Slack’s Moat

Or, Will Slack Will Remain Valuable Over The Long Term?

Written on March 31 2015, edited on June 15 2015.

Will Slack be able to keep generating high value over the long term? This post will look at some factors that influence Slack’s defensibility.

Will Slack be able to maintain value generation over time?

Let’s imagine it’s 2020. Slack has built a $20 billion company. Competitors are forming with some regularity, and the VC firms who missed out on Slack are backing these Slack-clones with such a ferocity that only one thing can be blamed. FOMO’s ugly cousin, TOHMO, or trauma of having missed out.

What will prevent future Slack competitors eliminating Slack’s profit margins?

The value of message/file history

Slack has been very intentional to focus much of its marketing on the value of being able to search past messages. It’s worth noting however that you can export your Slack messages, so a future competitor would have to make use of this. That said, even with the ability to export, this is still a frustrating experience for a user, and one that most users probably wouldn’t even realize they could do. They may even assume that switching products would mean losing all of their message history.

Slack is an “experience good”

An experience good is a “product or service where product characteristics, such as quality or price, are difficult to observe in advance.”

“With experience goods, a company can enjoy differentiation based on image, reputation, or credibility.”
— Measuring the Moat, Mauboussin and Callahan

This strengthens the value of reputation, as it is less likely that a consumer will try multiple products before making a purchase — in contrast to office furniture, where you may look at multiple brands and pick the one you like the look and comfort of.

Existing integrations

More and more integrations are being built for Slack. These integrations sometimes require coordination (from the other company) to get built. A new competitor would struggle to compete with Slack’s offering here. This is reminiscent of Salesforce’s AppExchange.

Custom integrations

If you’ve built many custom Slack integrations for your team, you aren’t going to switch without a really good reason. A competitor would likely want to make custom integrations compatible with their software somehow.

The bar is now higher to compete

Most of Slack’s users didn’t use any centralized-messaging software before they signed up for Slack. “It’s a lot of ad hoc emails and mailing lists. Some people on the team might use Hangouts, some use SMS. We see groups that use Skype chat, or even private Facebook groups and Google+ pages,” CEO Stewart Butterfield says. It is much easier for Slack to be 10x better than a hacked together set of solutions than it will be for a new piece of software to be 10x better than Slack.

User preference

Many consumers simply prefer Slack to alternatives, such as email or HipChat. This makes it like competing with Coca-Cola — even if the taste were the same, many users want Coke, because they really want Coke. Slack has taken amazing advantage of the Valley’s obsession with high growth startups to develop obsessive users of the product who love it partly because they love it as a product, and partly because they love it as a startup/company.

What other factors could influence Slack’s defensibility?

Inter-company Slack networks

Email currently has an extraordinarily strong network effect. Slack could attempt to build a similar network effect by providing some means of inter-company communication through Slack.

Ability to recruit and build a better product

Right now, Slack is a hot company. If an engineer or designer wants to work on team chat software, there’s a reasonable chance they might want to join Slack. Thus, good engineers who care about Slack’s product will go and join Slack. They will then make Slack better. Thus, Slack will maintain or improve upon it’s product lead, and so good engineers and designers will continue wanting to join Slack. This is especially important for a product like Slack, where the frequency of use is so high. The difference between a good product and a bad product is more substantial.

Fixed costs

Nothing new here. In 12 months, it’s likely that Slack will have many more salespeople. A new competitor who wanted to sell to Slack’s enterprise customers would have to hire many engineers, designers and salespeople to begin competing at the higher end.

Complexity

It’s harder for a random engineer to hack together a Slack solution that works, not just because they would have to build an iOS client, a web client, and likely a desktop client too for it to be even comparable.

Slack‘s moat is strong.

Slack is building a product that users love. They are also building a deep moat around future profits.

How Slack could further strength its moat:

Allow entire business applications to be built on top of Slack

Slack could allow companies to build entire workflow companies upon its platform. For example, imagine that a company builds a CRM for Slack that functions entirely through the messaging/Slackbot interface.

As Benedict Evans wrote, “all messaging expands until it includes software.”

Slack could become a new interface for business tools.