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  • Slack is taking company communications by storm, but a lot of people still don't really understand what it is or why investors are so interested in the business.

  • In this video, we break down Slack and explain why some think it's the future of enterprise software.

  • Slack's namesake platform is a cloud-based collaboration tool.

  • Most people would describe it as a messaging service, but it does so much more.

  • With Slack, users can share files, create project-based channels, and easily communicate with teammates around the globe.

  • Instead of the siloed approach that e-mail offers, Slack allows new teammates to access information that was added before they joined on.

  • Slack's name really says it allit's an acronym and stands for Searchable Log of All Conversation and Knowledge.

  • The software was born out of frustration.

  • The staff at the company that would eventually become Slack couldn't find an enterprise communication tool that fit the needs of their business, so they decided to build their own.

  • And to date, the service has been wildly successful.

  • Slack is using the classic software-as-a-service approach of a land and expand with its freemium model.

  • It's free with limited functionality for small organizations.

  • As the companies grow and their needs grow too, they can move to paid tiers ranging from $6.67 to $15 per month per user.

  • Right now, over 600,000 organizations use Slack, including 88,000 paying customers.

  • The average user spends 90 minutes per day on Slack, and the service is used to send one billion messages a week.

  • All those metrics point to the fact that users like Slack, and the more they use the service, the stickier or harder to leave it becomes.

  • All of that employee communication turns Slack into a knowledge repository for a business, which means companies can't switch to a competitor without losing the accumulated, easily accessible knowledge.

  • Slack has been able to turn all of this into the beginnings of a solid software-as-a-service business.

  • Slack collected $400 million in revenue in fiscal 2019, up 82% year over year, and management thinks they're just getting started.

  • The company is looking to take a sizable bite out of the market for workplace communication and collaboration software, an industry they estimate could be worth $28 billion in 2020.

  • Slack's fast growth and sizable addressable market are two big reasons why investors have been eyeing the company.

  • Like a lot of early tech companies, Slack is losing money right now.

  • But the hope is that at a larger scale, the business can ratchet down its sales and marketing spend and get into the black.

  • Looking at the financials, the story seems to make sense.

  • Software is generally high-margin and Slack is no exception.

  • The company posted 87% gross margins in the last fiscal year, a sign that, down the road, the business could print cash for investors.

  • Of course, all this potential also has market expectations and Slack's valuation high.

  • And the business will be going up against some big names in enterprise software segment, namely Microsoft.

  • So far, the company has thrived by creating its own category of communication.

  • But as it gets bigger, the competitive heat might turn up.

  • And now that shares are publicly traded via the company's direct listing, we'll get a lens into exactly how that fight plays out.

  • Thanks for watching this video!

  • If you have a company you'd like to see us break down, mention it in the comments section below.

  • And be sure to like the video and subscribe to get more videos like this from The Motley Fool.

Slack is taking company communications by storm, but a lot of people still don't really understand what it is or why investors are so interested in the business.

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What is Slack? Behind the Company That's Kind of IPO-ing

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    Angel Hsu posted on 2019/08/15
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