How the Network Effect Drives Slack’s Success
Reaching $1 million in revenue after 2 weeks of launching and a $24 billion IPO this June, Slack has found success not only because it made users fall in love with its integral chatting system and accessible archives of messages and documents, but also because of the network effect that the platform is able to generate and enforce on its users. Slack is able to enable a network effect by filling in the crevasses of the older (but still prominent) system of email, which already enabled the network effect. Additionally, once Slack is put into use in a work environment, it can get deeply ingrained in the corporate workflow.
As a platform for corporate communication and collaboration, Slack needs the network effect as leverage for user engagement. Similarly to the email system, Slack’s potential users would find the platform more valuable if more people use Slack since they would be able to connect, communicate and collaborate with more users. However, perhaps the network effect leverage in Slack users is even stronger as the platform only needs to convince one person or certain people in the company – the decision-maker(s) – and the whole team would have to switch to it. In other words, either everyone uses it or no one. And when “everyone” is the answer, that’s a huge payoff. The leverage that Slack has with a killer network effect, combined with the fact that the platform can be used alongside emails to enhance overall corporate communications instead of trying to completely replace the email system, has helped the platform to push usage to a level possibly beyond the tipping point and hence, entering a period of stable growth. While recent reports indicate that Microsoft’s platform Team, Slack’s biggest competitor, has reached a larger installed user base thanks to Windows and Office 365, not every Windows user is actually embracing Teams. Slack’s user engagement also remains strong. The company claimed that paid customers continue to spend more than 9 hours per workday connected to Slack and about 90 minutes a day actively using the service. From this data, we can perhaps infer that Slack’s user base has passed its tipping point to be around the high, stable equilibrium user base. This could be the case because Slack has an advantage of launching 2 years before Team and once Slack is put into use in a work environment, it can get deeply ingrained in the corporate workflow. It would be costly and inefficient for Slack users to switch to use Team. Thereby, Slack’s main concern at this point would only be to find a way to attract new users, either through substantial marketing or competitive pricing, so that its user base remains strong enough relative to its competitor so the network effect of the platform is sustained.
Sources:
https://medium.com/swlh/the-saas-network-effect-lessons-from-slacks-ipo-6a5ce7919001
https://www.cnn.com/2019/11/19/tech/slack-stock-microsoft-teams-threat/index.html