The Slack DPO

It’s a bird! It’s a plane! It’s an... enterprise software company? We give the full Acquired treatment to newly-public Slack, one of the most extreme and successful pivots of all-time. From a log cabin in Canada to a never-ending game and back again, Slack’s journey has more twists and turns than a Hobbit’s tale. Tune in for one APLUSS story you don’t want to miss! Sponsors: Vanta: https://bit.ly/acquiredvantaServiceNow: https://bit.ly/acquiredservicenow26Legora: https://bit.ly/acquiredlegoraStatsig: https://bit.ly/acquiredstatsig26 More Acquired! Get email updates https://www.acquired.fm/email with hints on next episode and follow-ups from recent episodesJoin the Slack http://acquired.fm/slackSubscribe to ACQ2 https://pod.link/acquiredlpMerch Store https://www.acquired.fm/store! © Copyright 2015-2026 ACQ, LLC LinksKara Swisher’s Flipcam interview with Glitch: https://www.wsj.com/video/tiny-speck-stewart-butterfield-speaks/C51EAD27-FE8E-46AE-B785-6ECF1A9798B0.htmlMarc Andreessen on “all will still end well...” https://twitter.com/patphelan/status/1142733251691405312The Glitch public domain archive: https://www.glitchthegame.comNaming Slack: https://twitter.com/stewart/status/780906639301812225?s=21Carve Outs Ben: The Expanse on Amazon: https://www.amazon.com/The-Expanse-Season-1/dp/B018BZ3SCMDavid: Give to any non-profit on Alma: https://alma.app/blog/1-4-million-reasons-to-love-alma-search

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Ben Gilbert?

  Shh.

• 0:02David Rosenthal?

  That's wood blocks, right?

• 0:04Ben Gilbert?

  Do your best impression. Uh, let's see.

• 0:11Ben Gilbert?

  That's a good one.

• 0:26Ben Gilbert?

  Welcome to season four, episode nine of Acquired, the podcast about technology acquisitions, IPOs, and direct public listings. I'm Ben Gilbert. I'm David Rosenthal. And we are your hosts. Today, we are covering the spiritual sister of our previous episode on Zoom, Slack, and the largest enterprise IPO in history. And of course, it wasn't even actually an IPO, but rather a direct listing. Barry McCarthy, he rides again, the acquired superhero. Today, we'll talk about what all that means, the crazy history of Slack's evolution from even before it was founded, where its roots really are, and break down their business and their market cap today, and what it could do in the future.

• 1:10Ben Gilbert?

  All right, listeners, now is a great time to tell you about a longtime friend of the show, Vanta. AI has scrambled the whole security picture. It used to be that you proved that you were secure once a year on audit or a static PDF. Then everyone would nod and you're done. But in an AI-first world, that doesn't hold up anymore.

• 1:29David Rosenthal?

  Yep. Your risk surface changes every week now. A vendor turns on an AI feature, or someone writes in a new model without telling IT, and your posture is different than it was last week, let alone at your last audit. Vanta's own research found that around 70% of companies have this quote-unquote "shadow AI" running with no security review at all.

• 1:50Ben Gilbert?

  Right. And that's where Vanta comes in. They're the leading agentic trust platform, meaning they've built the thing that closes the gap. And the way that they close that gap is Vanta Agent. Think of it as a GRC engineer, that's Governance, Risk and Compliance, except that it's software and it doesn't sleep. It finds the issues, drafts the fixes, and cuts the time that you'd spend on vendor assessments in half.

• 2:12David Rosenthal?

  In half? Which is exactly why more than 16,000 companies today run on Vanta. Companies like Ramp, Cursor and Snowflake all stay audit ready and catch the risks that crop up between audits across every vendor, every AI tool, the whole environment.

• 2:30Ben Gilbert?

  And that's the real value. Trust has to be continuous now, which is why Vanta automates your security, your compliance and the work to earn and prove trust. We're huge fans of Vanta over here and literally hundreds of acquired listeners have become Vanta customers at their companies over the years. So you can get $1,000 off Vanta at vanta.com/acquired. That's V A N T A dot com slash acquired for $1,000 off and just tell them that Ben and David sent you.

• 2:58David Rosenthal?

  So we start pretty far away from Slack's gleaming new San Francisco, downtown San Francisco headquarters, pretty far away from Wall Street. In fact, very, very far away from Wall Street. We start in 1973 in Lund, British Columbia in Canada.

• 3:20Ben Gilbert?

  Where is Lund?

• 3:21David Rosenthal?

  Lund is, I'm not sure exactly how far, maybe an hour or two north of Vancouver in British Columbia. And it was where Highway 101 ended in the mid 70s, north of Vancouver. And we start there in a small log cabin located on a hippie commune. And this cabin does not have electricity. It does not have running water. But in 1973, there is a boy born in this cabin to parents David and Norma Butterfield, who were, as you can imagine from this scene I am, I am setting here and describing, pretty hardcore hippies at the time in 1973.

• 4:02David Rosenthal?

  And the boy's name that Norma gives birth to this year is Dharma Jeremy Butterfield.

• 4:10Ben Gilbert?

  Dharma is an incredible name for someone born on a hippie commune.

• 4:14David Rosenthal?

  Incredible, incredible. So perfect. Let's rewind just a little bit, though. How, how and why did we get here? So we start with, with David Butterfield, the father of Dharma. So David was an American originally. He was from Connecticut and he was a college student at Harvard during 1968, during the summer of love. And after the summer of love, he decides he's going to drop out of school, drop out of Harvard. You know, he's been disillusioned by the RFK and Martin Luther King assassinations, all the, you know, both great and terrible things that happened that year in 1968. He drops out of Harvard and he moves to France.

• 4:54David Rosenthal?

  But shortly after he gets to France, he receives a telegram one day from the United States government, informing him that he has been drafted for the Vietnam War.

• 5:05Ben Gilbert?

  Does this explain the Canada thing?

• 5:07David Rosenthal?

  This does eventually explain the Canada thing. He comes back to the US and he does enlist and he goes to basic training. And he learns, you know, while he's, while he's in training, that he had wanted originally to be a medic. He learns, though, that he's going to become a sergeant and he's going to get assigned to active combat duty. And he's going to get shipped off to Vietnam, very probably, he knows, to his death. He decides one day before he gets shipped off, I don't know exactly where he was stationed for, for training, somewhere in the north of the US. And he decides to just drive to Canada and not come back one day. He drives across the border. He ends up in Montreal.

• 5:46David Rosenthal?

  And while he's in Montreal, he meets Norma, who I believe was a student at McGill at the time in Montreal. And they fall in love, they get married, and they decide that they're going to move out west to British Columbia. So they just start driving and they drive across Canada, across the country. They get to Vancouver and then they turn north and then the highway ends in London. And it turns out, there is actually a hippie commune already in Lund, so they they joined the commune. It's kind of an amazing story, and we're going to continue it. But David sadly passed away in 2017. And in his obituary, I just love this. It says, "If you asked David who he was, he often said, 'Who I am is I love my wife.'"

• 6:30David Rosenthal?

  It's just so nice. So great. What a, what a cool person.

• 6:34Ben Gilbert?

  You know, David, this is exactly how I thought the episode of the largest enterprise software IPO in history would start.

• 6:40David Rosenthal?

  Exactly, exactly. Back to Dharma. He grows up initially, still no running water or electricity. He's, he's on this commune. When he gets to be about five, though, David and Norma are kind of starting to question the whole, you know, their sort of life choices and anti-capitalist philosophy. You know, it's now the late 70s, the Vietnam War is long over. And they say, you know, maybe, maybe it's time to sort of rejoin normal society. We have a five-year-old now. So they move down to beautiful Victoria, the capital of British Columbia. Beautiful, beautiful town. If listeners, if you haven't been, highly recommend it.

• 7:19Ben Gilbert?

  Especially you Seattleites, it's way too easy to take the Clipper. Don't miss it.

• 7:24David Rosenthal?

  Yeah, definitely don't miss it. So they move down to Victoria and they rejoin mainstream society there. David ends up, so he had built the log cabin himself. He ends up getting into real estate development, and he becomes a prominent, sustainable real estate developer. Really cool in Victoria. Stewart, though, so he's now growing up, he gets his first computer at age seven in Victoria and becomes immediately enamored of it. When, or Stewart, I should say, Dharma. When he is, when he is 12, he decides to change his name to Stewart, because he's probably getting teased at school at this point in time, and he wants to be a little more normal. And Stewart is like the most normal name that he can think of. So he legally changes his own name at 12 to Stewart Butterfield.

• 8:07David Rosenthal?

  He ends up staying local for college. He goes to college at the University of Victoria. He studies philosophy. And as you might imagine, given the lineage of his parents, he's quite smart and does very well in school. And he thinks he's going to become a philosophy professor. That's, that's his goal. He goes off to Cambridge in the UK, and he gets a master's in philosophy. And I assume it was part of a PhD program that he was intending to complete.

• 8:35Ben Gilbert?

  For listeners who have not heard Stuart speak before, it is very apparent when you hear him speak that he has a background in philosophy. He sort of can't help but diving into the existential and the metaphysical in any topic. And I think there's a great episode with Kara Swisher on Recode Decode, where he's sort of talking about why gaming is interesting for the world, why communication is interesting for the world, and ties it to such a sort of strong base in philosophy, where I feel like every time I've watched or heard an interview with this guy, you have these aha moments that you otherwise would never, ever have.

• 9:09David Rosenthal?

  Yeah, he's cut from a different cloth, for sure, than your normal tech CEO. We mentioned, though, he got his first computer at age seven. He'd always also been kind of fascinated by computers, and this was kind of the early days of the internet. And he also, as legend has it, became really interested in the internet because he was a huge, of course, Phish fan.

• 9:33Ben Gilbert?

  Amazing.

• 9:34David Rosenthal?

  The band Phish. And so Phish had a news group at rec音乐fish, and apparently, young Dharma/Stuart was all over this news group.

• 9:42Ben Gilbert?

  David, what is a news group?

• 9:45David Rosenthal?

  Well, you might ask, what is IRC?

• 9:48David Rosenthal?

  News groups, of course, were the, gosh, I don't know, what do you call it? Like predecessor to Reddit, I guess, on the

• 9:55Ben Gilbert?

  Yeah.

• 9:55David Rosenthal?

  Spiritual predecessor.

• 9:57Ben Gilbert?

  Yeah, it's sort of the pre-BBS, Boltonport system

• 10:00David Rosenthal?

  Yeah.

• 10:01Ben Gilbert?

  way of finding community on the internet.

• 10:03David Rosenthal?

  Yeah. So Stuart, even though he's pursuing his academic career in philosophy, he is really into the internet, has gotten into coding on the side, making websites all through college. And so while he's, after he finishes the master's portion of his program at Cambridge, it's now 1998, and the Web 1.0 bubble is fully inflated. And he says, you know what? I need to

• 10:27Ben Gilbert?

  I gotta throw in with this.

• 10:28David Rosenthal?

  I gotta throw it. Like, now is the time. I can't miss this train. So he moves back to Vancouver in British Columbia, and he joins a startup called Communicate.com.

• 10:42Ben Gilbert?

  Dude, the domain names were so easy to come by then.

• 10:45David Rosenthal?

  Well, and domain names was the name of the game here. So the idea of Communicate.com is they were going to build the everything store on the internet, the e-commerce platform, and they were going to do it by owning domain names for all of things that you might buy or things you might be interested in. And that was going to be the front end. So you would go to whatever.com and you would buy stuff powered by Communicate.com. Only the things that could be.

• 11:12Ben Gilbert?

  Which is so funny because this was the year that Amazon IPO'd. So Amazon was already definitely a thing, but was.

• 11:18David Rosenthal?

  But only for books, only for books at the time. As you might expect, given that business plan I just described and being in Vancouver, it was a total disaster. And so Stewart shows up and he's quickly like, man, I thought I was going to get rich here in the, you know, sell out from academia, get into the dot com. He decides to head for the exits pretty quickly. And that was very prescient because shortly after he does, of course, the company blows up. But he leaves and he meets somebody really important there. He meets his coworker, Jason Klassen, who he's had next to at Communicate. And Jason, of course, had a side hustle at the time because everybody had a side hustle.

• 12:00David Rosenthal?

  And Jason's side hustle was he was building a website, another website called gradfinder.com. And this was like a competitor to classmates.com, Seattle company. It was sort of proto, early, early proto Facebook of find people that you went to high school with or you went to college with and stay in touch with them online. Actually a pretty good idea. So Stewart convinces Jason, hey, let's get out of here from this crazy company. Let's go build your website gradfinder.com as a real company. So they leave and very quickly, I think like within a year, they end up selling gradfinder.com to another.com for a small amount of money.

• 12:41Ben Gilbert?

  Stewart's first exit.

• 12:42David Rosenthal?

  Stewart's first exit. Everybody celebrates. They take, decide they're going to take the year off. You know, they didn't make life-changing money, but enough money to kind of take the year off and enjoy life. During that year, of course, the bubble bursts. And so they all come back to, you know, nuclear wasteland in the internet sector. During that time though, Stewart starts a blog. He's kind of always on the leading edge of what's going on on the internet. And he meets somebody in the blogosphere. He meets a woman named Katerina Fake, who also famously had and still has a very popular blog during the time. And they kind of strike up a relationship through blogging. And one thing leads to another and they end up getting married.

• 13:27David Rosenthal?

  And Katerina moves out to Vancouver. Wow. Yeah, pretty amazing. Another relationship that Stuart fosters online. Stuart launches this thing initially as during the year off, kind of as just a fun little competition he wants to launch called the 5K Competition. I think it was a play on like a 5K, you know, running race. Yeah. And the challenge, the 5K Competition was a challenge for people around the world to build websites that were five kilobytes or less. Whoa. Difficult then, literally impossible now. Literally impossible. I think a lot of these websites were like black and white, like very, very simple. But, but it was like, how cool of a website could you make this was the challenge? Wow, yeah.

• 14:12David Rosenthal?

  In less than five kilobytes of memory. Creativity inspire, or what is it? Constraints inspire creativity. Indeed. And I don't know if this, this probably wasn't Stuart's idea at the time, but if you, you know, could devise some ruse to, um, you know, to identify really talented programmers out there. What better wig thing could you come up with than something like this? And so a guy named Eric Costello, who I believe was in St. Louis at the time, enters the 5K challenge, uh, the 5K Competition. And Stuart's like, wow, what you've created is amazing. Like, we should work together on something. Eric ends up also moving out to Vancouver.

• 14:52David Rosenthal?

  And this kind of ragtag team of, of Stuart and Jason, his co-founder from gradfinder.com, Katerina, his wife, and Eric, this whole, you know, web community. They decide, you know, we should do something together. The whole internet gets together in one place. It's almost like a commune, one might say. An internet commune. So this is now 2002. It is nuclear wasteland in tech and the internet from a business perspective. But the four of these folks, they're really inspired by these relationships they've built online. The kind of power that they're seeing still exists in the internet.

• 15:30David Rosenthal?

  And they decide, you know, we can use web browser technology to create like something pretty cool. And wouldn't it be cool if we made a game that people could socialize and interact with each other and build these types of relationships just online in a browser through like a more rich experience than these, news groups and bulletin boards and things that people are using.

