Slack Offers a More Grown-Up Option for Businesses

The software startup tries to give big companies what they want before they turn to Microsoft or Atlassian.

Slack CEO Stewart Butterfield on New Enterprise Grid

Slack crept its way into thousands of companies with a fun app to exchange office gossip, animated Gifs and the occasional productive discussion with colleagues. The chat-room software would spread throughout small teams, often unbeknownst to a company’s IT department. This is one reason chief information officers don’t love Slack as much as their employees do.

But as competition from corporate software heavyweights Microsoft Corp. and Atlassian Corp. intensifies, Slack Technologies Inc. is creating a more traditional option for large businesses. On Tuesday, the startup will introduce Enterprise Grid, a version of its chat app designed for companies with thousands of employees. It provides the sort of data security, regulatory compliance and company-wide communication tools many big companies consider to be essential.

The long absence of these features wasn’t deliberate. Slack itself was born from a lucky accident. After selling the photo-sharing site Flickr to Yahoo! Inc., Stewart Butterfield went off to start a video game company in 2009. His team in San Francisco strung together a custom chat room to keep them organized through development. Butterfield eventually decided the chat app was more promising and focused on it instead. Since launching Slack in 2013, it has grown to 5 million users, a mix of free and paid accounts. Investors valued the business at $3.8 billion last year. Bloomberg Beta, the venture capital arm of Bloomberg LP, is an investor in Slack.

The app has grown alongside the company, which now has 800 employees. But in its fight to win over much larger businesses, Butterfield discovered they need a vastly different product from the one originally built for his tiny team of game makers. “The nature of the organization really changes dramatically once you get above that threshold of a single team,” said Slack’s 43-year-old chief executive officer.

This is a fact that some Slack competitors realized a while ago. Atlassian’s HipChat actually predates Slack, and while its “hip” factor has since diminished, the software has been embraced by companies of more than 30,000 employees. Atlassian allows businesses to run HipChat on their own servers, which can provide CIOs with a little extra peace of mind. Atlassian is also trying to attract companies with a package of office tools that work together. This month, it spent $425 million to buy to-do list app Trello. “Teamwork is not just about communication,” said Jay Simons, Atlassian’s president.

Few companies execute that particular strategy better than Microsoft. In November, the Redmond, Washington, software giant took the wraps off its would-be Slack killer called Teams. The app comes bundled with Office 365, Microsoft’s cloud service. Bryan Goode, the general manager of product marketing for Office 365, said customers appreciate that Teams works seamlessly with everyday tools like Word and Excel. Microsoft said 30,000 organizations started using Teams just in the last month.

While Slack has generated positive buzz, the sheer size of Microsoft could make Teams a serious competitor, said Greg Arnette, the chief technology officer at Sonian, which helps companies keep online archives in compliance with regulations. “There is a huge tsunami wave that Microsoft sales is pushing to get Office 365 everywhere,” he said. “Never underestimate Microsoft’s sales apparatus when it comes to ramrodding into the enterprise accounts they control. And they control a lot of them worldwide.”

Butterfield’s response to Teams was to take out a full page ad in the New York Times, a move that was seen by some as defensive. And there’s also the looming threat of Facebook Inc. someday getting serious about its long-in-the-works entry into the market called Workplace.

For now, Slack is focused on delivering what many companies have been demanding for a while. Enterprise Grid allows employees of a sprawling organization to send messages to coworkers on different teams and organize into an unlimited number of “workspaces” around individual projects or divisions. Data security and retention policies adhere to U.S. financial and health-care compliance rules. Enterprise Grid also has more sophisticated tools to lock down data and prevent potential loss.

Even before catering to firms with the deepest pockets, Slack proved people were willing to pay for its app. The original service can be used for free before paying a monthly fee of $6 to $12 per user for more features. Slack said it's on track to generate $150 million in revenue on an annualized basis. For Enterprise Grid, Slack said each customer will negotiate pricing separately, and contracts will be reassessed annually.

Slack has been testing Enterprise Grid for months with several major companies. IBM is the largest, with about 30,000 employees using the service. April Underwood, Slack’s vice president of product, said they learned a lot from seeing how the original service wasn't a great fit for large companies. “We realized we needed a new product.”

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