Can Facebook’s Workplace Standard Compete With Slack And Microsoft Teams?

Facebook (NASDAQ:FB) formally launched its enterprise social network for businesses, known as Facebook Workplace, in October last year and is going to launch a free version of this product to attract small businesses onto its platform. The free version will be known as Workplace Standard, and will look and feel the same as the Premium version – but without the administrative and analytical tools. Facebook Workplace competes in a highly competitive enterprise collaboration software market, with players such as Slack, Microsoft‘s (NASDAQ:MSFT) Teams, Cisco (NASDAQ:CSCO) Spark, Salesforce‘s (NYSE:CRM) Chatter, Flowdock and Jive.

Facebook is hoping that the free version will attract smaller businesses, and businesses in emerging markets, to try out the free product and eventually upgrade to the Premium version. 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. The Workplace platform has been in Beta since 2015, and the company claims that its paid version has already attracted “thousands” of subscribers. ^[1]

Workplace Is A Potential $1 Billion+ Opportunity For Facebook

In October last year, Facebook Workplace introduced progressive pricing for premium users: the first 1,000 users would pay $3 per user per month, the next 9,000 users would pay $2 per user per month and all additional users would be charged $1 per user per month. Per the U.S. Census Bureau data (2014), the number of companies with more than 10,000 employees in the U.S. in 2014 was about 994, and they had an average employee count of around 34,500. Meanwhile, companies with total strength below 1,000 people totaled over 58 million in the U.S in 2014 (the latest data publicly available is from 2014). ^[2]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 companies 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.Using the aforementioned information, Facebook Workplace’s total addressable market is estimated at $3.4 billion per year in the U.S., including $2.3 billion from small companies and around $500 million from large employers. 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 billion per year in the U.S. in the near term.

It will be interesting to see how many customers Facebook Workplace can attract, and whether it will lead to any immediate disruption in this market considering the strong competition from Microsoft Teams (provided as part of Office 365 subscription) and Slack. For perspective, Slack’s annual recurring revenue is reportedly over $100 million, with over 1 million paid seats.

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1. Facebook plans a free version of its Slack competitor, CNBC, April 5 2017 [↩]
2. U.S. Census Bureau Data 2014 [↩]