Slack Technologies Inc. built up a $3.8 billion valuation and buzz as one of Silicon Valley's hottest startups by getting millions of office workers to use its group messaging app. Now some of the tech industry's biggest players want to be part of the conversation.

Microsoft Corp.'s this month unveiled its Teams workplace collaboration service, which came on the heels of Facebook Inc.'s launch last month of Workplace by Facebook. The tech giants' moves put pressure on the San Francisco startup, whose user base is tiny by comparison.

"I've been paranoid about this for a long time," Slack Chief Executive Stewart Butterfield said in an interview after the Microsoft Teams announcement.

Slack has been bracing for the assault. It signed a partnership last month with International Business Machines Corp., to use its Watson artificial-intelligence services.

The escalating battle reflects more than excitement over the prospect of a more efficient alternative email. Tech companies envision messaging as a gateway to other business software from other vendors. For instance, a worker could type in the chat box to book vacation days in a human resources program or enter a transaction in an expense reporting program. The company that provides that interface could wield extraordinary power in the enterprise software market.

Slack already lets users beef up messages with information from partners—tweets from Twitter Inc. or customer information from Salesforce.com Inc.—and add comments to files and share them.

The messaging service offers a free version but its two paid tiers, at $6.67 and $12.50 per user per month, are considered costly by some standards. It doesn't disclose revenue or other financial data.

Slack already has battled other competitors large and small, including Atlassian Corp.'s HipChat, Alphabet Inc.'s Google Spaces and Symphony Communication Services LLC, a startup backed by Wall Street. (Dow Jones Newswires, a wire service owned by Wall Street Journal publisher News Corp, is a provider of news on the Symphony platform.)

Revenue from what International Data Corp. analysts call workplace-application messaging, which also includes collaborative apps such as Google Docs and Skype videoconferencing, hit $4.4 billion last year, and IDC expects it to reach $6.7 billion by 2020.

Microsoft, the long-reigning king of office software, and Facebook, with 1.79 billion monthly users for its social network, bring new heft to the fight. Microsoft Teams, due to become generally available in early 2017, also lets workers chat with far-flung teammates and search through conversations. It is designed to work with Microsoft productivity apps so, for instance, users can embed Skype video conversations in the message queue. Microsoft said it would include Teams free with the commercial version of the online Office 365 productivity suite, which claims 85 million users.

Facebook's Workplace service adapts the company's messenger, newsfeed, events and other features for use within companies.

Mr. Butterfield said the market is large enough for more than one provider, and that there are plenty of companies that don't use Office 365.

Microsoft agreed. "The goal is not to take away any success others have had," a Microsoft spokeswoman said.

Some analysts say the market is Slack's to lose. "Microsoft Teams put out a road map and they're going to build out a lot of business partnerships, but right now this doesn't take anything away from Slack," said Mike Gotta, research vice president of Gartner Inc.

Slack grew out of a videogame company called Tiny Speck co-founded by Mr. Butterfield in 2009. The game wasn't a hit, but software the company built to help employees in the U.S. communicate with colleagues in Canada proved useful and Mr. Butterfield and his partners launched Slack in 2014. The company has raised $539.95 million from prominent venture capitalists including Andreessen Horowitz and Kleiner Perkins Caulfield & Byers.

Slack's user base has been growing at a clip, reaching four million daily users in October, up from three million tallied in May. Its customers include Samsung Electronics and Urban Outfitters, but it caught on especially among software development teams.

Sapho Inc., a 53-person software startup based in San Bruno, Calif., uses Slack to communicate with the majority of its employees, who are based in Prague.

Sapho also illustrates Slack's vulnerability. Sapho CEO Fouad ElNaggar said important information sprinkled in Slack messages can be difficult to retrieve, and Sapho employees sometimes have trouble finding files shared through the system.

"We've banned people putting files in Slack because we have lost things in there," said Mr. ElNaggar. His company continues to use Slack for conversations, but he requires employees to share files in email messages because it's easier to find them later.

Mr. ElNaggar said Slack is expensive, especially if similar functions are available free of charge with Microsoft Office 365.

Mr. Butterfield acknowledged that it can be difficult for employees to keep up with the volume of information delivered by Slack. But access to conversations among teammates is a critical need, he said, and the company is working on ways to combat information overload. For instance, the company is working on artificially intelligent chatbots that can, say, highlight information relevant to a specific user.

In July, Slack invested $1.97 million in 14 makers of bots, including Abacus, an expense reporting program.

 

(END) Dow Jones Newswires

November 13, 2016 21:35 ET (02:35 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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