Slack will soon spend 50% of revenue on marketing as competition with Microsoft heats up

Slack

Slack has said that by next the next financial quarter, half of its revenue will be spent on sales and marketing expenses in the face of increasing competition to acquire new users.

Slack said its marketing expenses for the third quarter were $78m, or 46% of its $169m revenue. For the fourth quarter, it said it expects sales and marketing as a percentage of revenue to be “over 50%.”

This uptick in ad spend comes amid an intensifying battle with Microsoft, which launched its own messaging product Teams for free to existing customers of Office 365.

It reported in November that Teams had 20 million daily active users. At the time, this was eight million more than Slack and prompted an immediate 11% fall in the latter's share price.

But during an earnings call, where Slack chief executive Stewart Butterfield “acknowledged the escalation in competitive narratives” between the two brands he stressed they are “different tools, used for different purposes".

“Although Microsoft markets Teams as a Slack competitor, there's no doubt this causes confusion in the marketplace,” he said, claiming that Slack has a “deeper level of engagement” among users – in other words, they use the product more often and for longer periods – despite Microsoft claiming a higher total number.

Butterfield pointed "weak engagement numbers that Microsoft themselves reported about Teams" suggesting that Microsoft may count people even if they're not using it, but have it open while using other Office 365 services.

The chief executive also said that Slack has been winning larger business accounts, with 50 customers now paying least $1m a year, up from 30 in the same quarter a year earlier.

But, regardless of the positive spin, Slack is planning a marketing assault over the coming year. In an interview with the Financial Times, Butterfield admitted it needs to be “crisper” in its messaging.

Slack had previously accused Microsoft of copying its ads, specifically calling out the similarities between its Frontiers video from earlier this year and Microsoft’s video for Teams released in November which both showed virtual colourful balls.

It’s also wanting to be clearer in how it communicates the differences to the financial market, which has been keeping a worried eye on Slack since it listed on the stock market earlier this year. Since then, share price has been down 40%.

Butterfield said he wanted to be “candid” and said it hasn’t managed to make clear the differences in how Microsoft is reporting its user numbers versus Slack.

“Our priority is really serving the customers, not getting too drawn into that distraction. But we do have to [be] head-on when we go to talk to customers, because there's going to be a population […] of people and customers that are fanatical, and you reach a population outside that, where people aren't familiar with it and they kind of shrug their shoulder and think ‘we already get [Microsoft] Teams [for] free’.

“Getting past that can take us a couple of months or it can take a couple of years. People have done multiyear valuation of Teams that have ultimately failed, and they’ve gone back and expanded their Slack usage. And if we can figure out a way to get that happening in a month or a week or a day, we would love to roll that out very broadly.”

Slack launched its first-ever ad campaign in 2015 - an OOH push in the US - and since then has pushed into TV, including a major investment into the World Cup.

Earlier this year, it appointed Julie Liegl as its chief marketing officer, saying she would "figure out how to help customers understand what Slack is, how it works and what value they get out of it."

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