• 15:55Ben Gilbert?

  And of course, that would be very cool. But listeners, just think back to yourselves about websites you were using in 2002 and web technology that was available in 2002. And then even think today, how difficult it would be to implement a massive multiplayer online game using the web today. David, I suspect that that was quite a trying undertaking.

• 16:19David Rosenthal?

  And I think they knew this because they decided, like most game companies, they were going to have a name for the company and then they were going to have a name for the game. The name for the company was Ludacorp.

• 16:31David Rosenthal?

  I think they knew the scale of the undertaking that they were embarking on here. They decided to name the game Game Never Ending.

• 16:40Ben Gilbert?

  Which would be prescient.

• 16:41David Rosenthal?

  Also oppressive. So the four of them, they work on it for a while. They ship an early version and people out there on the internet, again, these folks are kind of already sort of internet celebrities to the extent that that meant something back then. People start using it and there's a community of people that really like this early version. But the team, it's just the four of them. They can't get enough money and resources to like actually build out the real full vision of what they want to try and achieve. And so they figure out that they're trying to raise money, they can't raise money.

• 17:13Ben Gilbert?

  In 2002, it's like, if you're raising venture capital at all, it's on terrible terms. It's only for basically sure things or big enterprise software plays. No one's getting funded on a consumer dream to be able to do something like this.

• 17:25David Rosenthal?

  Not to mention here are these like, you know, equivalent of modern hippies hanging out in Vancouver who all met on the internet and two of them are married. Like, I could just imagine venture capitalist reaction at this point in time. So they realize they gotta do something. They're not gonna be able to raise venture capital, but they gotta get some more money to make this happen. So Stuart and Katerina, as the story goes, and Stuart swears that this is true, they go to New York for a tech conference, and this is all swirling in their heads. And when they get there, Stuart gets food poisoning, and he gets really, really sick. And he's up all night in their hotel room in New York,

• 18:07David Rosenthal?

  you know, can't sleep, very sick. And he starts like getting kind of basically fever dreams and hallucinating. I'm pretty sure this isn't the first time Stuart has hallucinated, but in this particular time when he's hallucinating, this idea comes to him. And the idea is, hey, we're using some pretty cool technology in the browser that we're trying to make this game with, but we could use this same technology to build some other cool like tools and services for consumers more broadly. If we did that and we built something, we could probably sell it pretty quickly. Remember, he and Jason have sold gradfinder.com already. They're used to these kind of quick flip ideas. And so Stuart's like, man, if we make a side project, we could, maybe we could flip it pretty quickly for like a million dollars or so. We could

• 18:51David Rosenthal?

  use those proceeds to keep funding the game, and then we can build out the game. So-

• 18:57Ben Gilbert?

  All in service of the game, of course.

• 18:58David Rosenthal?

  All in service of the game. And so as he says, he like writes out all the ideas of things they could do on scraps of paper at 5:00 AM in the hotel in New York. And he realizes that photo sharing is, and photo uploading is something they could do. And I believe it was that they had built a photo uploader for the game that you could upload your, your profile picture. And I believe that was the core of the technology.

• 19:23Ben Gilbert?

  Yeah. And I think if I'm remembering right, there was even sort of an ancillary thing where you could upload alternative photos other than the profile picture. So if people looked at your profile on the game, there were- Photos in there that you could use for other things.

• 19:36David Rosenthal?

  Ah, okay, cool. So like, man, we could just repurpose this technology and let people share photos, you know, more broadly, digital cameras are a thing. I mean, I remember.

• 19:45Ben Gilbert?

  It should theoretically be an explosion of digital photography.

• 19:48David Rosenthal?

  Totally. I was, I was heading off to college at this point in time and all my, you know, classmates that were showing up as freshmen at, at college, everybody had their point and click.

• 19:57Ben Gilbert?

  You get your cool pics, you get your power shy, you get your Sony Digital Elf. I mean, this is like.

• 20:01David Rosenthal?

  This is.

• 20:02Ben Gilbert?

  This is the era.

• 20:03David Rosenthal?

  Yeah. Oh, man, this Sony Digital Elf. Oh, man, I hadn't thought about that in years. Okay, so they, the four of them, they decide, well, we're gonna have a vote on this. Are we gonna keep plugging away at the game or should we pause the game, go work on this photo sharing idea? They do the vote and they decide not to do it. Stuart is outvoted.

• 20:25David Rosenthal?

  And.

• 20:25Ben Gilbert?

  Look, Stuart, you seem like you got a good head on your shoulders and you got a nose for, you know.

• 20:29David Rosenthal?

  But you literally came up with this during a fever dream.

• 20:31Ben Gilbert?

  Yeah.

• 20:34David Rosenthal?

  Stuart, though, in, in, this would presage his skill and power as an executive and a CEO and a broker of, of influence, he starts going to work on Eric. He sees Eric is the weak link here. He thinks he can get him to change his vote. And he does. He gets Eric to change his vote. That pushes it over the edge and what the service that would become known as Flickr is born. We're now in December of 2003.

• 21:02Ben Gilbert?

  And keep in mind, too, that the proposal that we should do a photo sharing site, it's still seven or eight years from being a meme. Like.

• 21:11David Rosenthal?

  Oh, yeah.

• 21:11Ben Gilbert?

  The, the notion of, oh, yeah, we're just gonna pivot into photo sharing. Like, not only were they the first ones to do that, they were a whole technology wave before the set of people that, you know, you're all laughing about in your heads on, oh, a photo, yet another photo sharing app. Like, we are so far in the early innings here.

• 21:26David Rosenthal?

  Yeah. Photo sharing is, is not on anybody's mind in technology. They realize, though, that if they're gonna really commercialize this service, they need some extra engineering resources just before them, again, isn't gonna be enough. Well, it turns out, so where do they turn? There is this guy. In the UK, just outside of London, named Cal Henderson, who is a hardcore fan of Game Never Ending in the early prototype.

• 21:53Ben Gilbert?

  No, that's how Cal and Stuart met.

• 21:55David Rosenthal?

  That's how Cal, this is how Cal and Stuart meet. And Cal was such a hardcore fan, you know, he's active on the bulletin boards about Game Never Ending. He wants to like really get in there and, and help. He hacks their email servers.

• 22:10Ben Gilbert?

  Hey guys, just wanted to say hi. I'm super talented.

• 22:12David Rosenthal?

  Yeah. Look at me, look at me. And so they were like, I imagine before this idea to, to start working on Flickr, they were like, man, what are we going to do with, with this guy? And Stuart, again, in, you know, um, just, uh, showing these flashes of brilliance as an executive and marshaller of, of resources, he's like, you know what? Cal really cares about the game. We're doing this new thing to get the resources to build the game. Maybe Cal would help us. So he gets in touch with Cal and he convinces him to not work on the game, but come help them build this service. And it turns out, of course, as you would imagine, by Cal hacking into their email servers,

• 22:51David Rosenthal?

  Cal is like an incredible developer, just incredible, like a truly world, world, world-class developer.

• 22:59Ben Gilbert?

  So do they move him from the UK to Vancouver?

• 23:02David Rosenthal?

  Eventually they do, but at first, remember they don't have any money. Stuart's like, uh, the way I'll pay you is, um, you Cal, you know, like all nerds at this time, he has a, he has an Amazon wishlist. How about as you start working for us, I'll just buy you stuff off your Amazon wishlist.

• 23:19Ben Gilbert?

  Raised in a commune and somehow never, uh, never left.

• 23:21David Rosenthal?

  Yeah. Amazing, amazing. So, once Cal is on board, things just fly very quickly. So it was December 2003 when they decided to build Flickr. By February 2004, it's ready. And so like, I mean, we're talking 60 days or less. What would that be like? Less, like 45 days.

• 23:42Ben Gilbert?

  Yeah. I mean, you have some existing infrastructure to build it on, cause you know, Game Never Ending had servers and, you know, the ability to bring different people together on the internet. So like there was infrastructure there, but it's not like there was cloud services.

• 23:56David Rosenthal?

  No, and no development frameworks, no, no web 2.0 technologies. This is the invention of web 2.0 technologies here.

• 24:03Ben Gilbert?

  When we know from the name, I mean, every web 2.0 company after them copied the no E in Flickr.

• 24:08David Rosenthal?

  Yeah, indeed. So it's now February and Stuart's like, Man, we're ready to go. Like, let's ship this thing. And the rest of the team's like, uh, we're shipping the thing? And starts like, yeah, I'm gonna go, I'm gonna go talk at this conference. O'Reilly's putting on their E-TEC conference in San Diego.

• 24:23Ben Gilbert?

  Great name.

• 24:24David Rosenthal?

  Yeah. Rather than talk about the game, I'm just gonna launch Flickr. Like, we're gonna do it.

• 24:29Ben Gilbert?

  I'll have a stage.

• 24:29David Rosenthal?

  Do it live. So he, he does. He announces and demos. They, the team works through the, works through the night, the night before the presentation. They launch Flickr onstage at the E-TEC conference. And, and remember, all the bloggers that, you know, the blogging is sort of like, this is where they had all come together. They're part of this community. All the bloggers, their people are just blown away. They had never seen, nobody had ever seen anything like this. A web service native in a browser where you can actually do something useful. Like, it's, it's an actual application.

• 25:04Ben Gilbert?

  Right.

• 25:04David Rosenthal?

  Built on the web.

• 25:05Ben Gilbert?

  And, you know, if you think about the web to this point, it had been mostly sort of unidirectional content. Like, there were flat websites. You would go, you could potentially see some pros. There was images that were uploaded. You know, we had the advent of e-commerce with Amazon, having, you know, successfully navigated through the dot com bubble. So you've got the first place where you can actually start to buy things. But there's still not the notion that we have today that websites are interactive.

• 25:33David Rosenthal?

  Yeah.

• 25:33Ben Gilbert?

  That I can upload things, download things, interact with other people.

• 25:37David Rosenthal?

  People.

• 25:37Ben Gilbert?

  Yeah, that's not.

• 25:38David Rosenthal?

  On the actual site itself. You needed to download something like Napster in order to do that. So the press is, is blown away there. And, and some mainstream press, but even more importantly, all these other bloggers that are there. And so the blogosphere ends up being the perfect early adopters for Flickr. Because all of these people have blogs, most of them run on Blogger. So at this point, Google had already bought Blogger, F. Williams' company. But Blogger didn't have native photos in it. And so what does Google and Blogger do? They see this and they're like, oh, great. Use Flickr for photos if you want to host photos on, on your blog. And it just starts to spiral and.

• 26:22Ben Gilbert?

  This is, this is like the Google of yesteryear, yesteryear year where rather than saying, oh, we're going to clone that into our product. It's so cool. That's great. Then we don't have to build it. We'll just put a button to make your thing work.

• 26:32David Rosenthal?

  Yeah.

• 26:32Ben Gilbert?

  Sure, you can have some users.

• 26:33David Rosenthal?

  Man, I mean, this really is the, it's the, these are the young idealistic, don't be evil days of the internet.

• 26:38Ben Gilbert?

  Yep.

• 26:38David Rosenthal?

  Or I would say the, the post.com crash. People had seen the evil where we're going to be idealistic once again.

• 26:46David Rosenthal?

  And so, so Flickr really starts to take off. They quickly get a lot of M and A interest. So the Stewart's plan is coming true. Google, Yahoo, Ask Jeeves. Remember?

• 26:57Ben Gilbert?

  The big three, man.

• 26:58David Rosenthal?

  The big three. They all want to buy the company. Yahoo becomes the most serious and moves the fastest. And by the end of 2004, the deal is done and Flickr is acquired by Yahoo within, you know, the-

• 27:13Ben Gilbert?

  I don't think I ever realized how short the independent life of Flickr was.

• 27:18David Rosenthal?

  It was, it was a brief flicker in time.

• 27:21Ben Gilbert?

  Oh, boy.

• 27:22David Rosenthal?

  I know. Okay. Okay. Okay. I'm sorry. I'm sorry.

• 27:24Ben Gilbert?

  Oh, David.

• 27:26David Rosenthal?

  By, so by the end of 2004, the deal is done. Yahoo acquires Flickr for, quote, between 22 to 25 million dollars.

• 27:33Ben Gilbert?

  And that's a pretty narrow range. Like, I feel comfortable not knowing the exact number.

• 27:38David Rosenthal?

  Everyone high fives and celebrates, but there's just one catch, though. Yahoo is paying them all this money, but they want the team in addition to Flickr. And they put a three-year earnout. So there's no going back to game, never ending right away. Yahoo moves them all down to San Francisco. The plan is that they are going to continue to build and, and grow Flickr within Yahoo with all of the resources and reach that Yahoo as a major internet company can give them.

• 28:09Ben Gilbert?

  Now, David, you know, as a person who does a podcast on the internet about technology acquisitions, that's kind of, that's how it tends to go, right? You have this amazing resource and engineering pool and brand of big company. You have this wildly disruptive product that gets bought. Surely it's a match made in heaven.

• 28:26David Rosenthal?

  Surely. Well, actually today, depending on who the acquirer is or how much they listen to acquire, there might be a good chance that- That could be the case, but back in 2004 and with Yahoo at the time, yeah, uh, no. So, uh, the team gets there and it is, um, not a match made in heaven.

• 28:45Ben Gilbert?

  Oil and water.

• 28:46David Rosenthal?

  Yeah, let's, uh, let's just leave it at that. Stuart talks about this a lot. He says a couple of things. One, just the decision to sell and do that, you know, obviously that was the plan from the beginning with pivoting into Flickr. But even more than that, you know, everybody he knew, all the people advised him and they were like, yeah, sell the company. Like, of course, man, you're like a couple of months in, you've got this traction, like.

• 29:09Ben Gilbert?

  It's not like you've raised a lot of money. There's not a ton of employees. Like you guys are gonna get rich individually from this.

• 29:14David Rosenthal?

  Like this is it. This is the dream. Like, yeah, 22 to 25 million dollars. Hit that bid. And, um, and it wasn't even a question. Um, but now of course, like, nobody would ever do that. Like never, ever, ever would somebody do that, you know, Instagram selling for a billion dollars to Facebook. Like people wouldn't even do that, you know, if you have a tiger by the tail like this, you know, you're going to be flooded with offers to invest from venture capitalists, everybody telling you not to sell, go big, you know, build a big independent company. None of that existed back then. So it was like, I don't think the thought even crossed their minds once not to sell. Two, then, you know, he talks about the experience at Yahoo and, um, I think it actually, you know, as we've, I think, seen so far in this history.

• 29:56David Rosenthal?

  Stuart has a lot of raw potential, certainly creatively, but also on the business and leadership side.

• 30:03Ben Gilbert?

  Yep.

• 30:04David Rosenthal?

  And while I think his time at Yahoo was oil and water, like he says, he learned a lot there too. Like he saw how a real big company is run, uh, for better or for worse, you know, how, and he worked for Brad Garland House, who was a really talented, uh, executive there at Yahoo. I mean, these were the days like Jeff Weiner was there. There were a lot of great folks at Yahoo.

• 30:24Ben Gilbert?

  How long did Stuart stay? Do you know?

