6 reasons why Slack is the next Netscape

Tech darlings come and go, and it won't be long until Slack becomes a memory

6 reasons why Slack is the next Netscape
Credit: Magdalena Petrova

Netscape provides an excellent illustration as to how tech darlings come and go.

Netscape created and sold Navigator, the browser that essentially invented the World Wide Web. Prior to Netscape, the internet was mostly benefiting geeks and nerds. Netscape changed the world by transforming the internet into the mass-market, browser-powered online world we know and love today.

Netscape’s original business model was to sell licenses for its Navigator browser. It was just over a year old when it had its IPO on Aug. 9, 1995. And in its first day of trading, the stock went from $28 to as high as $74.75, giving the company a value in the billions.

Other vendors recognized the potential of the browser and developed competitive applications. Microsoft created Internet Explorer and upped the ante by including it Windows 95.

It’s hard to compete with free, so Netscape pivoted from browsers to web servers. Microsoft then developed and bundled (with NT Server) Internet Information Server (IIS), which offered similar yet faster web server functionality. To make a long story short, Netscape is no more.

Slack will follow Netscape's footsteps

Today’s current darling is Team Chat provider Slack, and history is about to repeat itself.

Although Slack was not the first in this emerging space, it was the first to build momentum. Now, at about 4 years old, it has a valuation of about $3.8 billion. The company is still private, but reports show that its revenue is doubling regularly.

Here are six reasons why Slack will be the next Netscape.

1. Increased competition

Slack stood out among a sea of unknown startup alternatives, but those days are no longer. Over the past few years, many enterprise vendors have announced Slack-like services for Team Chat, including Cisco, Facebook, Microsoft, Google and IBM. They have name recognition, are enterprise savvy and have representation through multiple channels.

2. The game is changing

The Team Chat application is quickly evolving into an enterprise-wide play. Slack has done well with technical teams at companies of all sizes. However, it is not recognized as an enterprise-wide solution. Until recently, it didn’t even offer an enterprise-wide service. Slack’s Enterprise Grid solution was only launched last month.

Suddenly, Slack is competing in a much bigger pond as a smaller fish. It seems unlikely Slack can out innovate these larger enterprise vendors on their own turf.

3. Limited moat

Slack has built its service around persistent messaging and APIs, neither of which has  significant barriers to imitation. Cisco Spark, for example, offers messaging and APIs but also offers integrated hardware (SparkBoard) and extensive expertise in audio, video and web conferencing.

Many of the unified communications (UC) companies such as RingCentral and Unify have blended their real-time expertise into their Team Chat applications. This is important because part of the value of these Team Chat applications is the consolidation of people (directories), content (shared files) and conversations (asynchronous messaging and real-time video and voice calls) into a single application.

It’s the real-time communications aspect that has the highest barrier to entry. Many chat services are developing peer-to-peer communications, but integration with hardware endpoints and the public switched telephone network (PSTN) is an entirely different matter. The UC companies are rapidly developing messaging-centric additions to their solutions. For example, RingCentral’s newest release of its Office service is centered around its Team Chat interface.

4. The power of the bundle

The Netscape parable demonstrates how Microsoft has used bundling in the past. The newest Team Chat application is Microsoft Teams, made generally available earlier this month. Microsoft is including (and enabling by default) Teams in its Office 365 business subscriptions for no additional charge. As impressive as Slack’s 5 million daily active users is, it pales in comparison to Microsoft’s 85 million Office 365 users. That figure comes from its Q1-FY17 results, which also indicated 40 percent growth. Microsoft is on track to exceed 100 million subscribers in the first half of this year.

It’s not just Microsoft. The UC vendors are bundling Team Chat with little to no extra cost. Google is including Hangouts Meet within its G-Suite offer. Cisco Spark will potentially disrupt itself by converging WebEx and Spark. According to Synergy research, WebEx held about 52.8 percent of the worldwide web conferencing as a service market.

5. No partner at the dance

It’s not to say small, independent vendors can’t succeed in the enterprise, as they often do. The problem for Slack is it seems just about every logical partner is developing its own type of Team Chat application. IBM released Watson Workplace, Salesforce has Chatter, Google recently announced Hangouts Chat, and even Facebook has its own version called Workplace by Facebook. Slack doesn’t have a logical dance partner and will have to penetrate IT departments on its own.

6. The race to zero

The price of Team Chat is dropping quickly. In addition to bundled offerings, there are standalone offers such as Workplace by Facebook, which repurposes its consumer-facing code. Facebook charges enterprises as little as $1 per user per month (with the added bonus of virtually no training). Slack’s Enterprise Grid is currently priced at $7 to $15 per user per month. It seems unlikely to drop, as it can’t offer a broad bundle or reuse existing software.

Final Thoughts

Slack has a long, tumultuous and seemingly impossible journey ahead. The company has the DNA of a Silicon Valley startup that develops fun, quirky solutions for technical teams. This is the antighesis of what enterprise software buyers seek.

Slack is a highly innovative company that has unleashed a torrent of activity around collaboration. In many ways, Team Chat delivers what the UC industry has been promising for years. However, it’s an unfortunate reality—a Netscape reality—that the pioneers often do not realize their entitled rewards.

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