Last month, Slack made a high-profile announcement that it had filed for a proposed public offering.a draft registration statementIn the collaboration software market, when Slack emerged in 2013, it had only subtle differences compared to competitors, but a few key distinctions allowed it to become the leading innovator in this market.

"Slack is waiting for the right market timing to file its IPO," Carrie Basham Marshall, head and CEO of Talk Social to Me, told CIO Dive. "We are experiencing the third wave of enterprise collaboration competition since 2008, and Slack is watching to see what user adoption metrics its competitors will show."

Slack's IPO is a positive signal for the entire communications market, serving as validation of the market's health and its philosophy, and may also foreshadow future M&A activity.

Entering the public market

Slack will enter the publicly traded arena alongside its biggest collaboration competitor, Microsoft. After launching Teams in 2017, Microsoft touted it as thefastest-growing app in company history"In conversations with clients, I've found that competition has evolved into a head-to-head battle between Microsoft Teams and Slack," Forrester Vice President and Principal Analyst Art Schoeller told CIO Dive.

Schoeller previously tracked 35 vendors, but that number has now shrunk significantly due to closures, exits (such as IBM), or divestitures (such as Atlassian). Slack has been tight-lipped about IPO details, but according toreports, it may follow Spotify's lead with a direct public offering (DPO).

"No one in the startup world wants to work for a company whose IPO has failed."

— Carrie Basham Marshall, Head and CEO of Talk Social to Me

Unlike a traditional initial public offering (IPO), a direct public offering (DPO) does not require bank underwriting. This means that employees of a DPO company convert their holdings into shares, list them on a stock exchange, and the public can freely purchase shares, thus avoiding the possibility of "diluting the stock's market value," according to TD Ameritrade. While a direct listing does not offer the same level of transparency, in this case, it does not necessarily mean Slack is hiding something.

"I think a fast-growing private tech company that plays by its own rules wants to continue on that path," Basham Marshall said. Despite risks such as share prices not meeting expectations, "there is a certain unicorn-like arrogance in this decision," where the company relies on past success to support its argument.

Slack's IPO coincides with Silicon Valley's current "millionaire boom," and with the market also watching companies like Uber, Lyft, Crowdstrike, and Airbnb, this will spark a "self-centered competition," Basham Marshall said. "No one in the startup world wants to work for a company whose IPO has failed."

A brief history of collaboration software

Before the communications platform market emerged, people relied on phone calls and email. When catastrophic events like earthquakes occurred, the phone system "would go into sleep mode," but online MSN Messenger still worked, Symphony Chief Experience Officer Jonathan Christensen told CIO Dive in an interview.

Christensen, who worked at Microsoft, said that from the early to mid-2000s, "you were flooded with emails," and managing email was a full-time job in itself. Employees would write instant messages directly in the subject line of emails, appending "[EOM]" (end of message) to indicate brevity, a practice that was widespread at Microsoft. Around the same time, employees began using MSN Messenger internally. Around 2005, when widely used chat tools were deployed, conversations shifted from email to chat.

Compliance, redundancy, and risk issues evolved accordingly, not just for Microsoft but for all enterprises adopting new communication modes. Companies and IT teams had to ask: How many employees are using AOL or MSN? Which employees could benefit from collaboration tools but are not using them? As people brought personal communication tools into the workplace, a market for compliance solutions emerged.

The path of collaboration software was not paved by Slack; its concept is almost identical to personal instant messaging platforms like AOL and MSN. "Slack and Microsoft Teams are gaining more traction now partly because users have become accustomed to messaging through consumer experiences like Facebook and Twitter," Schoeller said. Slack's IPO highlights the importance of Teams, Workplace, and Google's Chat/Hangouts, but the test among competitors will be whether they can sustain growth quarter after quarter.

Slack "came out very quickly, and they created a category that previously belonged only to enterprises whose IT departments had already deployed the relevant infrastructure."

— Jonathan Christensen, Chief Experience Officer at Symphony

However, Microsoft, which is decades older than Slack, was late to the game. "I thought this space was already quite mature," Christensen said, until around 2015 when the collaboration market began attracting more players. Microsoft already had Skype for Business, but around this time, the "Redmond giant" realized it needed another product, Schoeller said. Teams was designed to serve Skype for Business customers while also attracting new users.

On the other hand, Facebook's entry came with a learning curve. According to Schoeller, Workplace by Facebook meant the company had to sell to enterprises, not just to the consumers and advertisers its social network relied on.

Making way for Slack

When Slack entered the market, it responded to broader industry needs. Slack "came out very quickly, and they created a category that previously belonged only to enterprises whose IT departments had already deployed the relevant infrastructure," Christensen said.

There were subtle details that only Slack noticed. Christensen, during his time at Skype, said the company used its own tools for internal collaboration and meetings, but the Skype product was not sold externally in that way. In other words, Skype had the potential to be a market force, but mispositioning hindered its prospects. Skype was a globally recognized and popular brand, but it suffered from multiple acquisitions, frequent changes in presidents and CEOs, and a lack of sustained focus and direction in the enterprise market.

The communication platforms before Slack helped it move toward market dominance, but the company achieved a "closed loop," Christensen said. The secret lay in NAT traversal (network address translation), which allows endpoints to connect without interference from firewalls. Additionally, what set Slack apart from other companies vying for dominance in the communication platform space was its registration process. When Slack entered the market, it targeted small teams, designing a registration process that took only 10 to 20 seconds and allowed invitations to be sent via email. "That was truly the winning factor," Christensen said. And it was free, while Microsoft's solution at the time came with a price tag and a heavy burden of infrastructure integration.

Slack's IPO comes at a time when it is "making good progress in monetizing its solutions, rather than relying solely on 'freemium' subscribers," Schoeller said.

How the leader maintains its lead

Slack brought the concept of persistent chat rooms and an all-in-one app into the mainstream, with the tool designed to serve as a knowledge base for the entire company, allowing users to use other app features without leaving Slack. But "while Slack's appeal lies in its integration capabilities and Workplace's appeal lies in connecting everyone within a company, neither is more revolutionary than the other," Basham Marshall said.

Long-term survival in the market lies in offering customers choices and outlasting competitors. Microsoft, in particular, has proven that Teams is here to stay through its integrable product suite, loyal customer base, and the cloud services supporting it all. Microsoft poses a "serious challenge" to all players, Christensen said, meaning every competitor needs to find its own niche.

Slack's IPO comes at a time when it is "making good progress in monetizing its solutions, rather than relying solely on 'freemium' subscribers."

— Art Schoeller, Vice President and Principal Analyst at Forrester

Communications company Symphony is a "blend of Silicon Valley and Wall Street," focusing on the financial services vertical, with clients including Bank of America and Morgan Stanley, and is more sensitive to data control and encryption in the financial industry. Different industries require features that broadly promoted tools like Slack and Teams cannot always provide. Other collaboration platforms may have to find ways to serve niche customers or verticals to survive. But the financial services industry is "the flagship sector of the enterprise market," Christensen said, and that sector brings trusted tools to other industries, legal players, and other customers in the financial services ecosystem. Not all specialized tools can enjoy the spillover effects seen in the financial services sector.

Fragmentation in the market means a "winner-take-all" outcome is not necessarily inevitable, Christensen believes, and it is more likely to be a "best-of-breed" model. He expects more consolidation, such as Slack's acquisition of HipChat and Stride's intellectual property. For now, Slack must prove itself to investors who may not understand the details of the collaboration software market and its competitors. When "Slack is satisfied with its performance relative to top competitors, and public messaging can make its product and value understandable to average investors, I think it will move forward with a direct listing," Basham Marshall said.