• 30:26David Rosenthal?

  So he stayed, so the whole team was a three-year earnout and

• 30:30Ben Gilbert?

  They stayed for the three.

• 30:31David Rosenthal?

  The whole team stayed for the three-year earnout, but right at the end of it, everyone else leaves. Katerina leaves, that was a big deal. And so we're now in 2008 and folks might remember, these are the days when Yahoo is a mess. These are the

• 30:46Ben Gilbert?

  Yeah.

• 30:46David Rosenthal?

  The, um, the Carol Bart's days and everything. Oh my gosh. And Kara Swisher is all over the company. This is like the heyday of Kara Swisher. And

• 30:55Ben Gilbert?

  Take down after take down.

• 30:56David Rosenthal?

  Oh, just blog post after blog post on all things D. Just painting a picture of what's going on internally and it's not pretty.

• 31:03Ben Gilbert?

  And one thing to remember about why Katerina leaving was such a big deal was because even though Flickr was a photo sharing website, everyone who was on it felt like they were a member of the community and like it was a lifestyle they had opted into and, and Katerina and to some extent Stuart, but I, Katerina was a largely the public face of this is the community that I belong to. And these are the types of people that, you know, I love to leave comments on their pictures. I love it when they leave comments on mine. You know, I think there was a social graph. There was an amount of following and friends that you could have on there. And so it was like you joined a hippie commune and your, your leader left.

• 31:44David Rosenthal?

  I wasn't, it was more than a hippie commune. I mean, Stuart and Katerina were on the cover of Newsweek, like

• 31:49Ben Gilbert?

  Yeah, I shouldn't, I shouldn't try and belittle that.

• 31:51David Rosenthal?

  Yeah. No, but I mean, it was the same ethos, but it was, it was, this was like big. This was, um, this was really mainstream, especially among younger demographics. All of this with everything going on at Yahoo, like they were really upset. And so they actually convinced Stuart, uh, so Jason, Eric and Katerina all leave as soon as the earnout's done. They convinced Stuart to stay a little longer. Um, so he does, he stays a few extra months. Ultimately though, he can't take it either. And so in the summer of, of 2008, he leaves and, uh, he writes, Brad, his boss makes him write a, he's like, dude, you gotta, you can't just leave. You gotta write like a resignation. And he writes something like nice, like the company's in all this trouble that, like, talk about your time here. And Stuart writes this hilarious.

• 32:36David Rosenthal?

  Designation memo that's still on the internet where it's just complete like absurdism. He talks about how Yahoo is like a metals, you know, production company and tin is the tin. The metal is in Stewart's blood and he joined to like mine tin and now they're doing it's absurd.

• 32:54Ben Gilbert?

  I'll look it up after the show.

• 32:55David Rosenthal?

  Yeah, it's fine. We'll link to it in the show notes. Anyway, that is the end of Flickr and the end of Stewart's brief internment at Yahoo. Unfortunately, though, and sadly, it's also the end of Stewart and Katerina's marriage. Right after Stewart leaves, the marriage ends. Katerina ends up moving back to New York. She then co-founds the company Hunch with Chris Dixon in New York.

• 33:21Ben Gilbert?

  Oh, yeah.

• 33:21David Rosenthal?

  Ends up getting acquired by eBay and Katerina also becomes the chairwoman of Etsy. So really talented and great career she's had since. Stewart, though, he's kind of like, whoa, I grew up on a commune and here I am.

• 33:35Ben Gilbert?

  Those were his first words on Yahoo.

• 33:38David Rosenthal?

  I'm done. He needs to just take a break. He leaves San Francisco and he moves back to Vancouver. Takes some time off through the rest of 2008. But by the beginning of 2009, you know, the other, the other folks, Cal and.

• 33:53Ben Gilbert?

  He's got timing, by the way. Like, both of these companies are started in the rubble of financial crashes.

• 33:59David Rosenthal?

  Totally, totally. Yeah, it's beginning of 2009. The world has fallen apart. Eric and Jason and Cal, they've, they've all left Yahoo too. And, and remember, you know, they made certainly a good amount of money on the Flickr acquisition, but not enough that you can survive forever, especially after the financial crisis. And they're like, K-Stewart, like, we're ready to get the band back together. What's next, man? You're our fearless leader. And so they, they come back up to Vancouver and they say, you know, game never ending. The time wasn't right. It didn't happen the first time, but it's now 2009. So many more people are online. Gaming is so much more a thing. World of Warcraft is huge.

• 34:44David Rosenthal?

  Massively multiplayer online gaming is so much more a thing. Maybe now's the time to, to take another shot at this.

• 34:51David Rosenthal?

  So they do. They start, they start the company. Once again, it is a different company name from the game name. They call the company Tiny Speck, where the four of them start, and they call the game Glitch. I don't know if it was Glitch in the Matrix or exactly where the, where the name came from. But they see World of Warcraft, they see how popular that is. They say, once again, much like with, with Flickr and the original vision for game Neverending, we can do a lot of what, what World of Warcraft is doing. We can do it on, on the web natively in the browser and then people don't have to go buy a disc because people are still doing that at that point in time, or, or download the game. They can just play within the browser. But again, like, we're, we're idealists. Like, you know, the thing that kind of sucks about World of Warcraft is people are killing

• 35:34David Rosenthal?

  each other. You know, it's all about violence. Like, what if we made, what if we made this game Glitch about nonviolence and let people, you know, create and collaborate together?

• 35:43Ben Gilbert?

  Hey, sounds great to me.

• 35:44David Rosenthal?

  Yeah, sounds, sounds great. And Stuart and team, again, they're pretty famous at this point. The investor community is also like, yeah, that sounds great. Here's a lot of money.

• 35:55Ben Gilbert?

  Yeah. We saw what you did last time. The kind of what you're doing is irrelevant, but it sounds like a sufficiently large swing. We're in.

• 36:01David Rosenthal?

  We're in. So right now-

• 36:03Ben Gilbert?

  I will say, I would kill to be in on Stuart's next gaming company.

• 36:05David Rosenthal?

  Absolutely. As, as would anybody. I don't think there's going to be a next gaming company. I'm calling that now. So they raised one and a half million from angels right out of the gate, including super angels at this point, Marc Andreessen and Ben Horowitz, who are just in the process of starting their firm. And Excel also participates in this angel round, and it is hot. Tons of people, engineers want to come work for them. People want to give them more money. In 2010, they raise a Series A led by Excel, $5 million. In August of 2010, Kara Swisher flies up to Vancouver. We're going to link to this in the show notes. This is amazing. To interview Stuart, this is during her Flipcam era where

• 36:48David Rosenthal?

  she was taking a Flipcam around to tech companies and just like impromptu video interviewing people.

• 36:54Ben Gilbert?

  This was, yeah, I remember this because this, that was also the summer that I interned at Cisco when we bought them and everyone was wildly confused on why that happened. That's a good episode.

• 37:03David Rosenthal?

  It's all, it's all because of Kara. So she flies up to interview Stuart and, you know, sees, get an early look at Glitch and- Man, it's crazy. You can understand why nobody played this thing. 2011, it's still so hot. The company raises another almost $11 million from the firm Andreessen Horowitz.

• 37:23Ben Gilbert?

  So this is now 17, 18 million in the bank for a thing that hasn't shipped and is a little suspect.

• 37:29David Rosenthal?

  Nonviolent MMO.

• 37:31Ben Gilbert?

  Yep.

• 37:31David Rosenthal?

  All right. Interestingly, though, they, you know, the team and Stort, they, they're such celebrities. They have reached really across America, across the world for engineers and designers who want to come work for them. And so they, they're like, yeah, like we're in Vancouver, but we'll set up a remote team. So they have employees, they have employees in New York, they have employees in San Francisco and Vancouver, all over the place. They end up staffing up to about 40 engineers and designers working on the game. And it becomes pretty hard to collaborate. These are pre Zoom days and

• 38:04Ben Gilbert?

  It's pre anything days.

• 38:05David Rosenthal?

  Pre anything days. They need, they need

• 38:08Ben Gilbert?

  Who could, who knows how else you could communicate online with a remote team?

• 38:11David Rosenthal?

  They realized they need some, some tools to, to help them, you know, get work done and collaborate remotely. So they turn to, given the, you know, hippie roots, hippie internet roots of, of Stort and team. They turn to the natural solution to this problem, internet relay chat.

• 38:28Ben Gilbert?

  Woo.

• 38:29David Rosenthal?

  IRC, baby.

• 38:30Ben Gilbert?

  It's 1988 all over again. And for folks who don't know IRC, it's a early, early internet protocol that is used to allow people to connect to a common server and using a terminal based interface, basically have chat rooms where you can, you know, directly message people. You can talk in a room about a designated topic. And there can, you can stand this up for the open source project of your choice, to be able to communicate about anything that you and other software developers are working on.

• 39:00David Rosenthal?

  You lost me at connect to a server.

• 39:05David Rosenthal?

  And that actually was the point. IRC was super cool and

• 39:09Ben Gilbert?

  Still is, still is widely used.

• 39:11David Rosenthal?

  Is super cool and widely used and has this really cool concept of, of channels that are persistent, where you can have discussions around topics that are independent of, of users. But it's not exactly accessible. So the team at TinySpec, they start using it and they're like, you know, we could build some, just some really lightweight stuff around IRC to make it more accessible as we Onboard new team members for all these new engineers and designers that we're, we're hiring. They may or may not have used I R C before. Certainly, the onboarding process is, is difficult. So they build a bunch of tools. They internally call the system line feed and it really, you know, helps them be productive. So productive that finally,

• 39:52David Rosenthal?

  two plus years after starting the company, sensing a theme here, they finally launched Glitch at the end of 2011. Big, big, you know, press, you know, Kara has done all these interviews. The tech community knows all about what they're working on. They've raised all this money from these great venture capital firms and it's a flop.

• 40:12Ben Gilbert?

  Oh yeah. I mean,

• 40:12David Rosenthal?

  Nobody uses the thing.

• 40:14Ben Gilbert?

  Hundreds of people flood in to, to try.

• 40:16David Rosenthal?

  Literally hundreds of people flood in to, to use the thing. So very quickly, they launched in September of 2011. In November, they dialed back into beta. Never, never a good sign.

• 40:27Ben Gilbert?

  I think Stuart branded that, uh, they un-launched the product.

• 40:30David Rosenthal?

  Exactly. Exactly. And so they keep tinkering and releasing and pulling it back into beta and re-releasing and, and trying to make this thing work. And it just doesn't.

• 40:41Ben Gilbert?

  Beta never ending.

• 40:41David Rosenthal?

  Beta never ending, indeed. And so finally, a year later, one night in October 2012, they've been pounding on this for a year. Stuart has another sleepless night. I don't think he had food poisoning this time. He's, he's got all these people, these 40 people that depend on him. And he's like, man, this is just not going to work. Like it's, I, I know we're supposed to keep trying. We still have money in the bank, but, but I've lost faith. It's, it's done. And he, he talks about it. He said, it was like the feeling that you get when, um, you know, you, you kind of, you know, you have to fire someone and you just like, you, you don't want to, you want to try and make it work, but, but that thought, that feeling is just constantly like in your stomach, over your mind. He

• 41:26David Rosenthal?

  said that's how he felt about the game and, and the, and the company. So he wakes up the next day and he writes an email to the board and he says, quote, in typical Stuart fashion, "I do not feel that we are pouring gas on a fire here. More like pouring good whiskey on a drugstore heating pad."

• 41:46David Rosenthal?

  It is unlikely to burst into flames. And the board is like, yeah, I mean, you're right. Like, we were thinking the same thing, dude. And so Stuart, then after that, he calls an all hands meeting from Vancouver, gets the San Francisco and New York teams and all the remote people on the phone. And he just bursts into tears and he starts crying and he says, guys, it's over. You know, like, no, and nobody on the team saw this coming. They still had plenty of money in the bank. They thought they were working at this hot company. And, and here Stuart is saying, I'm calling it. I've lost faith. We're done. And so they lay off all but the four co-founders and they keep four employees.

• 42:28David Rosenthal?

  But before they do anything, Stuart's like, he's, he's just devastated by this. They do everything they can and they get jobs for everybody else.

• 42:36Ben Gilbert?

  I was gonna say importantly, and we'll see this, this come back to be a huge asset for the company later. The way that they did these layouts was incredibly humane. And the way that they took, sort of took care of everyone. The sentiment leaving was, I would 100% go work for Stuart again, even though this thing completely, you know, fireballed.

• 42:55David Rosenthal?

  They take a few months and, and literally the mission is get everybody a job. So they set up a website called Hire a Genius. And, and they create profiles for all of the former employees on the website. It's pretty cool. It's pretty cool what they do. They also upload all of the code and all of the art and design from Glitch to a server and put it in the public domain. So they're like, we've built all this, we want it to exist.

• 43:21Ben Gilbert?

  I bet that's been like, I don't, what's the visual equivalent of sampling? I bet it's been used in other games.

• 43:25David Rosenthal?

  Yeah, I bet, I mean, it's, it's, it's up there. Anyone, anyone can go grab it, use it, do whatever with it. It's still there. And, and it's funny on the, on the sidebar of the page that it, that's hosting it. You know, it says, it's about Tiny Speck and about Glitch. And then there's like, and Tiny Speck is working on a new project. It's called Slack. Check it out. It's pretty funny. They haven't updated the page in a while.

• 43:48Ben Gilbert?

  Yeah, we, we've thought of a new name since Line Feed.

• 43:50David Rosenthal?

  Yeah.

• 43:52Ben Gilbert?

  All right, listeners. Now is a great time to thank our longtime friend of the show, ServiceNow. If you are running a large enterprise, AI agents are likely spread across every team and deploying them is no longer the hard part.

• 44:06David Rosenthal?

  Yeah, the hard part is knowing what permissions they have, what employees are using them for, or what decisions AI is making. AI security for an enterprise at scale is not a small concern. Like, the risks are real.

• 44:20Ben Gilbert?

  Exactly. And the challenge with AI is governing it, securing it, measuring it, and making sure that it actually delivers value. That is why ServiceNow built the AI control tower.

• 44:30David Rosenthal?

  Yep. AI Control Tower gives enterprises a single place to see, manage, govern, and optimize AI across the entire business. And it works with any AI, not just theirs. Every device on your network, every permission across every system, every AI agent, visible and secure in one place.

• 44:47Ben Gilbert?

  And ServiceNow can do this because they've spent more than 20 years building the operational backbone of the enterprise. The workflows, governance, approvals, security controls, and institutional knowledge that power how work actually gets done across IT, HR, customer service, finance, and security.

• 45:03David Rosenthal?

  ServiceNow already runs more than 100 billion workflows annually and trillions of transactions for more than 85% of the Fortune 500. So when companies need a place to govern AI at enterprise scale, they're building on a platform at the center of how their business already operates.

• 45:20Ben Gilbert?

  And in a future that isn't going to be one AI, it's going to be thousands of AI agents working across every function of the company. But the question is, who's managing them all?

• 45:29David Rosenthal?

  So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely, at scale, go check out servicenow.com/acquired and tell them that Ben and David sent you.

• 45:40Ben Gilbert?

