Pando

Slack is thriving on a cocktail of whimsy and great timing

By Michael Carney , written on February 5, 2015

From The News Desk

In the world of technology and venture capital, being early is often indistinguishable from being wrong. It’s a cliche but poignant truth of the industry that has seen many ideas fail convincingly in a first iteration only to find massive success a number of years later.

Flickr co-founder Steward Butterfield spoke to this phenomenon during last night’s PandoMonthly fireside chat in San Francisco, noting that he may have tackled photo-sharing a decade early. Flickr was an early hit product, in the sense that people loved it, and it was a one of a kind solution to a major pain point on the early Web. Unfortunately, the company was born in an era where consumer internet exits were all but extinct and in which the cost and time commitment required to achieve massive scale were far more daunting than today. As a result, the team decided to grab a sub-$30 million acquisition offer from Yahoo in 2005 – it seemed like a big success at the time – only to watch their new owner bumble its way through product stewardship.

Less than a decade later, Instagram sold for more than 33-times Flickr’s price with just a dozen employees and after just 18 months in business. It was the final nail in an already sealed coffin: Flickr had discovered the photo-sharing market, it just couldn’t claim it for its own. Worse, Instagram’s sale price is now universally regarded as a steal as the mobile-centric photo social network is believed to be worth as much as $35 billion.

Did Butterfield and his team make a mistake in selling selling Flickr too early? It’s complicated, and the market has changed dramatically in the years since. In that sense, maybe the greater mistake was starting too soon.

Fast forward to today and Buterfield is the founder and CEO of Slack, a runaway hit real-time communication platform for businesses. Unlike Flickr, which pioneered its category, Slack was incredibly late to the game. Enterprise collaboration tools have been around for decades and even in today’s modern, SaaS-powered, consumerization of software era, there are a dozen competitors in the space, many backed by the largest companies in enterprise software.

Butterfield is hoping that this inverted strategy results in a more positive outcome, but there’s more to Slack’s success than arriving late. The Slack team arrived at this opportunity not because they wanted to be the ones to finally solve enterprise collaboration, but rather because they did so unintentionally within their predecessor company, Glitch, an ambitious but ultimately flawed gaming venture (Butterfield’s second such attempt in the space). The company created a custom internal communication system based on IRC. Over time, it then connected this system to its file server, database, bug-tracking software, and other business platforms, importing alerts and event tracking. The result was that IRC became the company’s primary means of communication and the team was both happier and more productive as a result.

“It wasn’t purposeful or intentional,” Butterfield says. “But by the end of the company we had 45 people and the only email list we’d ever created was one we used to send out company-wide updates. We only ever sent 50 emails to that list over the lifetime of the company. And we realized, that by adding more information to IRC, people just paid more attention to it.”

The Glitch team decided to productize its Frankenstein internal system. It took three months to develop a working prototype and another three months to convince a few friends to use it. (Pando can attest to the disruption of switching internal messaging systems. We now happily use Slack.)

“We were sure Slack would be useful, but we had no idea it would take off as quickly as did,” Butterfield says. “But that was because we had no idea of the strategic importance of chat in the workplace at the time.”

Butterfield’s big a ha moment, he says, was realizing that messaging was the only business platform that could truly sit at the center of all other software systems. This is true, he believes, because it’s the only software that everyone in an organization needs to use. By contrast, platforms like Salesforce, Zendesk, and Github, for example, are highly useful (and valuable), but are only applicable within the sales, customer support, and development departments, respectively. Because everyone must communicate, a platform like Slack can be the hub that connects the entire constellation of business services.

Currently, most organizational communication happens across a disparate set of networks like email, SMS, Skype, and enterprise chat. Slack believes its value is greatest when it becomes the default home for all forms of team and business communication.

“If you’re using multiple channels, all in different places, they’re not searchable simultaneously,” Butterfield says. “In an email-based organization you see only this thin slice. There’s an inherent conflict in the desire to have access to as much information as possible, but also to avoid inbox overload.”

Making matters worse, he adds, when an employee leaves an organization they lose access to that information and, similarly, when a new employee joins, they start with having access to nothing. Slack, on the other hand, provides a searchable archive of every link, file, discussion, decision, report, and so on shared over the lifetime of a business. This represents an enormous amount of organizational value.

Slack isn’t the only company trying to solve this problem, as noted above. Yammer, which was acquired by Microsoft was the first runaway hit of the current generation, while HipChat (Atlassian), Chatter (Salesforce), RightNow (Oracle), Huddl, Hall, Campfire, and others are all widely used.

“I hope that anyone who doesn’t use Slack, uses HipChat because it makes everyone’s life easier,” Butterfield says. “It’s something that most people don’t know they need, but once people try it they’ll never go back.”

Part of what sets Slack apart is its sense of whimsy and fun. The archetypal example of this is the Slackbot, an automated and highly-customizable virtual assistant that lives within the application and both entertains and assists users in extracting the most value. (Think a 2015 version of Microsoft’s Clippy that adds real value.)

In some ways, Slackbot is reminiscent of the Pink mustache that adorns Lyft vehicles. What began as a casual and seemingly temporary identifier for drivers on the company’s network has evolved into the basis of Lyft’s brand identity, which is fun, communal, and accessible – in many ways the polar opposite of its more corporate, ruthless, and far larger counterpart, Uber. Fist bumps and front-seat riding are a natural extension of an experience that introduces itself with a fuzzy pink 'stache. It may not be a fit for all, but the Lyft experience is one that resonates deeply with a core group of users.

Slack’s emergence from this competitive category, while hard to articulate, seems to follow a similar pattern. Collaboration features and enterprise-class reliability are table stakes in this game. Where you start to see differences are in each company’s product experience. Slack’s evokes a sense that it’s a fun yet productive place to spend time, while its competitors by and large feel corporate, sterile, and uninviting.

Butterfield says his company is averse to the words “collaboration” and “chat,” the former due to three decades of broken promises by companies in the category and the latter because it trivializes what he views as a massively important business solution. Instead, he prefers to describe the market as internal corporate communication – which to me is no more inspired – while acknowledging that any solution in this area must continue to evolve as rapidly as does the workplace and the technology used therein.

The future of Slack lies in being a platform for developers and for other services to plug into, Butterfield admits. By that token, it wouldn’t be surprising to see the company launch a marketplace for third-party applications built on top of its service. As rapidly as the company as emerged as a major player in this space, it pays to remember that its product is just a year-and-a-half old.

A sense of whimsy may not be enough for Slack to ultimately emerge victorious when the enterprise collaboration dust settles. But combined with the fact that the product emerged organically out of an internal need and that being late to market afforded the Slack team a roadmap for what’s worked previously and what has not, it all adds up to a pretty good formula. As a gaming buff and accidental photo-sharing pioneer, Butterfield seems like the last person you’d expect to out duel Microsoft, SalesForce, Oracle, and Atlasssian in the enterprise arena. But, it pays not to underestimate the power of good time and an few great insights into a giant market.

In a sense Butterfield’s three ventures follow a Goldilocks-esque narrative. Flickr was the big idea, but ahead of its time and undercapitalized early on. The result: a modest success. Glitch, while ambitious, targeted an unrealistically small audience and was wildly overcapitalized, owing to Butterfield’s earlier success and notoriety. The result: an agonizing failure. Slack is targeting a crowded but massive market that remains wide open and began with an appropriate level of funding. (The latter may no longer be true after his hyper-aggressive fundraising in recent months.) The verdict on Slack is yet to be written, but the moment around the company could not be stronger.

[photo by Geoffrey Ellis]