In season four, episode nine of Acquired, hosts Ben Gilbert and David Rosenthal delve into the story of Slack, from its origins on a Canadian hippie commune to its transformation from a gaming venture, Tiny Speck, to a leading enterprise communication platform. They explore Slack's evolution, its direct listing, and the impact of its freemium model on growth and market penetration. The episode also features a discussion about Slack's competitor, HipChat, acquired by Atlassian, and the cultural shift towards real-time, persistent messaging in the workplace. Additionally, the hosts touch on the role of venture capital firm Accel as a significant investor and the broader implications of Slack's approach to enterprise software.
"Today we are covering the spiritual sister of our previous episode on Zoom, Slack, and the largest enterprise IPO in history. And of course, it wasn't even actually an IPO, but rather a direct listing."
This quote sets the stage for the episode's focus on Slack and its unconventional journey to becoming a publicly traded company through a direct listing instead of a traditional IPO.
"Pilot is the one team for all of your company's accounting, tax and bookkeeping needs, and in fact, now is the largest startup focused accounting firm in the US."
The quote highlights Pilot's role and status as a leading accounting firm dedicated to serving the startup ecosystem.
"In 1973, there is a boy born in this cabin to parents David and Norma Butterfield, who were, as you can imagine from this scene I am setting here and describing pretty hardcore hippies at the time in 1973. And the boy's name that Norma gives birth to this year is Dharma Jeremy Butterfield."
This quote describes the unconventional background of Slack's founder and the early influences that shaped his life.
"Stuart convinces Jason, hey, let's get out of here from this crazy company. Let's go build your website, gradfinder.com, as a real company."
The quote explains Stewart's decision to pivot from Communicate.com to a more viable venture, which ultimately led to his first successful exit.
"Stewart's like, man, if we make a side project, maybe we could flip it pretty quickly for like, a million dollars or so. We could use those proceeds to keep funding the game."
This quote captures Stewart's strategic thinking in developing Flickr as a means to fund his original gaming project, showcasing his entrepreneurial mindset.
"I don't think the thought even crossed their minds once. Not to then. You know, he talks about the experience at Yahoo. And I think it actually, as we've, I think, seen so far in this history, Stuart has a lot of raw potential, certainly creatively, but also on the business and leadership side."
The quote reflects on Stewart's potential and the learning experience he gained from his time at Yahoo, despite the difficulties in integrating Flickr into the larger company.
"The whole team stayed for the three-year earnout. But right at the end of it, everyone else leaves, Katerina leaves." "These are the days when Yahoo is a mess. These are the Carol Bartz days and everything."
The quote highlights the conclusion of the earnout period for the Flickr team at Yahoo and the turmoil within Yahoo during that time, emphasizing the significance of Katerina's departure.
"And one thing to remember about why Katerina leaving was such a big deal was because even though Flickr was a photo-sharing website, everyone who was on it felt like they were a member of the community."
This quote explains the importance of Katerina to the Flickr community and why her leaving Yahoo had such a strong impact on the platform's users.
"And so in the summer of 2008, he leaves and Brad, his boss, makes him write a resignation memo that's still on the Internet where it's just complete absurdism." "Katerina ends up moving back to New York. She then co-founds the company Hunch with Chris Dixon in New York, ends up getting acquired by eBay."
These quotes detail the post-Yahoo activities of Stewart and Katerina, highlighting Stewart's humorous resignation and Katerina's successful ventures after Flickr.
"They start the company... they call the company Tiny Speck... and they call the game Glitch." "But by the beginning of 2009, the other folks... they're like, K Stewart, we're ready to get the band back together. What's next, man?"
These quotes outline the formation of Tiny Speck and the development of the game Glitch, emphasizing the team's reunion and their vision for a new kind of online game.
"They realize they need some tools to help them get work done and collaborate remotely." "They build a bunch of tools they internally call the system Line Feed and it really helps them be productive."
These quotes describe the origins of Slack as a set of tools designed to improve the team's remote collaboration, which later evolved into a standalone product.
"On the first day that they launch, 8000 companies sign up for the waitlist." "Within two weeks, there's 15,000 companies that are signed up or teams that are signed up on the waitlist to use it."
These quotes highlight the immediate popularity of Slack upon its release, with a large number of companies eager to try the new communication tool.
Project Apple was mentioned as a code name without further context.
Project Purple was referred to as P42X by Speaker A.
Project Apple. What is P 42 X. Project Purple.
These quotes are likely referring to internal project names, possibly within a tech company, used to maintain confidentiality and organization.
Slack's freemium model was revolutionary for enterprise software.
The freemium gate was set on the number of searchable messages rather than the number of users.
This model allowed teams to use Slack extensively without paying, unless they needed more message history or integrations.
The strategy was influenced by the gaming industry, where extensive usage is encouraged without upfront payment.