  Before you take it back to the story, so you mentioned that email that went out to the board. So John O'Farrell forwarded an email to Mark Andreessen and the whole Andreessen Horowitz team.

• 45:51David Rosenthal?

  And John O'Farrell was the board member for the partner at Andreessen Horowitz, and they're board member.

• 45:55Ben Gilbert?

  And Mark Andreessen presciently replies to, I think it's the whole Andreessen Horowitz partnership, "It is what it is,..." If history repeats itself and they come up with the next flicker, all will still end well. Mark.

• 46:12David Rosenthal?

  Well, spoiler alert, they don't come up with the next flicker.

• 46:16Ben Gilbert?

  No.

• 46:17David Rosenthal?

  No. They come up with something about a thousand times bigger.

• 46:22Ben Gilbert?

  Sounds about right.

• 46:22David Rosenthal?

  Yeah, so far. Could be even bigger. So, in my notes, I often break these sections out into chapters. This chapter is called "The Phoenix Rises." So, they still have $5 million left in the bank, and the reason that they kept four of the employees and the four co-founders stayed on together is they wanted to do something. They felt like they'd been through this experience together. They had this incredible core team. And Stuart has this quote, he says, "When you go through a trauma together with a group of people, you get bound together and you just want to keep working." And like, it's so, it's so true. I can, I can totally relate to this. And what's super cool is they end up eventually being able to hire back a lot of the people that they laid off,

• 47:03David Rosenthal?

  which is, which is great. So, what are they gonna do? Well, this is, remember, this is the end of 2012. Something else had happened in 2012 that not many people outside the tech world took note of, but lots of people in the kind of engineering world were aware of. There was a company called Atlassian, covered on a previous acquired episode. Atlassian in 2012, in March, acquired a little San Francisco company called HipChat. HipChat had become all the rage amongst developer teams.

• 47:39Ben Gilbert?

  Oh yeah. All the cool dev teams were using it. You wanted to be at a company where you could develop and talk to the rest of your team in HipChat.

• 47:45David Rosenthal?

  Yeah. I mean, it was like, this'll foreshadow what becomes of TinySpec here, but almost like a perk. Companies, engineering teams were like, "Yeah, come work for us. Like, we're a HipChat shop." Like, it was like, "Oh yeah, like, these guys get it."

• 47:57Ben Gilbert?

  And... They're cool. They're using modern communication tools.

• 48:00David Rosenthal?

  Indeed. And so HipChat had been launched by a bunch of young guys, and they'd launched in 2010. Within four months, they had a thousand companies that were signing up, mostly dev teams, using HipChat. And...

• 48:14Ben Gilbert?

  Sounds like they must have used a very self-serve way of...

• 48:18David Rosenthal?

  Sounds like it. Well, and then when they get acquired by Atlassian, and of course, the DNA of Atlassian... And is developer focused tools, self-serve, no sales. Famously, we talked about in the Atlassian episode, there are no salespeople that work at Atlassian. It's all just organic adoption by mostly development teams. That really turbocharged HipChat. And of course, as we also talked about on the Atlassian episode, the major investors, not venture capital backers, but they'd done secondary deal in Atlassian were Excel. And of course, who is the largest shareholder in Slack? Excel. Interesting. Now, we don't know for sure that all of this was on Stuart and the team's mind as they were casting about for what to do next. But it's important to note that this was happening in the background.

• 49:00David Rosenthal?

  Like, the moment was arriving for modern chat-based communication software.

• 49:05Ben Gilbert?

  God, we, I mean, pulling forward a tech theme here. This seems to come up, I don't know, every other episode, that there was a moment in time where the world was ready for a thing. And so multiple parties arrived at it simultaneously. I mean, you think about ride sharing, you think about social networking, think about the Instagram acquisition and all the other Instagram-like companies that started right around that same time.

• 49:26David Rosenthal?

  Famously, Andreessen Horowitz, which had invested in the seed round of Bourbon, which became Instagram. They did not invest in the Series A because they were.

• 49:36Ben Gilbert?

  They were in Pick Please.

• 49:36David Rosenthal?

  They were in Pick Please and they backed Pick Please.

• 49:39Ben Gilbert?

  Man. And the interesting thing about this is sometimes it's driven by a technology, like mobile's taking off. Cameras are finally good enough. It seems like mobile photo sharing is going to be a thing. Other times, the line is less clear on the technology, that it's more sort of a social moment has arrived where people are comfortable with where technology is. So you can use technology that's been available for several years to make something happen where there's a cultural understanding that people are ready. And of course, I'm sure Slack and HipChat had to use, like, there had to be some sufficient advancement in Ajax. Or I don't know if people were still calling it Ajax at the time, but the ability to have webpages that refreshed without refreshing the whole page.

• 50:23Ben Gilbert?

  But it certainly wasn't like the iPhone shipped and then it made possible this, you know, multi-party text communication thing.

• 50:31David Rosenthal?

  Well, I think what. We've seen in our last couple of episodes here on Acquired and we're gonna see here the really, truly huge, great companies get built at the Venn diagram intersection of a technology shift, a cultural shift and a business model shift. And HipChat hit the technology shift and the cultural shift. They didn't hit the business model shift quite right. And so we're gonna talk about what Slack does here now. So TinySpec, they realized, man, we've got this tool, LineFeed, that we built around IRC. The interface is cleaner, it's more modern, sort of like HipChat. More importantly, it's really easy to join. Like, if you wanted to join an IRC channel, you know, you had to like connect to the server. Like, no normal human is gonna do that. And so

• 51:14David Rosenthal?

  there are all these benefits of LineFeed. And they're like, kind of within a week after they got the team jobs, they were like, yeah, LineFeed, we're gonna do that. Let's make that the product.

• 51:23Ben Gilbert?

  Most pivots take much longer to arrive.

• 51:25David Rosenthal?

  Well, it's funny, when Stuart talks about this, he's like, it felt like an eternity that we were trying to figure out what to do. And he's like, then I went back and looked at the history in LineFeed and it was a week. By the end of the week, we're like, yeah, we're doing this. So they go to the investors, they go to Excel and entries and they're like, we're gonna build out, you know, enterprise, not enterprise, but team tech communication. And, you know, now in

• 51:49Ben Gilbert?

  I think the word enterprise wasn't uttered out of Stuart's mouth for a while.

• 51:52David Rosenthal?

  Yeah. And, you know, the story now is that the investors were like, ah, yeah, how great, we believe in you. Like, it's Flickr all over, we'll do it again. I think the reality was a little more nuanced than that. Remember, Excel is largest outside shareholder in Atlassian at this point. So I think they were like, more like, yeah, okay, fine, but like, you guys are doing

• 52:13Ben Gilbert?

  Yeah.

• 52:14David Rosenthal?

  productivity software? Like, okay. But fortunately, they say, all right, you know, do it. We'll let our, we'll let our money ride, keep the 5 million and see what you can do. They start working on it and they have to decide what to call it. The team is like, LineFeed, that's, that's not accessible enough.

• 52:32Ben Gilbert?

  That's like the IRC of names.

• 52:33David Rosenthal?

  Exactly, exactly. Stuart comes up with the name one night and he's like, I have it, we're gonna have an acronym for the company, Slack. I love the word Slack. And the acronym is Searchable Log of All Conversation and Knowledge. S-L-A-C-K.

• 52:50Ben Gilbert?

  Which fortunately, they never used in any marketing material and was just known by the name Slack.

• 52:54David Rosenthal?

  And so we'll link to this in the show notes. He posted a few years ago on Twitter, the actual like screenshot of the conversation with the team on line feed about this. And he's like telling everybody his idea. And I think it's Eric is like, man, dude, that's, that's not good. Like.

• 53:11Ben Gilbert?

  How similar, actually I haven't clicked this yet. I'm now clicking the link. How similar does this actually look to the Slack UI?

• 53:17David Rosenthal?

  Not similar.

• 53:17Ben Gilbert?

  Oh, not at all. It's just, it's just IRC.

• 53:19David Rosenthal?

  MetaLab had not been involved yet.

• 53:21Ben Gilbert?

  Oh, yeah. I mean, because this is literally just text.

• 53:25David Rosenthal?

  Yeah, the line feed internally, like it was, they'd made joining easier and they'd done a lot of like

• 53:30Ben Gilbert?

  This is just IRC.

• 53:30David Rosenthal?

  Nice improvements, but there's no, there's no nice UI on top of it yet. So it really was like having a pretty big vision to see that you could turn this into what would become Slack. So the team hates it.

• 53:43Ben Gilbert?

  Stuart says, oh, to sell him, he says, ah, it's just a code name. Like, oh yeah, we'll use that for now.

• 53:49David Rosenthal?

  Yeah, we'll just use it for now.

• 53:50Ben Gilbert?

  And then Eric says, ah, cool.

• 53:52David Rosenthal?

  Yeah. Again, Stuart, you know, he's, he's very creative.

• 53:57Ben Gilbert?

  He's like the Captain Picard of.

• 53:59David Rosenthal?

  He is, you know, he's got like real management and leadership chops, you know, he knows how to broker influence.

• 54:05Ben Gilbert?

  Yep.

• 54:05David Rosenthal?

  So he's like, yeah, yeah, just a code name. Well, then he goes off and he's like, all right, well, I'm going to see what the, what the domain name is of, if this is available for slack.com. Turns out he, the slack.com is registered to an electrical engineer in Wisconsin, who is using the domain to host pictures of his cats.

• 54:24Ben Gilbert?

  I mean, that's going to be a hard thing to pry off a guy.

• 54:26David Rosenthal?

  Yeah.

• 54:29David Rosenthal?

  If by hard thing, you mean very easy for like a decent amount of money.

• 54:33Ben Gilbert?

  I mean, I wouldn't sell, but okay.

• 54:34David Rosenthal?

  Yeah. Well, yeah, of course I would, I would, of course I would sell. They get the domain name, Slack becomes the name. They build out the product within a couple of short months. Once again, you know, echoes back to the Flickr days.

• 54:46Ben Gilbert?

  Yep.

• 54:47David Rosenthal?

  They bring on, really importantly, MetaLab.

• 54:50Ben Gilbert?

  And aren't, do I have this right? MetaLab is a Victoria-based company, right?

• 54:53David Rosenthal?

  They're based in Victoria. Yeah.

• 54:54Ben Gilbert?

  Ah, so I finally just put that together, why they would be the.

• 54:58David Rosenthal?

  Yep. And MetaLab is a UI design firm, really, really, truly world-class, based in Victoria.

• 55:04Ben Gilbert?

  They had done some cool productivity apps of their own. I think, was it Flow? They, they had a GTD or like a to-do list tool at one point.

• 55:12David Rosenthal?

  Ah, it's competing with you and sees the day.

• 55:14Ben Gilbert?

  Yeah, theirs was very nice.

• 55:16David Rosenthal?

  I'm sure yours was nice, too. Maybe not quite as nice.

• 55:19Ben Gilbert?

  Thank you.

• 55:21David Rosenthal?

  So they bring on MetaLab to redo the UI and the UI is so different from anything anyone's ever seen.

• 55:28Ben Gilbert?

  These guys do Tiny now, right? Is that that's the same group? It's a basically small cap, private equity shop that owns really, really design focused, beautiful, cash flowing technology products. So like Dribbble, they bought Dribbble.

• 55:40David Rosenthal?

  Ah, cool.

• 55:41Ben Gilbert?

  Yeah.

• 55:42David Rosenthal?

  Cool, cool. Everyone, I assume, knows the Slack UI because hopefully you're in our acquired Slack. If you're not, come to go to acquired.fm and sign up to join. It is accessible to the normal person to a degree that, you know, even HipChat can't come close to.

• 55:58Ben Gilbert?

  You join and Slackbot welcomes you. And just by interacting with Slackbot, you get a feel for how you're supposed to use the product.

• 56:03David Rosenthal?

  Yep. So mid 2013, again, after just a couple of months, they're ready. They're ready to take it out into the world. And they go out to some of their friends at other companies, try and convince them to try it. And it turns out they had kind of a hard time because people are like, what is this? Why should I use it? I use HipChat.

• 56:20Ben Gilbert?

  So I have, I have my own story about that. I mean, when this launched and I remember seeing on like Hacker News and this was like a darling of Silicon Valley, check out this new quote, it's the new way to work. I mean, people were billing it as like, this is the new way that teams work together. And I'm like, okay, well, I gotta give it a shot. And I'm working at Microsoft at the time and I go, I sign up for it. I make like whatever my obscure team name at microsoft slac.com was. Like I'm sending it around and people are A, reticent to join, B.

• 56:48David Rosenthal?

  I'm on link. I use Yammer.

• 56:50Ben Gilbert?

  Yeah. It's like, what is the, is it, so it's, it's link, like it's, it's replacing chat or is it replacing email? And I'm like, oh, it's sort of in the middle. It has all these integrations, but like, it's actually being the first person trying to sell it to your team. If your team wasn't already using some type of sort of ever persistent chat, it's actually kind of a hard thing to get people to understand why it would be useful.

• 57:11David Rosenthal?

  Yeah. So through the summer, they work with a couple, you know, Friends, companies to land this messaging and they figure out, they get really good at explaining why, because most people have never used something like this before. What it is, why you should use it, why it helps, why it's better than email. And more importantly, just making the onboarding process super, super easy and fast. So the first decent sized company that get to use it is Ardio. Ardio is about 120 person organization. They sign up first, it's the engineering team that starts using it. Then it starts to spread and pretty quickly, the whole company is using it and they're addicted. And from these Ardio and a couple of other companies, what happens is the companies start evangelizing

• 57:53David Rosenthal?

  and all the employees of the company start telling their friends at other companies, hey, we've switched to this thing called Slack. It's amazing. It's changing the way we work and that starts to build a ton of buzz. And so

• 58:03Ben Gilbert?

  Which I'll say is interesting, it's that popping out to playbook for a second. It requires a word of mouth, not usage, because there is a intra-company network effect with Slack, where you're inviting all your colleagues, but there's not a cross-company network effect. Whereas you take the flip side of that, like Zoom, Zoom, there's a cross-company network effect. Cause to communicate with someone at that other company, you need to click the Zoom link to join and then you're a user. With Slack, it has to be that I'm getting so much utility out of it at my company and it's grown within my company that now I go and tell somebody at a different company about it.

• 58:38David Rosenthal?

  And importantly, we'll talk about this in a minute. Slack and Stuart and the team like embrace this fact and they make, they realize that Twitter is their friend here. And people tweeting about how much they love Slack. And then the Slack team amplifying those tweets is a big part about generating buzz and building up demand. So they officially launch, Slack does in a preview release to the public in August 2013. Again, less than a year after making the pivot. On the first day that they launch, 8,000 companies sign up for the waitlist. I mean, this is incredible. This is how much buzz had already been building, how much of a celebrity

• 59:19Ben Gilbert?

  Take that, hip chat.

• 59:20David Rosenthal?

  Yeah, exactly. And then within two weeks, there's 15,000. Companies that are signed up or teams that are signed up on the waitlist to use it. They pretty quickly launch paid and I alluded to business model in a minute, a minute ago. With the paid plan, and we're going to talk about the freemium model, within a couple of weeks of launching paid, they're at a million dollars in ARR. And like most SaaS companies, you know, it takes

• 59:45Ben Gilbert?

