An ancient proverb says that “he who uses slack at his work is brother to one who destroys”.  Unfortunately for the many investors who bought into Slack Technologies (NYSE: WORK) when it listed in June 2019 and began trading at $38 per share, the old proverb (18:9) is playing itself out.  The stock is now trading at around $24 per share, nearly 40% off its midyear number, destroying billions of dollars of shareholder value along the way.

Slack burst onto the scene about five years ago with its workforce collaboration app that includes messaging, file sharing, and persistent team workspaces and quickly gained a foothold in the software developer community.  Not only was the tool useful, as it took many conversations and documents out of employee email – which is increasingly seen as a communication tool of the past – but the company had the “it” factor and was cool, even hip.

To be sure, Slack deserves props for blazing the trail into a new category of workforce communications.  Unfortunately for Slack’s shareholders, the props might be the extent of the benefits as achieving actual profits proves difficult.  A trip down memory lane will help explain.

In the mid 1990s, Netscape also enjoyed a run as a tech darling, landing its founder on the cover of Time Magazine.   The company was first on the scene with a web browser that effectively indexed the pages and enabled users to easily identify and consume online content.  Analysts estimate that Netscape at its peak controlled over 80% of the web browsing activity:

Browser wars

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The problem for Netscape was that the tech giants, in particular Microsoft, took note of Netscape’s early success and attacked the new web browsing category with an earnestness and financial wherewithal that the upstart Netscape was simply unable to match.  The death blow for Netscape came when Microsoft began including its own browser, Internet Explorer, for free with its market-leading Windows operating system.  People who purchased new PCs just started clicking on the little blue “e” to browse the web and Netscape’s market share rapidly declined.  Because of the financial resources Microsoft was able to dedicate Internet Explorer, it didn’t take long for IE to reach parity and then surpass Netscape in terms of features.  The moral of the story as far as Slack’s situation is concerned is that it’s hard to compete with “free” technology, especially when the people giving away the free stuff know a thing or two about big tech and have ready pathways to distribution.

Slack is going to get beaten in the market by Microsoft Teams, Cisco’s Webex Teams, and possibly Facebook’s Workplace collaboration suite.  All of these companies are deploying the same playbook against Slack that Microsoft used against Netscape way back when.

Microsoft is giving away Microsoft Teams for free, essentially, by bundling it with their latest offerings of their market-leading O365 portfolio which supposedly has 180 million commercial users globally.  Already, while it took Slack nearly 6 years to achieve 10 million daily active users, Microsoft Teams has already achieved 13 million daily active users in only 3 years.

Cisco is doing something similar, bundling its Webex Teams solution for free together with its newest cloud VoIP offering, Webex Calling, and its global-leading meetings, conferencing, and video solution, Webex Meetings.  Cisco already has approximately 60 million to 80 million business users in North America on its legacy on-premise PBX, Cisco Call Manager, that are being offered a migration path that includes Webex Teams and Calling bundled together.

As if competing with Microsoft and Cisco wasn’t bad enough, Facebook has also targeted the employee collaboration space with its Workspace offering and highlighted the segment as a focus area for growth.   These three companies have a combined market cap of approximately $1.8 trillion (yes, with a “T”) compared to Slack’s $12 billion.  That’s a 150x difference.  And all three companies know a thing or two about tech.  While Microsoft and Cisco might not be as trendy as Slack, their teams offerings are robust.  In Cisco’s case, the Webex offer suite extends well beyond team chat, file sharing and team collaboration to encompass voice calling with PSTN, video conferencing, and cloud contact center.  For enterprises wanting a complete workforce communications solution delivered from the cloud, it is hard to see Slack as a genuine option. Slack’s stockholders should consider getting out now while there is still some time before the old proverb plays itself all the way out.


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