Hacker News Reader

Comment by rayiner | Hacker News Reader

Is there any other industry where developing an instant messaging system can result in $500 million in losses despite $700 million in revenue?

View on HN

Funnily enough, when I do design interviews, I often ask them to design a chat client - not the whole design, but bits and pieces, like the db schema or the API of the service.

What the interviews invariably show is that a chat client is not simple. It's extremely complicated, especially when you want it to work at scale. If you think it's a "simple" app, go ahead, try to make one - even on a whiteboard.

I can completely understand why instant messaging can get you $700 million in revenue. As for the losses -- they are invested in the future of the company and I think are justified.

"How hard can it be?" is something we ask about "simple" stuff everyday, and the answer if you dig deeper is almost always "Much harder than you think."

My thought as well. What on earth about Slack costs hundreds of millions to operate?

This is literally described in the S-1.

A large plurality of it is sales & marketing. The next biggest chunk is R&D.

Right. What R&D is slack doing that requires hundreds of millions of dollars? Or G&A? No wonder their investors are cashing out. They see that there are limits else they'd keep riding this as a private company.

SF tech company salaries.

They need to pay about ~2000 employees including multiple hundred engineers who regularly yap about another JS/Electron stunt they pulled today.

Acquiring more users!

Guess what? You can actually see in an S-1 what it costs.

S&M = $233,191 for 2019

More than half their revenue is spent acquiring new customers...which, with a high likelihood, will net revenue over a N+1 year timeframe. This is an investors wet dream... I pay $1 now and I only need $.15 to operate that $1 every year for the next 7 years...that's a helluva return.

In other words...you can turn off the S&M tap and these companies could be profitable almost overnight.

I think your point still stands but some of that S&M can never be cut because of churn and is highly susceptible to interference from competitors.

Slack doesn't have that much lock-in and a lot of people have their sights on that market -- "Cheaper than Slack and bundled with Office365/G Suite" is an extremely tempting offer.

Maybe, so far I've been in a few situations where we didn't go with Slack...only to go back to Slack. Part of the lock-in is their brilliant multi-org client. I can easily go back-and-forth between my company, a contract's IM, an alumni group of people in my last job and a group of local artists that like to talk to each other. Hell I've thought about luring most of my close friends from Facebook onto Slack.

Their API is also quite good IMO, which provides a sort of lock-in, though not a huge one.

Do all your contacts work in the tech industry? I'm wondering if we're really backwards here in Australia, or if I've just had bad experiences. Slack-style messaging seems really uncommon outside tech, even though traditional AIM-style IM is used everywhere. I think a lot of enterprises could benefit from capturing corporate knowledge in searchable Slack channels, but the only teams I see using them are doing IT and software.

> Part of the lock-in is their brilliant multi-org client

While not quite as fully-featured as Slack, Keybase offers this. I'm a member of multiple orgs and seamlessly change between conversations (both group and 1-on-1).

From my experience slack also has negative churn. People get used to it and automatically choose it the next time. You are correct about potential threats though.

What R&D does slack do to the tune of hundreds of millions per year?!? What G&A is over a hundred million a year? Do you use Slack?

Yes, they have a boatload of fat to trim. They can pull an Etsy move but is that not already baked into their valuation? I, frankly, don't care enough to look as I won't be investing. I just cannot believe their VC investors let them get that bloated - it's probably why they're pushing for an exit so fast. I also am not convinced Slack is very sticky. We switched to Mattermost last week and miss nothing about Slack.

Moreover, as I said in another comment: If there is all this money left to be made, why are their investors pushing them to go public? They should be riding that gravy train privately and cashing out a few years from now for 10x more...

The stickiness comes from the switching costs. We have so many integrations and while setting them up again isn't insurmountable it's a great example of unproductive busy work. Why bother?

Because you have thousands of employees and it gets expensive. It’s a luxury not a necessity and in leaner times, it’s easy to switch to something equivalent but free.

> S&M = $233,191 for 2019 More than half their revenue is spent acquiring new customers...

This isn't a consumer product. They're not doing magazine and television ads. Why is S&M so expensive?

Reply on news.ycombinator.com