  Takes a year, year and a half.

• 59:46David Rosenthal?

  Two years to get to, to get to that level. They're there in weeks. By February 2014, they have 10,000 new users signing up a day. These are not companies, but users within the companies. Signing up a day. They have 135,000 paying users and it's even at large enterprises. So at this point.

• 1:00:04Ben Gilbert?

  That's what, like 10 bucks a seat? No, five bucks a seat.

• 1:00:06David Rosenthal?

  It's uh, seven or eight bucks a month.

• 1:00:09Ben Gilbert?

  Okay.

• 1:00:09David Rosenthal?

  Or you're 80 dollars, 80 dollars a year or eight dollars a month, I think. And what's cool is they're, they're not trying to target the enterprise yet, but they have all these huge organizations. They're teams that have organically adopted, like you did at Microsoft. They said, uh, at this point in time in February 2014, there are nine different teams at Adobe that are all paying users of Slack.

• 1:00:30Ben Gilbert?

  Whoa. It's funny, you could, there was a little security exploit for a while where you could figure out what the names of teams at a company were. Because Slack had built this really ingenious user friendly feature that actually exposed information companies may not have wanted to at the very beginning. I remember uh, trying to sign up with an email address. Cause the way that they made sure you were at the company is by looking at your domain name. So I'm like, okay, like [email protected]. Like, let's see if uh, they'll let me sign up as an Apple employee and join the Apple Slack. And of course it doesn't, but what it does say is, hey, your company already has eight teams using Slack.

• 1:01:08David Rosenthal?

  Yeah.

• 1:01:08Ben Gilbert?

  Here's the name of each of those slacks. And I was like, oh my God, like I'm learning the names of.

• 1:01:13David Rosenthal?

  iPhone 10 code project.

• 1:01:16Ben Gilbert?

  What is P42X?

• 1:01:20David Rosenthal?

  Project purple?

• 1:01:21Ben Gilbert?

  Uh, no, I'm making something up, but yeah. It just goes to show you though, like how well thought through it was for, okay, someone at a company is going to try and join. Cause they're just poking around and figuring out, does my company have an account? Or not, or how does that even work? Cause this was a different way than software was sold and adopted before. Let's make it easy for people to find the team that they're looking for within their company. Once we know they have that email address.

• 1:01:45David Rosenthal?

  Yeah. So on the back of this, April 2014, there is $43 million in a series C led by Mamoun at social capital. He's now at Kleiner Perkins, which is an amazing venture investment. So let's take a step back here. You know, I talked a minute ago about the Venn diagram of clearly technology shift, cultural shift. These are happening. That's the background for Slack and HipChat before it. But the third piece, the business model. What Slack did that was so brilliant and is just the parallels to Zoom are perfect. Is they nailed how to structure the freemium model for this product and service.

• 1:02:27David Rosenthal?

  So HipChat, when HipChat launched and everything else, certainly all the Microsoft products and whatnot in this chat based collaboration space. The freemium gate was number of users. So HipChat was free for up to five users. Once you had more than five users, you had to pay. And of course that makes sense. Like if you're taking a enterprise approach to things like, yeah, you're charging on a perceived basis. Like you said, you know, let people try it a little bit.

• 1:02:52Ben Gilbert?

  Tried and true playbook there.

• 1:02:53David Rosenthal?

  But gate the real value. Stewart and team, they came from the consumer world. They came from the gaming world more than that. And when you're trying to get people to use to play games online and a lot of them are freemium.

• 1:03:10Ben Gilbert?

  You want to encourage.

• 1:03:10David Rosenthal?

  You want to encourage usage, right? You want to encourage usage and you want to show as much of the value of the product to as many people as possible without having the gating item of paying. So.

• 1:03:22Ben Gilbert?

  And if you think about the freemium gaming world too, they sort of notoriously only monetize 1%. And the vast majority of people who are using it are using it at basically its full functionality, but never paying.

• 1:03:34David Rosenthal?

  Yes. So what do they do? They set the freemium gate not on number of users. Slack is free, as evidenced by the acquired Slack. We have thousands of people in there.

• 1:03:46Ben Gilbert?

  Not paying a dime.

• 1:03:47David Rosenthal?

  Not paying a dime and we probably never will. And it's full.

• 1:03:54David Rosenthal?

  Believe me, it's good marketing for Slack. But it's full-featured. It's the full Slack product. And the pay gate is for the number of messages in the recent archive that you can search and access. So a relatively smaller feature, but if you're a workplace.

• 1:04:14Ben Gilbert?

  Oh, yeah. I can't imagine not having that at the office where it's like, we definitely talked about that in Slack like eight months ago. What was it?

• 1:04:19David Rosenthal?

  And certainly there's that use case. There's also the new team members are joining. They're not up to speed on everything going on. They join all these channels and then they're like, oh, okay, I want to find out what's going on on my team or what's going on on this project. If you can't go back and look at the archives and search the archives, that's impossible to do. So it's a really important feature for work teams to be able to do this. And so Slack uses that as the freemium gate. And that's huge.

• 1:04:48Ben Gilbert?

  And I think there's some other more sort of admin-y type features that require.

• 1:04:53David Rosenthal?

  And number of integrations that you can do. You're capped at 10 integrations, third-party integrations on the free tier. So other important stuff. But the main thing is that they allow people and teams to come on for free and get real work value out of the product, the full product, without having to pay. And that is just super, super critical. And nobody was thinking about enterprise monetization in this way at the time. And honestly, it's, I fully believe it is because of the background of Stuart and the team that they brought this approach to the market. Like if they had, nobody from even Atlassian, but certainly

• 1:05:36David Rosenthal?

  not Microsoft or anywhere else was going to think about freemium tier.

• 1:05:40Ben Gilbert?

  This is how we should do a productivity application. And this is another good thing that we've seen across a lot of episodes. For a lot of this disruptive innovation, you need to smash together the learnings and best practices from one corner of the world into a different corner of the world that is not used to thinking about things that way. And to be able to, you know, say. What would it look like if a team of idealistic game designers, you know,

• 1:06:09David Rosenthal?

  From a happy commune.

• 1:06:10Ben Gilbert?

  Yeah, like, of course, it's going to look different than a shop like Atlassian that's only ever built enterprise collaboration software. And of course, yes, in the business model, which I think you're right. I hadn't thought about it before, but in this classic question of why did Slack win when HipChat was already a thing? I mean, there's UI reasons why Slack appealed to non-engineering teams. And Atlassian sort of always said, oh, anyone can use HipChat. But like, if you really, that was more lip service than it was actual product work. But Slack was truly, from day one, designed to be something that anybody in the organization could use and not just engineering teams.

• 1:06:50David Rosenthal?

  Well, and I think it's also for other teams within organizations that weren't used to this category of software, using anything like this. The way they structured the freemium model made it accessible for those organizations to try to use it. Even if Slack were designed to the pixel the same way, but you had to pay for more than five people to use it, there's no way that the New York Times newsroom would have tried it. You know, it just, by removing that barrier, and they were really thoughtful about this. Like, and Stuart from the beginning was talking about, like, they were creating a category. When you're creating a category, you need to take this approach.

• 1:07:28Ben Gilbert?

  There's a lot of education you need to do. You know, your product has to do education, your marketing has to do education. Yeah.

• 1:07:35David Rosenthal?

  Yeah.

• 1:07:36Ben Gilbert?

  By the way, the New York Times newsroom now uses a home-rolled Slack bot that they created to manage the approval workflow for the push notifications that go out.

• 1:07:46David Rosenthal?

  No way.

• 1:07:47Ben Gilbert?

  At one point, I tweeted something like, what a killer job to be the person that approves the New York Times push notifications. And a New York Times employee sent me a thing that's a cool Medium post on here's how that actually works in Slack and how people go back and forth and edit and make suggestions and then submit it for approval into the queue.

• 1:08:04David Rosenthal?

  That was so cool. I think we talked about on the Atlassian episode, but that was the moment for me, and I think a lot of people in tech, when we're like, oh, wow, the New York Times Newsroom is using this like this is this is way more than HipChat. This is something that is like, has the potential to be as big as Slack has become. So on the back of this, at the end of 2014, they raise $120 million at a over a billion dollar valuation, led by GV and Kleiner Perkins. And it's just off to the races since, well, since day one, when they launched out of at a preview. The beginning of 2015, they're adding a million dollars in paid ARR every month. And it growth just keeps accelerating from there.

• 1:08:49David Rosenthal?

  Super interestingly, in July 2018, we, we didn't do an episode on this, but we, we could have done a follow up. Slack ends up buying HipChat. So within Atlassian, Atlassian had rebranded HipChat to Stride.

• 1:09:04Ben Gilbert?

  I think, wasn't that a different product?

• 1:09:06David Rosenthal?

  Yeah, they rebuilt the product and then they sunsetted HipChat. They, they still had HipChat.

• 1:09:10Ben Gilbert?

  But they were transitioning everyone to Stride.

• 1:09:12David Rosenthal?

  To Stride.

• 1:09:12Ben Gilbert?

  Also Stride, like, can you come up with a name that's more different than a couple of letters from Slack?

• 1:09:17David Rosenthal?

  I mean, when that happened, the people, you know, Slack must have just been high fiving one another about like, we've won, it's over. And, and indeed, probably one of the smartest things Atlassian has, has done is they recognized that quickly too. So they sold essentially those users to Slack.

• 1:09:32Ben Gilbert?

  In like, one of the best deals in history ever negotiated. Stuart managed to get all the users. What was the like equity arrangement that happened?

• 1:09:41David Rosenthal?

  I don't remember exactly how much equity, but, but yeah, Atlassian got a, got a small amount of equity in Slack for it.

• 1:09:48Ben Gilbert?

  Yeah, I mean, that, that, that was a highly triumphant moment for Stuart as a diplomat negotiator.

• 1:09:53David Rosenthal?

  And you have to imagine probably Excel helped there, given that they were major shareholders in.

• 1:09:58Ben Gilbert?

  You have to imagine.

• 1:09:59David Rosenthal?

  Companies. And then late 2018, following that rumors start circling that Slack is considering a DPO for their public offering.

• 1:10:09Ben Gilbert?

  Much like Spotify or, you know, just before them, 30 years before Ben and Jerry's.

• 1:10:16David Rosenthal?

  Indeed. Barry McCarthy, of course, we referred to Barry at the top of the episode. Acquired superhero, former Netflix CFO.

• 1:10:24Ben Gilbert?

  Spotify CFO.

• 1:10:25David Rosenthal?

  In Netflix's history and then CFO of Spotify and engineered their direct listing.

• 1:10:30Ben Gilbert?

  Yep.

• 1:10:31David Rosenthal?

  Inspired by Ben and Jerry's.

• 1:10:33Ben Gilbert?

  And I think not at all, but it is a fun piece of trivia.

• 1:10:36David Rosenthal?

  Yeah, super fun piece of trivia. Maybe Barry had a fever dream one night from eating too much Ben and Jerry's.

• 1:10:43Ben Gilbert?

  Yeah. Let's real quick go through what the differences are in an IPO and a direct listing are. Because I think it's worth, David, you and I have talked about this a few times. Listeners, we are extremely excited about the future of direct listings. And I think, at least I personally feel like it is a more modern way to go public than a sort of IPO process that just has tons and tons of baggage to it. And not every company can do it because, well, actually, let's talk about why not every company can do it.

• 1:11:13David Rosenthal?

  The IPO process was architected for a different era when venture capital was a cottage industry. And now venture capital and private market financings are an enormous global.

• 1:11:26Ben Gilbert?

  Highly professionalized.

• 1:11:27David Rosenthal?

  Highly professional worldwide industry where that money managers of all sizes participate in. And so companies like Slack can raise billions of dollars in the private markets.

• 1:11:37Ben Gilbert?

  Yep.

• 1:11:37David Rosenthal?

  And can.

• 1:11:38Ben Gilbert?

  And grow to have a global brand.

• 1:11:40David Rosenthal?

  Grow to have a global brand in a way that just wasn't possible before. So you needed, when you were going public, you needed to do an initial public offering where you were selling stock, doing a financing event to do that because you needed, that was your, the IPO was your way to raise real growth capital. That's no longer necessarily the case. So for companies like Slack, honestly, like Zoom, although Zoom did a traditional IPO, but companies that are profitable, that don't need to raise, profitable or close to profitable, that don't need to raise huge amounts of money.

• 1:12:12Ben Gilbert?

  We should be clear, Slack is not profitable, but does have 800 million of cash on the balance sheet.

• 1:12:16David Rosenthal?

  And I.

• 1:12:17Ben Gilbert?

  And is, has great unit economics.

• 1:12:19David Rosenthal?

  Yeah, capable of becoming profitable, making a choice to invest significantly in marketing.

• 1:12:25David Rosenthal?

  So they are not profitable at the moment. They don't need to raise that money. A DPO has a lot of advantages.

• 1:12:32Ben Gilbert?

  Yep. In a DPO, the, the only shares that start trading are all the existing shares. So there have to be selling shareholders rather than, you know, there's now 10% of new liquidity created by us creating a bunch more shares in the company. So.

• 1:12:48David Rosenthal?

  So there's no dilution to the company.

• 1:12:49Ben Gilbert?

  There's no.

• 1:12:50David Rosenthal?

  A DPO.

• 1:12:50Ben Gilbert?

  Yep. No dilution. Of course, because of that, they don't actually raise any cash. It's just investors and money and employees taking money off the table. But there's, you have to imagine there's.

• 1:13:00David Rosenthal?

  Well, there's, and there's one other big benefit for the ecosystem as a whole and for employees of the company is there's no lockup.

• 1:13:06Ben Gilbert?

  Yes.

• 1:13:06David Rosenthal?

  When you do the.

• 1:13:07Ben Gilbert?

  Yes. So I was gonna say that the sort of but to this whole thing is, gosh, it seems like there might be a lot of volatility involved in this. So there's no lockup period. Employees can sell right away. Great benefit to employees, maybe a little bit dangerous to the signaling for a company. So how do you manage this? Well, one thing is, and as much as we'd like to say, in this era of the direct listings, the investment bankers are no longer making a big payday. They're out of the process. It's.

• 1:13:33David Rosenthal?

  The investment bankers are never out of the process.

• 1:13:36Ben Gilbert?

  Yes, they, they move.

• 1:13:37David Rosenthal?

  It's like a law of thermodynamics.

• 1:13:38Ben Gilbert?

  Yes, they move from a role that is underwriting, which is saying, I commit to buying 50,000 shares in this range that you have quoted me at, you know, approximately this price, the night before the IPO, before it starts trading. Maybe I'll get a pop, you know, it's, it's this underwriting process that occurs where you commit to buying some amount of the shares that are being created. They now move into an advisory role where they say, okay, well, why don't you pay us an amount of money? It's still going to be tens of millions of dollars. And we are going to, on your behalf, go and work with all existing shareholders to see who's going to sell and who's not, and sort of at what price. And we're gonna.

• 1:14:15David Rosenthal?

  Heard the cats.

• 1:14:16Ben Gilbert?

