Facebook Workplace: What Is The Size Of The Enterprise Collaboration Software Market In The U.S.?

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Facebook (NASDAQ:FB) recently formally launched its enterprise social network for businesses known as Facebook Workplace. Formerly known as Facebook at Work, the platform was in beta mode for over a year and is currently in use by over 1,000 organizations. Facebook Workplace is similar to the company’s social networking platform and features profiles, news feed, groups, live video and messages for cloud-based communication within organizations. Two different companies on the platform can also connect to each other seamlessly.

Facebook Workplace competes in a highly competitive enterprise collaboration software market, with players such as Slack, Microsoft‘s (NASDAQ:MSFT) Yammer, Cisco (NASDAQ:CSCO) Spark, Salesforce‘s (NYSE:CRM) Chatter, Flowdock and Jive. In this note, we estimate Facebook Workplace’s market size based on the number of firms in the U.S. and potential paying users. Per our calculations, Workplace’s market size comes to around $1 billion per year in the U.S., based on Facebook’s current pricing of the service.

Facebook Workplace’s U.S. Market Size: The Calculation

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Facebook Workplace has introduced progressive pricing for premium users: the first 1,000 users will have to pay $3 per user per month, the next 9,000 users will have to pay $2 per user per month and all additional users will be charged $1 per user per month. Per the U.S. Census Bureau data (2014), the number of firms with more than 10,000 employees in the U.S. in 2014 were about 994 and they had an average employee count of around 34,500 per firm compared to an average of 11 employees per firm for companies with total strength below 1,000 people. Such small firms totaled over 58 million in the U.S in 2014. [1]
fb-17 We can estimate Facebook Workplace’s market size by calculating total potential revenue from large (>10,000 employees), medium (1,000-10,000 employees) and small (<1,000 employees) businesses separately using Facebook’s current pricing per user. As shown in Table 1, the average number of employees in large, medium and small firms were 34,464, 2,608 and 11. The corresponding average fee per user for large, medium and small firms firms can then be calculated at $1.20, $2.30 and $3.00, respectively, as shown in Table 2.fb-16

Using the aforementioned information, Facebook Workplace’s total addressable market is derived at $3.4 billion per year in the U.S., including $2.3 billion from small firms and around $500 million from large firms. Now, if we assume that only around 30% of total users actually pay for this service in the near term (similar to Slack’s current ratio of paying customers), our estimate for Workplace’s total addressable market lowers to $1.0 billion per year in the U.S.fb-15

Since market size is basically the revenue earned by all players in a market, we can forecast Facebook Workplace’s revenue by basically estimating the company’s market share. Hypothetically, if Facebook were to capture about 20% of this $1 billion market in the U.S., it would earn $200 million. For perspective, Slack potentially earns around $100 million a year, with about 930,000 paying customers and assuming an average fee per user of $9.00 per month. Slack’s prices range from $6.67 per user per month for the Standard plan (annual billing) to $15 per user per month for the Plus plan (monthly billing). fb-18

Facebook’s Advantage In This Competitive Market

Facebook has a daily active user base of over 1.1 billion and a monthly active user base of over 1.7 billion. Compared to this, Slack – one of the leaders in the enterprise collaboration software market – reported a daily user base of 3 million in May this year with about 31% paying customers. Although Slack has shown tremendous growth in its user base in the last 3 years, it is unlikely to come anywhere close to Facebook in terms of users in the near to medium term.

Facebook’s familiarity to users and ease of use should help Facebook attract some customers, considering the minimal training required to use Workplace. Also, its lower initial pricing of $1-$3 per user per month should encourage companies to hop on board to try out the service. Prices charged by competitors such as Slack and Microsoft for comparable features start from $6.67 per user per month and $3 per user per month, respectively.

Subscription Vs. Ads

Facebook is pursuing its Workplace venture with a subscription-based model, unlike its ad-driven social network. In order to keep its social network separate from its enterprise users, Workplace will require separate user IDs, and users will not be able to link their social network accounts with their Workplace accounts, at least for now.

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Notes:
  1. U.S. Census Bureau Data 2014 []