Competition continues to intensify in enterprise productivity among Slack, Microsoft, and other rising players. The last few weeks have seen Slack signing a deal to expand across IBM’s 350K+ employees, the launch of the first global ad campaign for Microsoft Teams, and reports of Google developing a new “unified communications” app for businesses.

Slack, which was founded in 2009 and launched in 2013, was the first of the current generation of enterprise collaboration platforms to find success. With its modern approach to messaging, channels and bot integration, Slack built traction within enterprises with a “land and expand” strategy – getting teams to adopt it as an alternative to email and then expanding to the rest of the organization. Though Slack wasn’t without competitors, it wasn’t until Microsoft Teams launched in 2016 that it faced a serious rival.

Since then, Teams has grown rapidly, with Microsoft calling it the fastest-growing app in Microsoft’s history in late 2018. In Nov 2019, Microsoft announced that Teams had 20M+ daily active users – up 54% from the 13M users reported just 4 months earlier in its annual report released Jul 2019. In comparison, Slack had 12M daily active users in Oct 2019, up 20% from 10M in Jan 2019. With Microsoft Teams’ numbers indicating greater share and faster adoption, and Slack not yet profitable, Slack’s share price has struggled since its direct listing on the NYSE last year (despite a recent rally).

Slack is on the defensive, suggesting that Teams’ growing numbers are misleading and the result of “surprisingly unsportsmanlike” behavior by Microsoft. CEO Stewart Butterfield has questioned Microsoft’s numbers, calling out specifically the “force-migrat[ion]” of Skype for Business users and alleged paying of customers to use Teams. Microsoft has responded with clarification that its “daily active users” include only users undertaking an “intentional action” across the Teams desktop, mobile and web clients, such as starting a chat/call or sharing or editing a file – and excluding activity such as minimizing a window, auto-starting or closing the app, and using Skype.

Butterfield is emphasizing Slack’s user engagement, particularly the 90 min/day users spend on average actively using its platform and 5B+ actions per week (1B+ on mobile) across its users. In comparison, Microsoft’s cited numbers have shown 27M+ voice/video meetings and 220M+ actions on files stored in Teams within one month – suggesting weaker engagement than Slack, at least on average. Slack also has millions of paid seats, whereas Teams is effectively free for existing Office 365 commercial customers (as well as users in the free tier). As Butterfield has pointed out, 70%+ of Slack’s top 50 customers already have access to Teams through their Office 365 subscription and still opt to pay Slack $1M+ annually.

Still, Microsoft presents a hurdle for Slack’s continued growth – one recent CNBC survey had 58% of technology-executive respondents indicating they use Microsoft Teams, vs. 30% using Slack. A Wedbush report suggested that just 10-15% of Microsoft’s enterprise customer base may be “in play” for Slack. While Slack remains popular with startups, more of Slack’s revenue is coming from large customers – 47% in the most recent earnings report from customers paying $100K+ per year. It raises the question as to where Slack’s future growth will come from.

Microsoft

While Microsoft Teams and Slack are the highest-profile players in enterprise collaboration, other vendors ranging from other big tech firms to startups are also making a play for the space. One investor recently called productivity startups one of their most active investment areas.

While the more established project-management tools – e.g. project management applications Asana and Basecamp, Atlassian’s Trello (card-based organization), Jira (project management for software development) and Confluence (organizational wiki) – are still alive, there are a set of growing and emerging players seeking to solve the whitespaces and verticals:

The winners here, at least in the near term, are the customers and users. Healthy competition means more innovation, product advances, better customer service, and perhaps lower prices. Slack led its particular corner of the enterprise productivity world for probably too long. It could have, for instance, pressed harder to launch Shared Channels earlier – it had been in beta since 2017 and would have helped with customer lock-in. It was also late to the game with its enterprise partner program, which meant slower go-to-market and less support for large customers in rolling out Slack. With the head-to-head competition from Microsoft Teams, Slack has noticeably picked up the pace of innovation.