  Yes, we're going to come back to you, one, with a guidance of what we think your suggested initial trading price should be. But again, trades just start happening instantly and there's a sort of market making function that happens there where they're going to trade where supply and demand intersect. And this is the real crucial part of, of sort of what they help you do there is. Say, look, we talked to these set of investors. Each one of them have committed to us, your advisory firm, to selling this number of their shares. So we can guarantee when you start trading that, you know, I don't know if this is true or not, but Excel will be selling 25% of their shares. So that will be available. There's nice liquidity in the market for your new shareholders to have something to buy.

• 1:14:58David Rosenthal?

  It's organized. It's not just chaos.

• 1:15:00Ben Gilbert?

  Yes, but it is, you know, much more sort of, you can think of it as like algorithmic rather than this previous process of, you know, lick your finger, put it in the air, see which way the wind is blowing and say, 24 shall be the amount for this share price.

• 1:15:14David Rosenthal?

  Well, to be fair, that IPO prices are set based on order books that are built during the roadshow process. And but but another important benefit for DPOs.

• 1:15:23Ben Gilbert?

  Spoken like a true former investment banker.

• 1:15:27David Rosenthal?

  Another important benefit for the DPOs versus the IPO process is if you are a company that has already raised capital privately from many of the traditional public market, mutual fund, hedge fund type investors that would be large institutional buyers in an IPO of the new shares created, you run into a problem like what Uber faced when they were doing their IPO where all of those sets of buyers were already shareholders in Uber.

• 1:15:56Ben Gilbert?

  They already had the exposure they wanted at the company.

• 1:15:57David Rosenthal?

  Their incremental appetite for new shares was relatively low. They wanted to be selling, not buying.

• 1:16:02Ben Gilbert?

  Yeah.

• 1:16:03David Rosenthal?

  And so when you do a DPO, you solve for that problem if you have it. Now, of course, Uber had to do an IPO because they needed the cash.

• 1:16:10Ben Gilbert?

  Yeah, that's the other thing. So to do a DPO, one, you have to not need the cash like companies like Uber and Lyft do. Two, you need to already be a brand that doesn't need a roadshow process, number one. So you don't have to go make all the bankers aware of your brand so that someone will commit to buying shares. Two, you don't need those banks to then go and get all of their retail investor clients excited about your company. So Slack, you know, Spotify, it made sense because they were a consumer company. One of the magical things about Slack is they've managed to turn this, I mean, it's enterprise software and it has a consumer like brand to it. And it has an awareness where you don't have to go and do a whole bunch of marketing around, you know, here's why you would want to buy this stock.

• 1:16:54Ben Gilbert?

  It already had enough excitement around it.

• 1:16:56David Rosenthal?

  I mean, the story has, I believe, multiple times been on the cover of Newsweek.

• 1:17:03Ben Gilbert?

  Why is Newsweek relevant?

• 1:17:05David Rosenthal?

  That's good. Well, it used to be relevant.

• 1:17:06Ben Gilbert?

  It used to definitely be.

• 1:17:07David Rosenthal?

  But it's a good sign that, you know, people know about this.

• 1:17:09Ben Gilbert?

  Yes.

• 1:17:10David Rosenthal?

  So, well, in April of 2019 this year, Slack announces they are going to do a DPO. On April 26, they file the S1. And then last week, Wednesday, June 19, they set the reference price in the evening. The bankers do have $26 a share. On Thursday, June 20, the company begins trading, closes up nearly 50% to 3862, the end of the first day of trading. And again, this is not, the banks aren't supporting trading. This is just free market trading happening here.

• 1:17:37Ben Gilbert?

  This is organic. One of the ways in which we should be grading this later on in this episode is how volatile was it? Like, did they manage to keep a relatively stable share price? Or, you know, was it just flying all over the place because the, there was no underwriting?

• 1:17:51David Rosenthal?

  If by stable, you mean it went up very quickly, then yes. So they closed the day at 3862, which is a $19.5 billion market cap.

• 1:18:01Ben Gilbert?

  Wow.

• 1:18:01David Rosenthal?

  Good.

• 1:18:02Ben Gilbert?

  Yep.

• 1:18:03David Rosenthal?

  Wow. All right. Should we talk about narratives?

• 1:18:05Ben Gilbert?

  That's awesome. We should definitely do that. We should also talk about sort of who owned the company at that point, just because I think it's kind of an interesting, it's interesting to dive into this a little bit. Obviously, you've talked about Excel. Excel owned close to a quarter of the company.

• 1:18:18David Rosenthal?

  Incredible.

• 1:18:19Ben Gilbert?

  Which is highly atypical. I mean, usually venture firms will own maybe 10% at IPO if you let a round and did north of 20% at that round. And so, you know, what's very clear here is Excel kept participating in a big, big way in all future rounds.

• 1:18:34David Rosenthal?

  I believe they were in, in all the fundraising rounds that were happening along the way. I believe they were actually not just, not just doing pirata, but, but buying incremental ownership, I think, in a lot of those rounds.

• 1:18:43Ben Gilbert?

  That's a conviction bet right there that's paying off in a huge way for them.

• 1:18:46David Rosenthal?

  Yeah.

• 1:18:47Ben Gilbert?

  Andreessen Horowitz owned 13%, Social Capital X, SoftBank with 7%, which is around the same percentage that Stuart Butterfield himself owned. So Stuart is now, at least on paper, a billionaire.

• 1:19:00David Rosenthal?

  Better than the outcome from Flickr, I would say.

• 1:19:02Ben Gilbert?

  Yes. Yes. But it's also interesting to see all the other Silicon Valley CEOs who have been angels. And I think this was reported by Forbes in a, in a great Piece recently, but Jeff Weiner, Patrick and John Collison, CEO of Squarespace, Biz Stone, former CEO of Yammer, David Sacks, Jeremy Stoppleman of Yelp, Dave Morin from Path. So this had a kind of an amazing cadre of

• 1:19:27David Rosenthal?

  Yeah, I think it's from that angel round, the one and a half million.

• 1:19:30Ben Gilbert?

  Oh, is that what it was?

• 1:19:31David Rosenthal?

  I believe so.

• 1:19:31Ben Gilbert?

  Wow. And there's a lot of these guys I know also came in later on in sort of the low 100 millions and low billion dollar valuation rounds as well. Just interesting to sort of know who is a big part of this, I guess, big liquidity event.

• 1:19:44David Rosenthal?

  Yeah. Well, it also speaks to, you know, we've made this point so many times on the show, especially because Stuart and company and the co-founders and history here goes back to the early internet day, or at least the, well, back to the web 1.0, but really back to the web 2.0 days. The world was just a smaller place back then. Like, all these same people, like, they all, it's like a little club, you know, they're all like, the world was just not that big. Silicon Valley was not that big. A lot of them worked at Yahoo together.

• 1:20:16Ben Gilbert?

  The Yahoo mafia is strong. All right. So before narratives, just some facts to know about the company from their financial position when they went public. So I mentioned they had 800 million in cash on the balance sheet. They're still growing at 82% a year. So they're close to doubling year over year now. As a public company, they're generating in the fiscal year ending in January of this year, they generated 400 million in revenue. So previous year, 220 in revenue, previous year before that, just over 100 million in revenue. So company's still doubling. That's close to in line. It's a little below.

• 1:20:52David Rosenthal?

  Triple, double, double.

• 1:20:53Ben Gilbert?

  Yep, a little in line with Zoom. So Zoom's growing a little faster at close to 120%, whereas you've got Slack here around 80%. But it's fun to kind of keep comparing to Zoom. Zoom has a little less revenue. So 330 million in revenue versus Slack's, Slack's 400. But they are cousin companies in a lot of ways.

• 1:21:12David Rosenthal?

  Absolutely.

• 1:21:13Ben Gilbert?

  All right, listeners. Now is a great time to talk about a new partner of ours here on Acquired, Logora, the agentic operating system that is redefining how the world's best legal teams work.

• 1:21:26David Rosenthal?

  Yep. It's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. Logora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

• 1:21:43Ben Gilbert?

  So the founders did exactly what great founders do, operate with obsessive customer focus. They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done.

• 1:21:58David Rosenthal?

  And that's how you get features that customers love, like tabular review, where you drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Logora's bet here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work. And this means that the pie can grow even as each individual task takes less time.

• 1:22:22Ben Gilbert?

  And they recently launched Logora Agent, offering greater intelligence and performance. The agent lets lawyers set an objective, then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required.

• 1:22:41David Rosenthal?

  And Logora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Logora numbers essentially speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Logora now has over 100,000 lawyers on the platform from 1,200 legal teams in 50 countries. And crazily, they went from 1 million to 100 million in ARR in about 18 months.

• 1:23:11Ben Gilbert?

  Truly insane numbers. And that is the real test. Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in-house at a company, you can learn more at logora.com/acquired and just tell them that Ben and David sent you. So moving into narratives.

• 1:23:38David Rosenthal?

  Yeah.

• 1:23:39Ben Gilbert?

  Should we talk bulls first?

• 1:23:40David Rosenthal?

  Yeah, what?

• 1:23:42Ben Gilbert?

  Why do people love this company going into the IPO?

• 1:23:44David Rosenthal?

  Well, I mean, there's a lot to love here. There's a whole lot to love. You know, the dynamics, similar to what you said of the comparison to Zoom. This is a product that really Zoom and Slack represent the new wave of go to market in the enterprise of products that are so good.

• 1:24:07Ben Gilbert?

  Yep.

• 1:24:07David Rosenthal?

  That they sell themselves.

• 1:24:09Ben Gilbert?

  Yep.

• 1:24:10David Rosenthal?

  A freemium business model that is perfectly tailored to maximizing reach and acquisition and has the conversion markers set at just the right places.

• 1:24:23Ben Gilbert?

  Yep.

• 1:24:23David Rosenthal?

  To optimize. There's extremely well managed. The growth is incredible. I mean, there's, like I said, a lot to like.

• 1:24:33Ben Gilbert?

  Yep. And to get into some of the numbers a little bit there, one of the biggest things is crazy strong retention.

• 1:24:41David Rosenthal?

  Yes.

• 1:24:41Ben Gilbert?

  So if you sort of model this out, it looks like only about 10% of newly acquired paying customers churn in their first year. So sort of over 90% retention on paid customers. And that if you look at a five year window, about 80% of customers that you paid to acquire are still around.

• 1:25:00David Rosenthal?

  Wow.

• 1:25:01Ben Gilbert?

  And are likely paying more.

• 1:25:02David Rosenthal?

  And that is.

• 1:25:03Ben Gilbert?

  Just crazy stickiness, great upselling.

• 1:25:06David Rosenthal?

  That is truly world class.

• 1:25:07Ben Gilbert?

  It's amazing. The other thing on top of that, which is a secondary metric that falls out of that is their their CAC to LTV ratio, or the cost to acquire a customer versus the lifetime value of that customer. And again, these are paying companies as the customer is about 13 times. So while it costs them a lot to acquire a customer, and I'll talk about this in bears, it costs about $8,000 to get a paying customer. That more than pays for itself sort of in the long run of how long that that customer will be with you. Another thing that we have to bring up here is Microsoft launched Teams. Slack took out a full page ad in the New York Times. When Microsoft launched Teams and said something along the lines of, welcome to the party, you know, the water's warm, come join us.

• 1:25:51David Rosenthal?

  An homage to Apple doing the same thing many years ago.

• 1:25:54Ben Gilbert?

  Yes, which was both lauded and widely criticized, but a baller move in, in, in, in some form. Microsoft is very seriously competing here. They've basically shifted their enterprise, enterprise product strategy to say, hey, if you're using Office 365 and you're using OneDrive, you know, Microsoft Teams is the hub where it looks just like Slack, like you communicate with your people in here and then everything's sort of shared and mapped through here. And this is the way that you experience, you know, the, the rest of the Microsoft enterprise productivity suite. So pretty serious head on competition. The thing to like, if you're a sort of a bull on, on Slack is that, yeah, sure, Microsoft has Teams, but that's more about Microsoft leveraging all

• 1:26:38Ben Gilbert?

  their existing customer relationships and creating a Slack-like experience for its existing customers, rather than the theoretically much broader set over the next 10, 20 years of people who aren't currently Microsoft customers and will be looking for a solution like this. Slack very likely wins those customers.

• 1:26:55David Rosenthal?

  Yeah. Well, and Stuart actually had a quote about this in the very beginning days of, of Slack, the product after the public launch. He called it, I think, something like the, the 15 year slow motion unbundling of Microsoft as the productivity suite for the enterprise. And absolutely, that story is great if you buy into using all of Microsoft's services.

• 1:27:18Ben Gilbert?

  Yep. Which work very well together.

• 1:27:20David Rosenthal?

  Very, very well together. But I think very few organizations, and especially new organizations, do that today. Now, there may be a story when we get into bears about, you know, the world, the, the famous quote that we talk about here all the time of the two ways to make money in business, bundling and unbundling.

• 1:27:35Ben Gilbert?

  Jim Barcsdale.

• 1:27:36David Rosenthal?

  We've been on a 15 year unbundling journey.

• 1:27:39Ben Gilbert?

  Yep.

• 1:27:39David Rosenthal?

  In productivity that maybe it has now reached its apex with, with Slack, with Zoom, with our next episode that we're going to cover here on Acquired. And maybe the time is right to begin the rebundling. But for the moment, you know, a lot of people like the unbundled world.

• 1:27:56Ben Gilbert?

  Don't you bring a bear into here, this bull section?

• 1:28:00Ben Gilbert?

  That's actually a very interesting quote for another time is, or a very interesting ledge to jump off of when will the rebundling start occurring and what is the point of integration? Where we will start rebundling around? One more thing in Bull before we move to Bears is like Salesforce, their ecosystem, Slack's ecosystem and app platform makes them very sticky. So, once you really start to, you know, loop in a lot of these, these integrations, which Slack has done a very nice job of building from the very early days, you know, you really start to feel like we could move off this thing, but gosh, it kind of all works really well together. And I think that's going to continue to be a story for them.

• 1:28:34David Rosenthal?

  There's integrates, but I think there's also even more important than that is just the, all the persistent archive of all of your team's work over the last, like, we would never leave Slack at Wave, like, we couldn't, even though we're just a three-person organization.

• 1:28:49Ben Gilbert?

  Yep. Yeah, that's a great point. All right. So Bears, the company is doing well, but

• 1:28:56David Rosenthal?

  Not that well.

• 1:28:58Ben Gilbert?

  I think the, we thought before seeing the financials, or at least I thought, I was like, this could be the first profitable IPO of, well, DPO, public offering of the year.

• 1:29:08David Rosenthal?

  Yeah, no, turns out actually they're losing quite a lot of money.

• 1:29:10Ben Gilbert?

  They are losing quite a lot of money. And the phrase that, I can't remember where I saw it, but I, I think this sums it up very nicely. Zoom was actually the Slack we thought we had all along.

• 1:29:19David Rosenthal?

  Now, this may be a little extreme. I, I fully do believe that Slack is making the choice to invest heavily here.

• 1:29:28Ben Gilbert?

