018 and 58% by 2019.
- Slack follows a freemium model pattern which quickly brings in free users, which then get funneled within Slack direct sales effort to turn them in paying customers
- Slack primary value proposition starts from fragmentation among tools used by organizations to handle their internal communication workflows
Source: Slack Financial Prospectus
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Other business resources:
- What Is a Business Model? 30 Successful Types of Business Models You Need to Know
- Business Strategy: Definition, Examples, And Case Studies
- What Is a Business Model Canvas? Business Model Canvas Explained
- Blitzscaling Business Model Innovation Canvas In A Nutshell
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