Why Teams will win out versus Slack

Teams has been a greater beneficiary of the pandemic than Slack, and has become the tool CIOs intend on standardizing on, cementing its position as the incumbent in the collaboration/chat market.

The rise of Microsoft Teams over the past one and a half years has been nothing short of phenomenal. Teams has risen from 32 million daily active users (DAUs) pre-pandemic to 145 million as of May 2021, adding over 100 million users in a year. While Slack has also benefited from the pandemic, the positive impact was significantly less pronounced. However, despite Slack’s early success and lead in the organization chat and collaboration battles, Teams has cemented itself as the incumbent and will ultimately win out versus Slack in the long run.

Before the pandemic had begun, Microsoft had already begun to eclipse Slack’s total user count. Slack was beginning to feel the pressure, making the now infamous argument that ‘not all users are created equal’. Microsoft was able to dispel this attack from Slack, releasing details on how it qualifies daily active users (DAUs). While we do not have updated DAUs for Slack, particularly now under Salesforce, at last disclosure in October 2019 Slack had 12 million DAUs, but the trend into the pandemic can be seen in the chart below.

Source: VentureBeat, March 2020. https://venturebeat.com/2020/03/20/probeat-the-rise-and-inevitable-fall-of-microsoft-teams-and-slack/

However, where Teams is really winning the war is with the deeper penetration into the enterprise. At Microsoft’s latest earnings call, the company disclosed they now have 117 organizations with more than 100,000 Teams users (and another 2,700 with more than 10,000 users). A common counter argument to Team’s strength is that all startups are using Slack rather than Teams (and often deciding between GCP and AWS in addition to mail with Gmail). This could be directionally correct; however, the battle for this turf continues to heat up. 93% of organizations now use some form of Microsoft product in content services (AIIM 2021). To the extent they use SharePoint (most common for content services), Teams is a natural extension of this, and comes free with an “E” SKUs.

SharePoint Online now has over 200 million users (and growing rapidly). As the current growth rate, Microsoft could eclipse 400 million by the end of 2021 (for reference, Teams just surpassed 145 million DAUs). It is conceivable to think that a large portion of this total SharePoint Online base will adopt Teams. While SharePoint does lend itself to be more of an enterprise product, there is a large install base, and I suspect Teams adoption will continue to grow with it as Microsoft makes a full court press for Teams to be the communication hub of the enterprise.

The data supports the fact that Teams adoption, if not already the standardized collaboration tool of the enterprise, it will become so in the next few years. According to Morgan Stanley’s 3Q20 CIO Survey, respondent answers suggest 61% (vs 53% in 3Q19) of CIOs expect to use and standardize on Microsoft Teams in the next three years (vs. just 10% on Slack). We so often use the term ‘wall to wall’ in enterprise software; and while bottoms up adoption has made going truly wall to wall much more difficult to achieve, Microsoft, with Teams, has a healthy shot at achieving more wall to wall deployments in the future.

In my December post following the Salesforce acquisition, I mentioned that the familiarity of the M365 for global admins would be a differentiator, and I believe that could be the case; however, the bulk of organizations intending to standardize on Teams will in itself further perpetuate the phenomenon (see Geoffrey Moore definition of a pragmatic buyer), especially as Microsoft adds external collaboration for teams.

Slack, or any competitor for that matter, will have an extremely challenging time competing with Microsoft for the following reasons:

1.       Tough to compete with ‘free’

2.       Teams’ native integration with the way of work applications

3.       Teams as the OS of the enterprise

4.       App ecosystem

Tough to compete with ‘free’:

·       While Slack is finding its way into companies at the ground level, and has long benefited from viral adoption, it is long said that it is tough to compete with free. The best example that comes to mind is Microsoft and Internet Explorer vs. Netscape in the late 90s. While Netscape very well may have had the superior product, Microsoft's ability to bundle IE in and make it the default was almost impossible for Netscape to compete with. While Teams does technically have a cost, as much as 93% of organizations are using Microsoft solutions in content services, and a high subset of that receive Teams with their “E” license… making the collaboration application effectively free. Organizations are looking to get more out of existing spending on M365 and SharePoint, and will be more likely to revisit how they can leverage their newly deployed cloud version of Microsoft’s suite, turning to Teams more and more.

Teams’ native integration with the way of work applications:

·       Microsoft's product is in fact superior here, for a few reasons, including combining both chat and video natively, rather than through a partnership (i.e. Slack and Zoom), but likely most important, is Teams' native integration with the other Microsoft 365 products; SharePoint, Outlook, the Office suite. Further, the fact Teams can provide contextual collaboration and leverage the power of the Microsoft Graph us a significant differentiator versus Slack. As Teams aims to become seen as an ‘always open’ app, the integration with other Office products (as well as a third-party ecosystem) provides more clout for this to become a reality (the way Outlook became the always open app).

Teams as the OS of the enterprise:

·       Slack has done well creating an enterprise social network-like application, but this creates less competition for Microsoft in becoming the OS of the enterprise. Google has never really been able to master the enterprise product sale, for many possible reason, but including the inability to listen to customers, develop an ecosystem, or whatever it may be. 

App ecosystem:

·       The app ecosystem around Teams, while comparable to Slack, is also a differentiator for Microsoft. Not only can it more seamlessly integrate with the apps workers use most, but the number of organizations utilizing third-party and LOB apps within Teams in organizations with over 1,000 users has increased 3x year-over-year, according to Microsoft. While the Slack app ecosystem is deeper, the Teams admin center now boasts 997 applications submitted by ISVs and Microsoft (this compares to 2,400 at Slack); impressive given Slack’s head start (and we as ISV’s all know how stringent the Microsoft AppSource store can be in terms of getting applications into the app store!).

While these advantages certainly provide a moat in my view, there is still an area of the market for Slack that can still feed the business for a long time.

Where Slack will still have strong product-market-fit in the long run

While I believe Teams will win out in the long run, particularly in the enterprise, I do think Slack will continue to see strong penetration in its particular niche and this will be bolstered by its recent acquisition by Salesforce. The opportunity for Slack to be the UI for Salesforce’s customer data is extremely powerful. Salesforce will be able to market Slack as the communication layer connecting Sales teams to external customers, and I think this is a strong fit for Slack in the market. While Microsoft Teams is getting better with external sharing (see here), this has long been a positive differentiator for Slack and could continue to provide an area where Slack reigns supreme.

Further, we should not underestimate the power in Salesforce's distribution channel for Slack. We’ve seen several of Salesforce’s acquisitions benefit from this (though not all), and I presume this will drive synergies for the two companies under one roof. As I commented in a previous post, I believe Microsoft will effectively ‘own the employee’, and Salesforce will ‘own the customer’ side of the relationship. Positively, both of these are massive markets.

However, I do not believe this to be enough for Slack to win out versus Microsoft Teams in the long run, and as a result, I am betting heavily on Teams winning out in the collaboration / chat wars.