While Slack is far from dead in the water, its growth is clearly now constrained – especially among the larger companies where it has seen its recent growth but is Microsoft’s sweet spot. Microsoft Teams is already more widely used than Slack and growing faster. It’s also better positioned for future growth, having tapped less than 10% of Office 365 users so far and with the Office 365 base growing at 20%+. Teams’ integration with Office 365 also means its collaboration is already proximal to the context of workflow – e.g. documents and deliverables – an enviable position for any collaboration tool.

With many enterprise users still closely tied to their Outlook, Word, Excel and Powerpoint, Teams is effectively free and becoming perceived as “good enough.” While it’s not clear whether Teams can achieve anywhere close to the same level of engagement as Slack, as we have seen with Microsoft Office in the past, professionals will work with the tools offered to them by their workplace (within limits). For CIOs, Teams is also easier to procure (since it comes bundled with Office 365), administer, and ensure security and compliance, giving them a “single throat to choke” in the case of any issues. Given growing cybersecurity awareness and companies increasingly concerned about data residency, Teams data stored in Microsoft’s Azure cloud is likely viewed as an advantage by CIOs. All this entrenchment means that Microsoft has a window to continue to enhance Teams and advance its value proposition beyond “good enough” to “better.”

Microsoft has signaled deep and lasting commitment to Teams, as part of its broader orientation towards the cloud. CEO Satya Nadella has said that few products are like Teams in driving network efforts and usage for the rest of Office. Microsoft has mobilized its incredible business partner ecosystem behind Office 365 and Teams, spurred by the early announcement of the popular Skype for Business’ demise in 2021. We can infer some grand ambitions that will involve deeper hooks into the Azure business, more features that integrate AI and machine learning, and dominating the most lucrative corners of the enterprise productivity space.

The reality, however, is that enterprises will have more than one or even two products under their roofs. According to Slack, 70%+ of its top 50 customers also have access to Teams. Similarly, a recent Okta report found almost 1/3 of its customers with Office 365 also had G Suite. In some cases, products will coexist and integrate with each other through APIs. In other cases, they will fill different needs and serve different customer segments.

While Teams is well-positioned with larger organizations already familiar with and invested in Microsoft infrastructure, it is less compelling for smaller businesses and startups. One Sep 2019 report found that just 12% of funded startups pay for Office (including Teams), compared to the nearly 60% that pay for Slack. Slack will continue to be attractive to startups and smaller businesses (up to, say, 2,000 seats) who want to stay nimble, are less encumbered with existing infrastructure, and have the flexibility to pick and choose from a range of tools.

Slack and Teams will find themselves in a symbiotic relationship, as some of their respective customers need both tools and/or need to collaborate with third parties who are using the other tool. We will likely see them build more integrations into each other’s platform – partly to offer more value and retain their customers, partly to encourage adoption by new customers, and partly as an option for a future of interoperable tools and platforms where integrations are table stakes. We should also recognize that it’s still relatively early days – in one survey, 95% of respondents said they still use email for internal communications.

In the longer run, however, there is an open question as to whether Slack can hold up in the face of competition on both ends – integrated productivity suites and newer market entrants. While Slack helped popularize messaging in the enterprise, it is now facing a “new generation of functional apps” with messaging and collaboration built-in. A standalone messaging platform supplemental to workflow may not continue to make sense, compared to tools like Teams and G Suite that embed project, product, document, or other work context. Microsoft’s stated intent for Teams is to serve as a “hub for teamwork” – not just messaging. As former VC Kevin Kwok has suggested, we can expect to see a convergence of collaboration and productivity – with collaboration taking place within existing workflows. Through this lens, Slack is beginning to look like an attractive acquisition for a major enterprise player – perhaps one that is falling behind, has ambitions in the world of collaboration and data, and with a lot of cash to burn.

Right now, there’s still whitespace in the market for vendors able to serve distinct needs. For instance, Microsoft is very good at extending its tentacles across an organization and ensuring security within the organization’s firewall, but less well-equipped to bridge and facilitate knowledge flows across different organizations. Slack is actively pursuing this opportunity with its Shared Channels, but it’s still a nascent arena.

