Slack Attack

Email might be going away — finally! While kids have moved away from using email for a long time already, adults still waste a lot of time on reading and responding to emails. A recent survey of 150 U.K. businesses indicates that workers waste an hour a day to go through emails that they don’t gain any knowledge/value from. If you add the 1–2 hours that are wasted on commuting, you get to about 3 hours of wasted time per day!

Twenty+ years ago, emails were revolutionary. Suddenly you were able to communicate with anyone, anywhere on the planet, instantly and for no cost. Most people didn’t have personal computers and Internet cafes were booming. Fast forward to today, and we’ve come to a point where we are getting bombarded with emails, almost by the minute. Every time I get on a 12 hour flight across the Atlantic, I end up wasting 20+ minutes to filtering through all the junk… And not to mention, the Reply-All function gets misused by 90% of people.

Luckily, we live in times of innovation. WhatsApp was among the first chat apps to possibly replace work email. With simple options including group chats, absence of a Reply-All function, or voice messaging, WhatsApp works well for small businesses. While it has blown past telcos and disrupted SMS, it has yet to prove itself in the work environment. WhatsApp is already the most popular communication platform in the World and it just announced it passed 800 million monthly active users! They might celebrate the New Year at a Billion! (Disclosure: GSV owns shares in Facebook)

Similarly, Tencent’s WeChat has captured China by storm and counts over 500 million active users. It is not only used for personal messaging, but also for business communication. And unlike elsewhere, WeChat is replacing email to a strong degree in the business space. (Disclosure: GSV owns shares in Tencent).

The most promising startup to likely kill email might be Slack — a one year old, San Francisco based company. With 750,000 daily active users and 200,000 of them being paying users, Slack is considered the fastest growing business application of all time. Along with that, there is an expensive price tag: Slack just raised $160 million at a $2.8 billion valuation…or a mind-blowing $3,733 per active user. Compare that to Snapchat’s $15 billion valuation and the estimated 200 million active users, or $75 per user. Or when Facebook tried to buy Snapchat for $3 billion when it had ~25 million active users, or $120 per user.

Slack’s and Snapchat’s models are obviously different, and while Snapchat is free to use, it is estimated that its CPM is as high as $100. Slack meanwhile has a paid version and is a business communication app. So the expectation is that Slack’s revenue per user will be relatively high.

For this valuation to be justified, Slack will need to grow its user base ~10x over the next 12–18 months, and to maintain a high conversion rate of paid users. With 10 million active users and with more than half of them paying $10 per month, you get to a point where you have better visibility, in my opinion. If they hit such milestones, they will have lots of flexibility to increase the subscription per user to $20 or even $30 per month, in my opinion. If they manage to gain such strong traction, they could get to $1 billion in revenue pretty fast — 5 million paying users, paying on average $16 per month…

It is promising that adoption rates appear to be high already. Many startups have adopted Slack as their internal communication platform, essentially replacing email, and satisfaction rates seem to be high. Many startups I’ve talked to say they love the product and use it instead of email. Another obvious point is that time spent on Slack is very high — unlike chat apps, work apps consume much more time on a daily basis. Considering that we spend about 30% of our work time on email, this implies that Slack’s potential use could be between two and four hours a day.

With the fresh $180 million coming from an A-list of investors including DST, IVP, Index, Horizon Ventures, Spark Capital, A16Z, Kleiner Perkins, and Google Ventures, Slack is becoming one of the most important Silicon Valley startups. We are moving Slack high on our priority list!

As published in this week’s A 2 Apple http://bit.ly/1OvWdRx

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