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Slack Fires Back at Microsoft on User Metrics

By Evan Niu, CFA - Updated Oct 15, 2019 at 8:40AM

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Slack says its users are more engaged than Microsoft's.

Slack (WORK) investors were rattled over the summer when Microsoft (MSFT -0.23%) said that its competing Teams app had garnered 13 million daily active users (DAUs) -- ahead of the 10 million DAUs that Slack had at the time. Teams has emerged as one of Slack's greatest competitive threats, as Teams is often included for little to no added cost for organizations that already subscribe to Microsoft's comprehensive productivity suite, Office 365.

The upstart is now firing back at the enterprise software giant's user metrics.

Slack Mac app interface

Image source: Slack.

DAUs are not the same as engagement

In a recent blog post, Slack exec Brian Elliott disclosed that Slack DAUs jumped 37% year over year to hit 12 million in the month of September, with approximately half of those being paid seats. Slack argues that DAUs can be a superficial metric, and that usage and engagement are what really matters. "Engagement is what makes Slack work -- you can't transform a workplace if people aren't actually using the product," Elliott writes.

Citing results from a survey of U.S. users, Slack says users at paid organizations spend nine hours per workday connected to the platform, including 90 minutes per workday of active usage -- sending messages, sharing and collaborating on files, and interacting with apps.

Chart showing Slack DAUs

Image source: Slack.

It's unclear how these engagement statistics compare to Teams, but some analysts suspect that some of those Teams DAUs aren't really using the service. For many Office 365 business customers, Teams automatically loads when the computer is turned on, but many of those users are not interested in using Teams. In those instances, a Teams DAU is decidedly not engaged.

Slack notes that it now has over 500,000 custom apps built by paying customers that allow Slack to integrate with their internal systems. CEO Stewart Butterfield has highlighted that type of interoperability as one of Slack's most potent competitive advantages, which is why he's not scared of Teams.

A growing funnel

With 6 million free users, Slack also has a strong funnel of users to convert to paid plans, a key strategic aspect of its business model. In fiscal 2019, roughly 8% of revenue came from organizations that had converted from free plans to paid plans during the fiscal year, according to Slack's prospectus.

That's not to say that all users can be converted, and Slack knows not to waste its energy targeting some of those users. On the last earnings call, Butterfield said:

There are a lot that are temporary teams that are created for a specific purpose, like a home renovation project or planning a wedding, there's a lot of organizations using Slack for things that we don't think we will ever monetize, such as organizing and scheduling teams for a kids' soccer league. Those are still great for us. We love those because they expose Slack to new people and that drives more customer growth down the line. Look, there's no expectation that we will monetize those.

Chasing those users instead of enterprise organizations would be "foolish," Butterfield added.

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