A year ago, barely a day passed without news about Slack—a high-flying, world-conquering messaging platform. Slack was everything—the fastest-growing messaging system for teams, the email killer, the productivity booster. Slack threatened to reshape industries, displace tech titans, even make a move on traditional social media. In early 2016, the hype reached a fever pitch, and pundits began to look forward to an IPO or an acquisition of the century. And no other company was better positioned to buy Slack than Microsoft.
Instead, Microsoft quietly built its own version of Slack. The move made complete sense: Microsoft already has a number of digital properties in the same space and the cost of building “Microsoft Slack” was a fraction of the potential acquisition price. Second, Slack’s user base is insignificant in the grand scheme of things, and the typical Slack user profile suggested there wasn’t much upside for Microsoft or users by bringing Slack into the Microsoft family.
The hope of a great union turned into what’s promising to be a vigorous rivalry, and both players are being evaluated in terms of their ability to beat each other.
Microsoft has a number of factors playing to the advantage of MS Teams.
Office 365 integration. More and more businesses are shifting to Office 365 business subscriptions. Even if not fully integrated at the early stages, Microsoft Teams will eventually take full advantage of the complementary Office 365 products. Tight integration with Office 365 amplifies MS Teams’ functionality to levels unattainable by rival products.
MS Teams take full advantage of everything Microsoft. Microsoft has already hinted at integration of MS Visual Studio with MS Teams. This is likely just the beginning. Microsoft has a broad portfolio—from development tools to cloud solutions—and the more products connect to Teams, the more valuable Teams becomes to its users.
Full product version is free with Office 365 subscriptions. Free is good. If you are an Office 365 user, why not use it if it’s already there? In other words, why pay for an additional service if you already have it for free?
Enterprise. Microsoft owns the user-facing enterprise space. It won’t require much effort to convince CIOs to let one more Microsoft product into their companies.
Slack comes with its own set of tricks.
No paid subscription required. Again, free is good. The basic version of Slack requires no subscription, and anyone can set up as many free companies in Slack as they need.
Non-Microsoft. Plenty of users are not and will not be Office 365 subscribers. This cuts them off from accessing Microsoft Teams, even if it becomes a better product one day.
Multi-company. Office 365 subscription ties users to their “companies.” Transitioning between Office 365 companies is cumbersome at the best of times. Slack, on the other hand, makes switching between teams and companies a simple matter of two mouse clicks. The ease of navigation helps those working concurrently on multiple projects in multiple teams.
Better UI. Microsoft did a good job with Teams. However, Slack’s purposeful simplicity makes it a product that delights with its elegance while also offering a highly sophisticated set of features.
Integrations. Slack built its business on integrations, and over the years, its ecosystem has grown to become the most extensive in the industry.
No integrations. The integrations capabilities and existing integrations ecosystem of Microsoft Teams cannot compete with Slack in its current form. For users demanding readily available ties to other systems, this is a deal-breaker.
No multi-company support. Switching between Office 365 subscriptions is far from smooth. For users who work on multiple projects for different teams, the difficulty of navigating between Office 365 companies is a big deterrent to adopting Teams. For those who are accustomed to creating separate Slack companies for different projects and purposes, this will be another deal-breaker.
UI. The UI (User Interface) of Microsoft Teams is solid, but it lacks purpose. It is pretty at first glance and delights with colours and arrangements. At the same time, it seems to have lost its focus on being functional—the design choices detract from the practical side of the product. The overall impression is that Teams is stuck midway between being “wow” and useful. As the novelty of the product fades, users are likely to find it neither “wow” nor superbly functional. Also, the learning curve of Microsoft Teams and its ease of use does not match Slack.
Paid plans to unlock features. To take full advantage of Slack, users have to start paying subscription fees. The cost of using Slack can quickly approach the cost of the complete Office 365 suite, which includes Teams and much more.
Easy to replicate. Slack steamrolled to popularity by executing one of the best marketing strategies in recent memory. The media buzz helped mask the fact that Slack is a product that is easy to replicate. In fact, several alternatives to Slack are already available. Unless Slack maintains a perfect balance in its freemium model, it will lose users to other systems.
Accidental product. Slack is a product born by accident rather than by design. However, accidental success is hard to repeat. Slack’s growth is beginning to show signs of decline, and it is likely that it has entered the second half of the “S” curve. The chance of it having a second accidental hit that will propel it to the next level are slim.
No clear vision for what it will become. A year ago, it seemed that Slack would become the hub for all tools; an indispensable tool that would unite all others. However, today it is still the same messaging tool that burst onto the scene in 2013 and not an enterprise hub. Chat bots and other ideas may expand Slack’s functionality eventually, but at the moment, they haven’t made Slack anything different from what it was 3 years ago.
It is not enterprise-ready. Slack was designed for small teams, and this is where it succeeded. Yet the same features that made it a hit among small teams appear to be hindering its adoption by large companies. After working on enterprise functionality for over two years, Slack is still struggling to gain traction.
It is hardly a war, but someone will take a beating
With all the media buzz surrounding Slack and Microsoft Teams, one can be forgiven for thinking that a Godzilla-sized battle will take place between the two one day. Likely, the future will be slightly different.
The release of Microsoft Teams is a necessary defensive move to protect Microsoft’s grip on the enterprise space. Companies currently using Lync or Skype for Business, which is neither Skype nor a particularly good tool for business, are given a road-map for staying within the Microsoft family of products while gaining access to the most recent messaging innovations.
Microsoft Teams will help strengthen the appeal of Office 365. At the same time, close ties to Office 365 will cause Microsoft Teams to miss out. Not every user is a Microsoft subscriber, and MS Teams is not a good enough reason for them to switch from their current tools to Office 365. Microsoft did its math, and based on the initial calculations, the company seems to be content with advancing Office 365 at the expense of gaining low-end users. With MS Teams, Microsoft protects its current turf without gaining much, if any, new ground. Microsoft doesn’t seem to be interested in fighting Slack; it just doesn’t want Slack to step on its toes.
Despite Microsoft merely defending its standing, Slack is poised to lose.
Slack is valued at $3.8B after a recent round of funding. Most of that valuation rests on hope. Investors hope that Slack will take over the world, as it seemed to be doing a year ago. Investors hope that the fantastic growth trajectory will continue. Investors hope that an acquisition offer of $8B–$10B or a comparable IPO is in the works. However, these hopes appear to be anything but realistic.
At 1.25M paid subscribers, Slack realizes between $120M and $150M in annual revenue. Its growth is showing signs of slowing. Meanwhile, the competition is heating up. Suddenly, it looks like Slack is not the king of business messaging but rather a niche player sharing space with HipChat, Skype for Business, Lync, Hangouts, Chatter, Facebook, and myriad others. The enterprise space is proving difficult for Slack to penetrate, and Microsoft Teams effectively seals off the path to a large chunk of it. It leaves little room (in relative terms) for Slack to grow, which makes the $3.8B valuation appear excessive.
Does this spell trouble for Slack? For Slack as a product, likely not. It is a competent offering that is unsurpassed in its space. But for Slack investors, it most certainly does.