'$5bn for Slack?! I refuse to pay!' You don't pay – and that's its biggest problem

Comment That thing you love so much – no, not pizza, or reruns of Game of Thrones on Netflix – wants more money from you.

Workplace collaboration tool Slack is reported to be once more casting about for funding, somewhere between $150m and $300m.

Unnamed sources, presumably either Slack or those same titans from Sand Hill Road lubing the speculation wheel, reckon this values Slack at $5bn.

Remember what a startup unicorn is? We ain’t in Kansas anymore, Dorothy. We could be upgrading our basic horse-plus-horn creature to a horse-human combo. A startup centaur, perhaps?

Slack hit unicorn status in late 2014 when it got a staggering $120m in Series D capital from Kleiner, Perkins, Caufield and Byers. $120m was staggering for any startup – Slack was not even two years old – but it was especially leg-wobbling, given its selling collaboration for businesses.

Yes, funding rounds have been getting bigger, but the real nose-bleed stuff had largely been confined to the field of consumer startups such as Uber, with record-setting individual rounds of $1bn and more.

But back to Slack. Why is Slack being valued so high? Wrong question.

There is no sensible metric anybody can use to justify valuations of this sort. What valuations are based on is the previous round of funding and the company’s predicted trajectory of growth combined with forecasts. Investors will be looking at the number of users or subscribers or some other metric considered “key.”

Slack has fast-growing trajectory that it feeds into a model of how that user base will be monetized. It’s this that, somehow, the VCs have determined produces a valuation of $5bn.

Alex Noton, managing director of Hampton Court Capital, when speaking to The Register about unicorns and other such massive tech valuations some time ago, put it rather bluntly. “There’s no science. It defies logic,” he said.

Therefore, you have to ask, what underpins Slack’s valuation?

What it is, is a huge, yet simple, gamble on the part of those with money that they are betting on “the next big thing.” A year back, it was Lyft, Uber and Pinterest. Today, it’s workplace collaboration. They are betting big. They are betting if they throw enough money at this, their dog will become not just that sector’s big dog but its only dog. Contrary to what you might think, the acts of these VCs is not capitalism, its not even free-market competition; this them trying to buy the market.

“Ultimately, the rationale for doing it is they want to see a massive opportunity and in the laws of technology there’s only one winner. There’s no also rans. Number two could also be placed number 100. That’s why they recognise there’s a massive bet to be made,” Noton told us.

Headlines like this, from The Guardian, explain why VCs are so excited about Slack: Why Slack is worth $1bn: it’s trying to change how we work. Or this, from the New York Times: Slack, the office messaging app that may finally sink email.

Nobody likes email – well, not since the 1990s, anyway. When email was new, you suddenly could talk to people without picking up a phone and a group without needing to meet them face-to-face. You could also share jokes, GIFs and X Files scripts. Real firsts.

But email got a bad rep thanks to CC jockeys who include everybody. This, plus “overloaded inbox” syndrome, is probably complaint number one for the white-collar worker. There was a brief respite in the early 2000s with Gmail, with Google’s threaded conversation model, but even Gmail inboxes are now just as stuffed and unread.

Surely email can’t be the end point of workplace communication and collaboration? No. We’ve had IM: Wave from Google, Groove from Lotus genius Ray Ozzie (which was bought by Microsoft), and we’ve got Skype, owned by Microsoft, too. Before this lot, it was Lotus Notes and Microsoft Exchange and SharePoint. In the background today is document sharing like Google Docs and DropBox.

It’s all “collaboration,” right? Each has been hailed as the next big thing and each went the way of its predecessor – surpassed by the next big thing.

The point should be crystal clear: workplace collaboration is waiting for that one big thing. The VC in on the ground floor of that next big thing can clean up. That’s the big-dog theory, anyway, and you can see why the moneymen are pitching in. The riddle here is why does Slack want more? It has taken $339m so far.

The problem is open source. Or rather, a problem common to open source.

We don’t know how many users Slack has – only what it claims it has. In mid-2015, fresh from having raised $160m in additional funding, Slack claimed that number was 1.1 million “daily average users. Of these, however, 800,000 are using the free version.

That is, not paying for Slack. This is what Silicon Valley optimists call the “opportunity”, and it's an opportunity that’s dogged and bedevilled open source until now: converting freeloaders into paying customers. And finding freeloaders is something Slack’s CEO Steward Butterfield is very good at. He helped found photo sharing service Flickr, bought by Yahoo! for $35m in 2005. Yahoo! also failed to make anything remotely approaching revenue from Flickr.

Ongoing resistance to paying comes at just the wrong time, with a tiny cloud on the horizon: #Slacklash.

Slack replacing email? Sorry: Slack is becoming email, as this article – which became this week’s Official Serious Twitter Cultural Think Piece – argued. Samuel Hulick wrote of Slack:

With you in my life, I’ve received exponentially more messages than I ever have before. And while it’s been awesome to have such a connection with you, it has been absolutely brutal on my productivity.

The fact this generated so much buzz on Twitter proved it struck a chord.

The “mainstream” media has also started to lose some of its credulity about Slack. According to Bloomberg, you’re about to hate Slack as much as you hate email. It’s early days, but history has a way of resonating and Slack is showing signs of going the way of Gmail and Wave – welcomed as the next big thing, before being thrown on the pile of other collaboration technologies that have become part of the problem.

Slack might claim to have millions of users and spectacular growth. Devs might like it. But as open source proved, devs don’t pay the bills.

Time to platformise – or, rather – take your biggest asset (users) and turn them into a destination for others while giving them something that makes Slack more useful. Last year, Slack started a fund with its VC backers to invest in start-ups building on Slack.

It’s the ecosystem model of Windows: you need an ecosystem of apps for the underlying platform, then Windows and now Slack, to survive and thrive. Without this, you’re just Box. Or Evernote. A company with one product. And that can’t happen for chief exec Stewart Butterfield, or his power money titans.

Slack does seem to be amassing a war chest: according to Butterfield, he has a “fiduciary responsibility” to take “free money” when it’s on the table. “Free” being $160m at a laughably low interest rate.

This, however, is a diversion; too little from just another collaboration provider. As Microsoft has proved, when a developer and partner ecosystem is valuable, it’s both difficult and takes time to construct. To really avoid becoming the next Box or Evernote, you need to get bought. By somebody like a Microsoft. Allegedly, Redmond once mulled spending $8bn on gobbling Slack.

Ultimately, it’ll take money for Slack to keep slogging towards the thing that’ll want Microsoft, or somebody, to buy it: not just more users, but more actual paying users. ®