What Slack did that was so brilliant and the parallels to Zoom are perfect is they nailed how to structure the freemium model for this product and service.
This quote emphasizes Slack's strategic success in structuring a freemium model that was unique in the enterprise software space and drew successful parallels from the gaming industry.
Slack raised significant funding, including a $43 million Series C in April 2014.
By the end of 2014, Slack raised $120 million at over a billion-dollar valuation.
Slack's growth was characterized by adding a million dollars in paid ARR every month post-launch.
They raised $43 million in a series C led by Mamoon... they raise $120,000,000 at over a billion-dollar valuation.
These quotes highlight Slack's rapid growth and the substantial venture capital investment that fueled it.
Slack was seen as superior to Atlassian's HipChat, which had a freemium gate based on the number of users.
Microsoft Teams emerged as a competitor, but Slack's freemium model and brand were considered strong points against Microsoft's traditional enterprise relationships.
Slack's approach to the freemium model was considered a key differentiator in its success over competitors.
Slack was truly, from day one, designed to be something that anybody in the organization could use and not just engineering teams.
This quote reflects Slack's design philosophy of being an inclusive tool for all teams within an organization, contributing to its widespread adoption.
Slack opted for a Direct Public Offering (DPO) rather than a traditional IPO.
The DPO allowed Slack to go public without the need for underwriting or creating new shares, thus avoiding dilution.
There was no lockup period in the DPO, allowing employees to sell shares immediately.
Slack is considering a DPO for their public offering, much like Spotify or just before them, 30 years before Ben and Jerry's.
This quote explains Slack's decision to pursue a DPO, a method of going public that aligns with modern practices and the company's financial position.
At the time of going public, Slack had $800 million in cash and was growing at 82% a year.
Major stakeholders included venture firms like Accel and prominent Silicon Valley CEOs who were angel investors.
Slack's retention rates and CAC to LTV ratios were strong indicators of its business health.
Slack is not profitable, but does have 800 million of cash on the balance sheet and has great unit economics.
This quote provides insight into Slack's financial health and strategic positioning at the time of its DPO.
"It's still world class, it's still 120, 30, 40%, something like that. But it has been declining."
The quote emphasizes that Slack's net dollar retention rate, while still impressive, is on a downward trend, indicating potential issues with customer retention or market saturation.
"That's actually saturation happening."
David Rosenthal suggests that the decline in Slack's net dollar retention may be attributed to market saturation.
"Teams is a viable competitor."
Ben Gilbert acknowledges Microsoft Teams as a strong competitor to Slack.
"It seems a lot of people are starting to use Discord for work, actually."
David Rosenthal points out that Discord, originally a platform for gamers, is being adopted for professional use, indicating a shift in workplace communication tools.
"Facebook work has a ton of organizations."
Ben Gilbert notes the widespread activation of Facebook Work, suggesting it as a competitor in the enterprise communication space.
"It's a machine where a dollar in gets you close to $10 out over eight years."
Ben Rush's quote, shared by Ben Gilbert, highlights the long-term profitability potential of Slack despite its current lack of profitability.
"We could have had like the coolest game ever."
Ben Gilbert reflects on the potential of Glitch, the game that Slack was initially intended to be, suggesting that it had the promise to be a significant hit within the gaming community.
"Slack has world class metrics around this."
David Rosenthal credits Slack's success in part to their application of gaming industry analytics to the user journey in enterprise software.
"A team that has sent 2000 messages back and forth... 93% of teams that hit that 2000 message threshold didn't churn."
Ben Gilbert explains how Slack used data to identify a critical usage threshold that, once reached, significantly reduces customer churn.
"You end up finding a cost of customer acquisition around $8,000 per company."
Ben Gilbert breaks down the cost of acquiring a new paying customer for Slack, highlighting the investment required to grow their customer base.
"Slack's return on sales and marketing costs, 111%. Great. But Zoom's is 180%."
Ben Gilbert compares the sales efficiency of Slack and Zoom, showing that Zoom has a higher return on sales and marketing investment.
"It is the always on, always sort of stimulated, always interrupting you."
Ben Gilbert discusses the potential negative impact of Slack's communication style on work habits and productivity.
"Slack allows for frictionless, always on seamless communication inside of an organization, but everybody still has email for outside their organization."
Ben Gilbert and David Rosenthal discuss Slack's role in organizational communication and ponder its potential to disrupt traditional email usage.
"We apologize for the error and wanted to correct it."
Ben Gilbert and David Rosenthal issue an apology for the misinformation provided in the Uber episode, emphasizing the importance of accuracy and accountability.
"Boy, is that show a masterpiece."
Ben Gilbert shares his personal recommendation of "The Expanse" TV series, expressing his enthusiasm for its quality and storytelling.
"You can now give to anything, which is really cool in and of itself."
David Rosenthal explains the new feature of Alma, illustrating its convenience and impact on charitable giving.