  Yes. Here's why they're not profitable. So Slack actually has a two to three-year payback period since it's such a low price point. And the thing that you kind of don't like about this is that it's backloaded. So, you know, people are paying more in the later years of their customer lifetime. So it will continue to incur losses building out its customer base here.

• 1:29:49David Rosenthal?

  You land on a, in a, kind of an organization or a team, a few people join. Uh, maybe they don't pay for a while, then they start paying, but then the team grows, more people join, more people join the company.

• 1:30:01Ben Gilbert?

  Yep.

• 1:30:01David Rosenthal?

  Then you start paying more per user.

• 1:30:03Ben Gilbert?

  Yep, absolutely. Another thing to be bearish on here is that Slack's net dollar retention. So this is the sort of beginning of period revenue, plus your upgrades, minus your downgrades and your churn, all sort of divided by the beginning of period revenue. So you're basically saying, how much does the next quarter or year's revenue that comes from this set of customers, like what percentage of next quarter's revenue comes from the revenue that you currently have?

• 1:30:32David Rosenthal?

  Yep.

• 1:30:33Ben Gilbert?

  It's still world-class, it's still 1, 20, 30, 40%, something like that, but it has been declining. And so there is some amount of, okay, churn, there's paid churn that's actually happening.

• 1:30:46David Rosenthal?

  Yeah.

• 1:30:47Ben Gilbert?

  Yeah, and it's either, is it people ditching it for Microsoft Teams? Is it people saying, uh, it's actually maybe disruptive to my workflow, an email might be better? So, you know, I don't want to be too bearish here, still world-class, but also declining. And so you sort of want to see that bottom out soon.

• 1:31:04David Rosenthal?

  Yep. And then I think the last piece is, is competition, which you could have different views on. I mean, I lean towards the, I don't think rebundling is happening anytime soon, or at least not in a big way towards Microsoft. But Teams is a viable competitor.

• 1:31:24Ben Gilbert?

  Very much so.

• 1:31:24David Rosenthal?

  Very much viable competitor. Ben Thompson's written a lot about this.

• 1:31:28Ben Gilbert?

  Yeah.

• 1:31:28David Rosenthal?

  There are other competitors that are popping up. Interestingly, as I was doing research, it seems a lot of people are starting to use Discord for work.

• 1:31:38Ben Gilbert?

  For work?

• 1:31:39David Rosenthal?

  Actually, yeah.

• 1:31:40Ben Gilbert?

  By the way, did you know also Facebook, Facebook Work has like a ton of organizations? I don't know how many are active, but like, it's a very, very widely like activated product.

• 1:31:51David Rosenthal?

  Wow.

• 1:31:51Ben Gilbert?

  Yeah.

• 1:31:52David Rosenthal?

  That is shocking.

• 1:31:53Ben Gilbert?

  Yeah.

• 1:31:53David Rosenthal?

  That is truly shocking.

• 1:31:54Ben Gilbert?

  Completely agree.

• 1:31:56David Rosenthal?

  Please, if you are using Facebook for work.

• 1:31:58Ben Gilbert?

  Let us know.

• 1:31:59David Rosenthal?

  Stop.

• 1:32:00Ben Gilbert?

  Come on.

• 1:32:03Ben Gilbert?

  All right, so the net here is it's going to take a lot of cash and a lot of time to get profitable. But as long as their efficiency of marketing spend and low churn continues, investing in Slack, you can see why Slack is plowing these marketing dollars in, and it's a great long-term use of capital. And I thought one good quote to put a pin on this bulls and bears section is from my colleague, Ben Rush at Pioneer Square Labs. We were slacking about this last night and he told me, well, basically, right now, the way I look at it is it's a machine where a dollar in gets you close to $10 out over eight years. So you'd be a fool to not keep putting money in unless you believe that something fundamental is about to change to make them much, much less sticky.

• 1:32:46Ben Gilbert?

  And you're basically saying, look, I know it's going to take a long time to pay back, but boy, is it going to pay back in a big way. That's why we're seeing the company right now that has such great indicators across the board and sort of their unit economics, their stickiness. And yet, it's still not a profitable company, just going to take some time.

• 1:33:04David Rosenthal?

  Yep, yep.

• 1:33:06David Rosenthal?

  Well, should we talk about what would have happened otherwise?

• 1:33:09Ben Gilbert?

  We could have had like the coolest game ever.

• 1:33:14Ben Gilbert?

  It actually was among the course that like I used to work with a group that was like very, very hardcore gamers from would basically try every single game and knew a rich history. And there was a lot of buzz in the gaming community about what Glitch was going to be and about the promise that it held.

• 1:33:31David Rosenthal?

  It's so interesting that Canon game be built. I mean, I guess Minecraft is the perfect example, but.

• 1:33:36Ben Gilbert?

  Roblox.

• 1:33:37David Rosenthal?

  Yeah, yeah, Roblox, like games where people don't kill each other.

• 1:33:40Ben Gilbert?

  Yes.

• 1:33:41David Rosenthal?

  But it's like, you know, you look at Fortnite and like, I kind of like, if you take a step back from like killing each other, Fortnite is a great example of this. It's just a great gameplay mechanic like, and if you take the violence aspect out of it, like it's just hard to top that competition based. You know, if you think about it more like a sport than you do as like violence.

• 1:34:01Ben Gilbert?

  Yep.

• 1:34:01David Rosenthal?

  It's really hard to find any other mechanic that can top that.

• 1:34:05Ben Gilbert?

  Yep.

• 1:34:05David Rosenthal?

  Yeah. I think the more interesting, what would have happened otherwise is what if this team hadn't brought this approach to this market?

• 1:34:14Ben Gilbert?

  I think.

• 1:34:14David Rosenthal?

  Would somebody else have figured out how to do this?

• 1:34:18Ben Gilbert?

  I mean, yes, because you look at what Zoom figured out in the first 40 minutes of your meeting are free. Yes, I absolutely think that someone else would have figured it out, but it may not have been done in such a, it may have been done later, it may not have been done in this exact way, they may not have gated it on sort of a number of messages.

• 1:34:34David Rosenthal?

  I don't think Atlassian would have figured it out, though, because their DNA is just too.

• 1:34:37Ben Gilbert?

  Also, they had a product in market that it would have been too disruptive to their existing product.

• 1:34:41David Rosenthal?

  It would have been something, maybe we would all be using Discord for work.

• 1:34:45Ben Gilbert?

  Yeah, oh, that's actually, there's a chance that that's the most reasonable conclusion to draw here.

• 1:34:49David Rosenthal?

  Yeah.

• 1:34:51Ben Gilbert?

  Wow, that's like a super hedged comment. I should say, I'm in on that. David, I'm in on your prediction there.

• 1:34:56David Rosenthal?

  Well, you know, the gaming DNA?

• 1:34:58Ben Gilbert?

  Yep.

• 1:34:58David Rosenthal?

  Yeah, so.

• 1:35:00Ben Gilbert?

  Playbook.

• 1:35:00David Rosenthal?

  Playbook. So one thing I wanted to talk about here that we didn't really cover in the history and facts is one other discipline that the team brought from the gaming and consumer world to Slack is really a deep understanding and kind of analytics around the funnel of a user journey from acquisition to conversion to activation to retention. It is no accident that Slack has world-class metrics around this, and it's because this discipline is so important for gaming and online gaming.

• 1:35:38Ben Gilbert?

  Yeah, famously, the PMs at Zynga, who sort of pioneered this approach, were not the creative types, they were the spreadsheet types.

• 1:35:47David Rosenthal?

  They were the former bankers, the analytic type, analytical types. One thing that they realized really early on, that again, you know, PMs at gaming companies look for these moments, which are what is, what is the signal when a user hits some threshold that they are then going to retain for a long period of time?

• 1:36:04Ben Gilbert?

  Or be monetizable.

• 1:36:05David Rosenthal?

  What's that magic, or they're going to monetize or whatever, what's that magic thing? And then, then they optimize the game to funnel users to that magic moment. Slack realized pretty early on that that magic moment is a team that has sent 2,000 messages back and forth.

• 1:36:21Ben Gilbert?

  Which sounds like a lot, but if you've used Slack, you know that like that happens real quick.

• 1:36:24David Rosenthal?

  Well, they figured out, based on team size, how long it takes. For that to happen. So if you're a relatively smaller team, it takes X amount of time. If you're a relatively larger team, it takes like less than a day for that to happen. They found that 93% of teams that hit that 2,000 message threshold didn't turn, retained indefinitely. And so they started architecting the product around doing everything to get new teams that were onboarded to that threshold as quickly as possible.

• 1:36:53Ben Gilbert?

  That makes sense.

• 1:36:54David Rosenthal?

  Super, super interesting. And again, this is like, think back to, you know, our Zoom episode and the world of enterprise software before this. Nobody was thinking this way at Cisco, at Microsoft, at Salesforce. This is completely new.

• 1:37:07Ben Gilbert?

  How can I take the CIO to a new dinner he's never experienced?

• 1:37:09David Rosenthal?

  Exactly, exactly. The, um, this is also a perfect example of a friend of the show, Alfred Lin at Sequoia. He, um, he had a great thing that he, he said to us at Wave a while back, which is that what he really looks for in companies is do they understand, he called it input metrics as opposed to output metrics. Like the output metrics are what is your retention? The input metrics is what is going to get you? What do you understand about your product and your business that is going to get people to retain? And this is like a perfect example of that.

• 1:37:44Ben Gilbert?

  Great point. Another thing that they did is, oh my God, they were their own first customer. Like they, they, a lot of times I think startups presume to know their customer and they, because it's frankly difficult to go out in the real world and have these sort of conversations, you often project the needs of the customer into a map that you already have in your head and just start building. I mean Slack was something where they already with Line Feed had a good amount of development under their belt of what makes it easy to onboard new team members? What are the sort of bells and whistles that we would add on to IRC? So they knew better than anyone what this thing could be and, and what would make it useful. And so you don't often have the luxury of being your own first customer because you're not building a gaming

• 1:38:29Ben Gilbert?

  company that has zero enterprise value, shutting that down and then pivoting. But to the extent that you can get, you know, a hundred percent fidelity on what are the needs of your Customer, that's pretty cool.

• 1:38:39David Rosenthal?

  Yeah, totally.

• 1:38:40Ben Gilbert?

  A few more here. So like Zoom, David, you're talking about, they pursued this bottom up distribution strategy, you know, low price freemium, the go to market is similar, the network effects that they have. So you basically have this equation, which is low price in the enterprise plus network effects equals unprecedented growth rates. And it's interesting to see sort of how long Zoom and Slack have continued at these really high growth rates. Obviously, like their products, you know, aren't incredibly expensive. So the trade off you're making there is that your average customer value, if you're weighing in all your free accounts is actually quite low, but you your growth continues to stay high for a very, very long time. It's just

• 1:39:23Ben Gilbert?

  sort of interesting to sort of understand that that equation a little bit, which gets me to their top of funnel is operating a free product. And so I want to do a little analysis on this. If you divide their total marketing spend last year by the number of new paying customers that they brought on last year, you end up finding a cost of customer acquisition around $8,000 per company. So, okay, that's actually, you know, for a consumer company, that'd be crazy expensive. For an enterprise company, it's not that bad, but it's significant, $8,000 to bring on a paying customer. However, when they break out their cost of sales, it's only about $600 per company. And so what you see there, I mean,

• 1:40:08David Rosenthal?

  The acquired Slack community.

• 1:40:09Ben Gilbert?

  Yeah, there's some marketing dollars in there from billboards and stuff like that. But basically what you're seeing is that there's a massive expense hosting these free organizations that if you think about the different

• 1:40:20David Rosenthal?

  May or may not ever convert to paid.

• 1:40:22Ben Gilbert?

  Why is their cost of sales only $600, but and yet they're somehow spending an average of $8,000?

• 1:40:26David Rosenthal?

  Yeah.

• 1:40:26Ben Gilbert?

  Yeah, it's the massive amount of free usage of Slack that's going on out there. So while it's a Brilliant and disruptive strategy. It's it's an expensive one to run a huge free product like that.

• 1:40:39David Rosenthal?

  Yep. Great point. Great point.

• 1:40:41Ben Gilbert?

  The other thing that I wanted to talk about a little bit here is a couple of Zoom comparisons. So we mentioned that Zoom is externally viral while Slack is internally viral. That ends up showing up in the sales efficiency. And so when you look at Slack's return on sales and marketing costs, 111%, great. But Zoom's is 180% and it's it's sort of.

• 1:41:02David Rosenthal?

  I was expecting a thousand and 80%.

• 1:41:04Ben Gilbert?

  Right. But yeah, it just screams to you like, whoa. When you have the capability to promote your thing organically to people at other companies, you know, it just sort of has that natural. So Slack is, I would say, great, not a plus on sort of that metric. The last thing that I'll sort of say on Zoom and Slack, and this is not an original thought. This is a collection of some other things that we definitely did some good research on around the web. Zoom made a previous way of working better, but Slack invented a completely new use case at scale. That's one of my key takeaways as I compare these two companies is I intrinsically understood how to use Zoom at first. Great. Yeah, I've used a lot of these. They're mostly bad. Oh, this one's good. Slack was like, what is this thing? And there's an education.

• 1:41:48David Rosenthal?

  Have you used HipChat before?

• 1:41:50Ben Gilbert?

  I had, but somehow Slack was less obvious to me when I came in what it was.

• 1:41:55David Rosenthal?

  Well, I guess even if you have used HipChat, I mean, HipChat, if you were on a technical team using HipChat, Slack, once it's the whole organization, just the use case is different, right?

• 1:42:05Ben Gilbert?

  Like, yeah.

• 1:42:06David Rosenthal?

  You have all these people who've never used it before. So even if you you have used something like this before, your experience changes because now the organization's experience has changed.

• 1:42:14Ben Gilbert?

  Yep, for sure.

• 1:42:17Ben Gilbert?

  All right, let's do a quick discussion here of a section that we inserted a few episodes back about value creation and value capture. So value creation here, tons. Oh, my gosh, all these these companies are paying all this money to have this new way of working. That's frictionless and real time and live and highly interactive. But boy, at what cost? And I think you see this complaint a lot flying around Twitter. I certainly feel it a lot from from coworkers who. Are saying, you've hijacked the way that I work and it's now an interrupt driven workflow. Instead of me being allowed to go into flow on something and then pop my head up and I decide when I want to check email. It's like the opposite of the four hour work week.

• 1:42:58Ben Gilbert?

  It is the always on, always sort of stimulated, always interrupting you. I think we are early innings in understanding the impact of this, very much like the studies that are starting to come out about open office space. I still use open office space. I still like it, very much recognize the downsides of it. This is, this is open office space in technology and as someone that can always tap you on the shoulder. And of course there's settings to change and stuff, but there's a cultural understanding that you are reachable by Slack. You know, when your dot is green or during working hours or whatever the thing is. I think we don't yet fully understand the negative impacts of that style of communication being the predominant expected one in the workplace.

• 1:43:38David Rosenthal?

  Yep, yep.

• 1:43:39Ben Gilbert?

  Now, all that said, there's way less to criticize here about this company than like sharing economy companies like Uber and Lyft that, that, you know, we've talked about the, the potentially very destructive things in the world. Like the underpayment of wages and things like that. This company has none of those drawbacks.