As we have seen with enterprise and cloud solutions elsewhere, there is a gravitational pull after platforms achieve scale towards industry- and function-specific offerings. Enterprise digital leaders, after experiencing the cost and pain of custom implementations, begin to seek solutions that are more relevant for their business out of the box. In the early days, this may look like go-to-market guides, industry templates, and light configuration. Later, it becomes more complete solutions targeted to industry or functional workflows. In enterprise collaboration, we’re already seeing modern offerings targeted to verticals – e.g. Microsoft and Facebook’s tools for firstline/frontline workers, Flexport’s collaboration platform for freight, Beekeeper for non-desk employees, Space for developers, Automattic’s Happy Schedule for customer support teams.

There has lately been a lot of attention on automations, custom workflows and user-generated applications built on no-code platforms. Highly customized – even personalized – workflows hold the potential of being even more relevant than industry solutions, moving the offering even further to the end of the relevance continuum. It also becomes a lever to improve retention if the custom workflows and applications are not readily portable. This will be dependent on adoption, however – it might be a slower shift since workers will need to develop the skillsets to build their own automations and streamline their own custom workflows.

Integration of AI will be one aspect of personalization, in addition to generally advancing the respective platforms’ capabilities. Because of AI’s potential to discover and share information, automate tasks, and facilitate contextual interactions, its capabilities are a natural fit for augmenting human collaboration and improving worker experiences. While we have a long way to go before virtual assistants can operate like human assistants, AI can still save workers substantial time in automating or streamlining repeatable tasks. It can also elevate the most relevant information for a user, which Slack is already investing in. The need for more capable AI certainly gives an advantage to big tech firms like Google, as they vie for the enterprise collaboration market.

The news is not all good. As we look ahead, there’s the possibility that these integrated suites like Office 365 and G Suite will suck much of the oxygen out of the system, deterring new entrants and innovation. While the shift to APIs arguably opens up the market for smaller players, the reality is that their applications and add-ons will be lost inside massive 3rd-party libraries without an independent marketing push. The larger players have the war chests to make acquisitions and deepen integrations, getting ahead of the next set of market expectations (like integrated email, voice- and video-calling in the prior round). The big tech players also have the resources and talent to build copycat features of any 3rd-party product that gains meaningful traction. Some might say that Teams itself, which has features similar to that of Slack, is an example of that.

Microsoft, in particular, has to be wary of antitrust considerations, since there’s little doubt that the success of Teams leans on its existing market power. User trust and data security will also be critical. As we have already seen with Facebook, there can be backlash against big tech players based on their use of data in advertising businesses. This can impact how effectively they can play in realms with access to sensitive data, such as enterprise collaboration.

For organizations evaluating enterprise collaboration vendors, they will need to be strategic in taking an approach that can both serve near-term needs and adapt as the organization grows and state-of-the-art evolves. Most companies of a certain size will choose one, or at most two, horizontal integrated platforms, and combine them with best-of-breed vendors in a few areas. Organizations should look to pick a system using the context of their employees’ workflows, with actual use cases in mind. Key considerations include handling of synchronous (e.g. real-time chat) and asynchronous communications, pre-built integrations and AI, other API integrations and interoperability (with an emphasis on quality over quantity), size and engagement of the developer community, automation affordances and availability of no-code platforms, document-sharing and real-time collaboration, mobile vs. desktop experience, notifications, quality of search, accessibility in different geographies (e.g. Facebook Workplace in China), level of customization and support needed, and data security and compliance, among other factors.

While the conversation around collaboration can be very tools-oriented, workflows matter more. A new collaboration platform can be an opportunity to rethink how work is done – roles, workflows, tasks and interactions. In some cases, organizations will need to deconstruct traditional “jobs” to reallocate tasks and responsibilities among individuals and teams, AI-powered virtual assistants and bots, and other parts of the organizational system and broader ecosystem. Work in the future will be more networked, more mobile, more team-based, more project-based, more collaborative, more real-time, and more fluid. The challenge will be to make sure it is not more complicated, confusing or overwhelming as well.

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