• 1:43:58David Rosenthal?

  I think on the flip side though, I absolutely agree and I think it's a broader cultural issue. We're just grappling with at this point in time, a moment in time of, of being addicted to our, our technology. I think a big benefit I've definitely seen from Slack is, you know, as somebody who I just struggle with email. Like I'm such a, like when writing email.

• 1:44:17Ben Gilbert?

  You literally never answer my emails.

• 1:44:19David Rosenthal?

  I really like, I'm terrible at email and it's, and, and I used to be much better at email because I like had to devote time to it. And like, I want to like, make sure I've written everything correctly and whatnot.

• 1:44:30David Rosenthal?

  Slack has been just the most liberating thing for me. Like we have shared Slack channels with all of our portfolio companies at Wave. And so all of the most important people in my work life internally and externally to me are, are on Slack. And it's just like, it's like a weight has been lifted, you know? I can communicate instantly, easily. I don't need to worry about, you know, structuring the perfect sentence or whatnot or crafting the right narrative. Like I can just like communicate much more simply. It's been great. My, my email has suffered as a result of it, as Ben knows. But like, you know, we text, we chat on Slack, like it's better. So listeners, if you want to get in touch with me, hit me up in the acquired Slack.

• 1:45:10Ben Gilbert?

  I'll also say a thing that David, you do extremely well and just like listeners know this about David, a lot of us are kind of on a hamster wheel with communication where it's like, ooh, got a new in thing in, gotta answer it out. You've been very disciplined for years about saying like, should I actually be just like responding to everything that comes in and let me be more intentional about what I let hijack my life and what I don't. And if I don't answer this thing, what's the worst thing that can happen? And I think Slack is kind of in some ways, the antithesis of that very intentional thinking. But you've you've applied it to the fact that you're going to be very intentional about being on Slack and structuring Slack in a way that works for you.

• 1:45:49David Rosenthal?

  Well, what's cool is that the just the cost of that is much lower on so it's much easier on Slack to be like, yep, I'll respond to almost anything.

• 1:45:55Ben Gilbert?

  Yeah.

• 1:45:56David Rosenthal?

  Whereas on email, like that cost is so high.

• 1:45:58Ben Gilbert?

  Yeah.

• 1:45:59David Rosenthal?

  Anyway, so there's a it's just super interesting. Like Slack is, we talked about the cultural moment that was ready for it. Like it is was so perfectly positioned for because I think this trend is much broader than Slack, but

• 1:46:12Ben Gilbert?

  Yep.

• 1:46:13David Rosenthal?

  capitalize on it.

• 1:46:14Ben Gilbert?

  Yeah. So Slack allows for frictionless, always on seamless communication inside of an organization, but everybody still has email for outside their organization. And I'm sure that Slack has spent a lot of time thinking about this, but you know, what does this type of workflow look like? Can we kill email for, you know,

• 1:46:32David Rosenthal?

  I'm gonna have to say, shared channels. Share channels in their current form, you couldn't, our specific use case as a venture capital firm is like great for it, but it is amazing. It is.

• 1:46:42Ben Gilbert?

  But if you're like a BD person, like, how are you gonna communicate over Slack?

• 1:46:45David Rosenthal?

  You can't do that right now. If your workflow and your external partners fit such that you could have shared channels, it's truly wonderful.

• 1:46:52Ben Gilbert?

  I wonder if Slack will ever launch like an inbox feature where it's like if somebody knows my Slack handle, they can just send a Slack message to my inbox that's universally accessible anywhere in the world.

• 1:47:05David Rosenthal?

  Or maybe not. And listeners will have to stay tuned for our next episode and season finale dropping soon.

• 1:47:13Ben Gilbert?

  All right. So grading.

• 1:47:15David Rosenthal?

  Whew, grading. Yeah.

• 1:47:16Ben Gilbert?

  So listeners, as you know, with these recent IPOs or DPOs, we ask the question, five years from now, what will an A plus look like and what will an F look like? And the big thing in my mind is Slack currently has a revenue multiple of 46x with their current trading market cap.

• 1:47:34David Rosenthal?

  I haven't checked comps lately, but something tells me that's high.

• 1:47:37Ben Gilbert?

  If, if, I mean, it's, they're a company with no earnings, so you can only go on a revenue multiple. So what will they need to do to justify that? And is it continue business as usual with high growth rates and a great CAC to LTV ratio, albeit over a longish time span? And then just continuing to do that and hoping that the TAM on the number of organizations that are going to do the thing is really big? Or do they need to be broader than what they currently are and sort of take the Dropbox approach of going, oh crap, it turns out we were a $7 to $10 billion feature. And now we need to figure out how do we become a bigger company if we want to be a more valuable institution? What do you think on that?

• 1:48:23David Rosenthal?

  Well, I think the A plus case is the answer is it's both.

• 1:48:29David Rosenthal?

  We, I don't know if listeners, you remember the great, I think it was a Pizza Hut or Domino's commercial back in the day with Deion Sanders and Jerry Jones.

• 1:48:38Ben Gilbert?

  I have no idea where this is going.

• 1:48:39David Rosenthal?

  Oh, man. These commercials were so great. It was Jerry Jones, the owner of the Cowboys, and Deion Sanders, when he played for the Cowboys and Deion signed the largest contract ever, $35 million a year. And so this commercial, it was like they're whatever pizza company they're advertising, you could get both, a deal to get both two things. And, and there was the negotiation between Jerry and Deion and Jerry's like, so Deion, what do you think? 15, 20 million? Deion's like, both.

• 1:49:06David Rosenthal?

  So anyway, long-winded way, I think the A+ is both. Both the chat communication market is enormous, tons of headroom left to grow. And Slack develops new monetized features, products, toolsets around that that they can own, maybe start to rebuild a bundle of the productivity suite in the enterprise and go from $80 per year per user to across a suite of products, you know, $200, $300 per user per year in the enterprise.

• 1:49:39Ben Gilbert?

  Yeah, it's interesting. If you look at like a storage company like Dropbox, you know, the Dropbox's enterprise value effectively comes from people share files on it and use it for that and pay for that. That's a 10-ish billion dollar opportunity. If you look at group messaging, Slack, you know, that's a 20-ish billion dollar opportunity. When you look at the aggregate of enterprise email and a full productivity suite with Microsoft Office, like, oh, my gosh, we're, you know, a half trillion dollar opportunity. And so it's interesting to sort of think about what the bundle looks like. What do you need to own to be the most valuable piece of that? And I think identity is definitely a piece

• 1:50:20Ben Gilbert?

  of that. Well, Slack own identity. Microsoft sort of has Active Directory. There are others that are sort of taking that for the non-Microsoft world. Google, obviously, has taken a chunk of it. It's hard to say sort of what the value of G Suite is, since it's not a thing that Google breaks out. But what is the value of their productivity business? I suspect it's a lot larger than Slack's productivity business. So the big question for me is, at what point does Slack do the thing that Dropbox did with Dropbox Paper and then recently with this kerfuffled thing that I need to understand more, whatever the new Dropbox is. But like, when do they decide to, not to be too opinionated on the air, but when do they decide to go build more of the productivity stack in a way that is the, not the periphery pieces of the sort of...

• 1:51:06Ben Gilbert?

  Minnows of communication, but the broader, heavy hitting, we're going right for the jugular.

• 1:51:10David Rosenthal?

  The other, the other thing that this screams to me and is one of the most important reasons to become a public company is not to spill internally, but acquire. Atlassian has done this extremely well within their niche.

• 1:51:22Ben Gilbert?

  Will Slack go by like Notion or, you know?

• 1:51:27David Rosenthal?

  Whomever, yeah. As a public company, it is much easier to do that than it is as a private company.

• 1:51:33Ben Gilbert?

  Yep. Great point. So A+ is they do both. F is?

• 1:51:39David Rosenthal?

  F is we're all using Discord or Microsoft Teams in the future. Or Facebook for work.

• 1:51:45Ben Gilbert?

  Yeah. I mean, frankly, I think the biggest thing that could, could be really scary for them is Microsoft actually succeeds at acquiring a significant amount of, of the upstarts and, and non-Microsoft customers to work into the Teams organization.

• 1:51:58David Rosenthal?

  I think what's also really interesting, like the, we maybe alluded to this a little bit on the Zoom episode, but I suspect we are going to be entering an age of relatively large acquisitions in the productivity world by both the traditional players, the Microsofts, the Salesforce's, the Googles and Slack and Zoom and these, you know, large public upstart companies.

• 1:52:20Ben Gilbert?

  Yep. Do you have any that you want to go out on a limb and say?

• 1:52:24David Rosenthal?

  No. I mean, nothing I feel good enough to speculate about, other than like I-

• 1:52:31Ben Gilbert?

  Consolidation in this space feels like a good idea.

• 1:52:33David Rosenthal?

  Yeah.

• 1:52:33Ben Gilbert?

  Yeah. Cool. Follow-ups?

• 1:52:37David Rosenthal?

  Follow-ups, yes. So we apologize, we made an error during our Uber episode. So apologies both for the error and, and that it's taken so long to correct it.

• 1:52:47Ben Gilbert?

  But thank you so much to all the, the folks who, I think we had four or five people-

• 1:52:51David Rosenthal?

  Yeah, from Uber who, who reached out about this. We waited so long to correct it because we wanted to do it on an episode without a guest. On the, part of the delete Uber story, when at JFK airport with the surge story, we actually had it reversed. So the, the true story is that, or how it actually went down is that Uber had taken a lot of heat- Previously, for when they surge would automatically kick in during periods of high demand. And sometimes that high demand was like, you know, there was like, you know, something, a disaster happening or something like that. And so they had a playbook for turning off surge when in certain cases. And when, when the protest, when the taxi

• 1:53:36David Rosenthal?

  strike at JFK happened around the immigration ban, Uber ran that playbook and turned off surge. And so we had said on the episode that they turned surge on, and that's what people got upset about. It was actually that they turned it off.

• 1:53:48Ben Gilbert?

  Because they wanted people to be able to easily get to and from the airport, you know, without being seen as, well, frankly, without actually being mercenaries about it and making a bunch of money from people being in a dire situation, but also to avoid the perception of being seen as doing that.

• 1:54:03David Rosenthal?

  But it turns out, I think partially, and several of the Uber people who wrote us said, you know, it was just the perception of Uber was so bad at this point, which was Uber's fault, you know, but that no matter what they did, they were going to get pilloried. And in this case, people were like, you're trying to break the strike, you know, these people are striking to protest this horrible thing that happened. And you Uber, are you in league with Trump? Are you trying to break the strike? Blah, blah, blah.

• 1:54:26Ben Gilbert?

  Yeah. So the way I would imagine this, if you want to make a metaphor, is they sort of like whittled a bunch of wood shavings on a hot day into a pile. And then there were a sort of, you could throw one of two lit matches at it. And they chose which one to, to have thrown.

• 1:54:41David Rosenthal?

  No matter which way it was, um, yeah. Anyway, so, uh, we apologize for the error and wanted to correct it.

• 1:54:48Ben Gilbert?

  Yep. All right. Carvouts. Somehow I never did this carve out. I was looking back at ones I had previously done, but I watched all of The Expanse, end of last year on, on Amazon. And boy, is that show a masterpiece. I am extremely excited for it to come back. Amazon bought the rights. They did three seasons and then it's sort of pseudo ended. And then Jeff Bezos, I think is sort of personally a fan and Amazon bought the rights and is developing, um, season four. Um, but if you like really gritty sci-fi and you liked, like Battlestar Galactica and shows like that, you're gonna love The Expanse. It's a, it's a great, um, sort of political drama in the gritty future in space.

• 1:55:27David Rosenthal?

  Nice. My carve out, full disclaimer, biased because we are investors at Wave as everybody knows who are LPs. Our portfolio company, Alma, Dan Hill, who was previously the head of growth at Airbnb, we had on one of our first LP episodes. They just launched a big, big product feature. Previously on Alma, you could use Alma to give to nonprofits through funds around causes. So the wildfires in California were a big, a big fund that they created that you could just give to the Alma fund for the wildfires and they would distribute that to, to organizations that were addressing the wildfires. They just launched last week, the ability to give to any nonprofit in America on Alma,

• 1:56:12David Rosenthal?

  which is super cool. So now, finally, there's, there's one place, Alma, where you can go and easily discover and give to anything, rather than having to wrangle with.

• 1:56:21Ben Gilbert?

  Google the charity you want, find their jank donation tool.

• 1:56:25David Rosenthal?

  PayPal, if they even have it or whatnot. So you can now give to anything, which is really cool in and of itself, but also you're, it all, you manage it all through Alma. So you get your tax receipts at the end of the year, all in one place, all through Alma. You can control the level of communication back and forth. Very cool. So encourage everybody, A, to give to great causes and B, if you want a more modern way to do it, use Alma.

• 1:56:51Ben Gilbert?

  That's awesome. Well, David, I have to thank you for bringing Dan Hill into my life. Like, Dan is awesome.

• 1:56:57David Rosenthal?

  He's such a wonderful person.

• 1:56:58Ben Gilbert?

  We had, he's obviously on the LP show and we did a great episode on, on sort of dissecting Airbnb's growth and the tactics they used. And we ended up actually doing a deeper dive with a bunch of PSL companies and him having sort of a roundtable to talk sort of best, best practices for growth. And yeah, he's, he's awesome.

• 1:57:14David Rosenthal?

  Yeah. Dan and his co-founder, Michelle, who's also PM for Airbnb, they're in a part of many of the big moments and features that unlocked growth for Airbnb. So, cool. Super excited to work with them.

• 1:57:27Ben Gilbert?

  That's awesome.

• 1:57:30David Rosenthal?

  All right, listeners. Now is a great time to talk about one of our favorite companies, Statsig.

• 1:57:36Ben Gilbert?

  Yes, there is a reason why the best product teams rely on Statsig, whether they are iterating on their core product features or shipping AI-powered experiences at scale.

• 1:57:47David Rosenthal?

  Yep. In the crazy speed of today's AI world, shipping fast is just table stakes now. It's basically trivial to build and deploy your app constantly. The real advantage is how quickly you learn what changes actually created value for customers and how fast you can use that signal to guide what you ship next.

• 1:58:07Ben Gilbert?

  This is where Statsig comes in. It brings experimentation, feature flags, and product analytics into one unified system so teams can ship safely, test rigorously, and directly link what they changed to how users actually behaved.

• 1:58:19David Rosenthal?

  So if you want to make learning your competitive advantage, whether you're building new AI experiences or just evolving your existing core product, go to statsig.com/acquired to get started.

• 1:58:30Ben Gilbert?

  All right. Well, listeners, if you aren't subscribed and you like what you hear, you totally should. We'll be continuing to cover all the big upcoming tech IPOs and we will actually be rounding out our productivity trilogy with Zoom, Slack, and one more in the next episode. And we will see you next time.

• 1:58:48David Rosenthal?

  We will see you for the season finale, coming very soon.

• 1:58:51Ben Gilbert?

  To a podcast player near you.

• 1:58:53David Rosenthal?

  After you fill out the survey. Thank you, everyone.

• 1:58:56Ben Gilbert?

  Later, David.