Insights

Larger Rivals Spell Trouble for Slack Long Term According to Interviews with Technology Professionals

Shares of Slack Technologies sank about 10% on Tuesday as it's chief rival enterprise messaging system - Microsoft's Teams - annouced to the market that it had almost twice as many users based on the latest reported figures from the tech giant.

 

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Microsoft's Teams messaging app for businesses (aimed at displacing email as the primary work communication method) reported earlier this week that the app was now being used by 20 million people daily. That represents almost double Slack's user count of 12 million that it reported only last month and a massive jump from the 13 million daily users that were using Microsft Team's back in July of this year.

 

 

To add insult to injury, Slack is now accusing Microsoft of copying their ads. In a tweet posted by Slack today, the chat company shows a side by side video comparison highlighting the striking simliarilties between the videos with a caption reading "ok boomer" mocking Microsoft for being old and out of touch.

 

Slack has gone to great lengths to justify their valuation and growth prospects and to diminish the validity of Microsofts claims that have included questioning Mcirsoft's reported active user count and even taking out a full-page ad in the New York times to welcome Microsoft to the party as it were. Slack has even defended their results by suggesting that they have a more loyal customer base who love using the product and spend more time on the app.

 

Despite managements claims that they are not worried about the reach and resources behind Microsoft's Teams, Woozle's research team spent time interviewing senior professionals in IT to understand the real risks and rewards for investors in Slack Technologies. Below summarises the main points from our interviews:

 

Slack isn't and won't be profitable in 2020 => a big drag on the prospects for Slack comes down to capital and financial resources. Slack currently has a market capitalisation close to the $12 billion dollar mark yet it's not even close to being profitable (no matter which metric you choose) and most analysts and investors realise that it probably won't happen next year either!

 

Teams is bundled as part of Office 365 => This point was mentioned by more than 60% of our respondents that a big advantage Microsoft has over Slack is that it already has deep rooted relationships with some of the largest businesses on the planet. It's reported that 70% of Slack's top 50 customers also use Microsoft Office which means there's a good chance the tech golliath armed with a trillion dollar market cap might be able to convert at least a portion of those businesses. Just to showcase the huge divided in profitability and financial assets, the Microsoft division that houses the Office application made about $16 billion dollars in operating income for the 12 month period to July 1st vs. Slacks continued losses.

 

Scepticism Around Microsoft's Teams Daily Active Users is Likely Unfounded => Most of the respondents we spoke to suggested that in their opinion it was unlikely that daily active user numbers being reported by Microsoft included users who were closing down the application after it appears on start-up mode. Even if a portion of the numbers were not entirely accurate, most respondents were unanimous in acknowledging that in their circles they were aware that Teams was gaining market share.

 

Slack's Ability to Win Elephant Sized Clients from Microsoft Seems Unlikely => Most of our respondents indicated that although Slack's user growth and usage time was showing signficant positive momentum, a large part of their client base is likely with small and mid-sized organisations and businesses. Particarly start-ups. Their ability to break into Fortune 100 businesses was questioned by respondents - many of whom worked at those companies - suggesting that Microsoft's dominant position with those clients was likely a large barrier to entry. Microsoft Office 365 for example boasts about 200 million active users per month with 91 of the top 100 companies in the US using their software and more than 150 companies that have more than 10,000 Office users. That's a huge mountain to climb.

 

Slacks UX is Far Better but For How Long => Respondents we interviewed were unanimous in their opinion that Slack offered a much better user experience and had more flexibility in terms of use cases, integrations, and bots which Microsoft Teams or any other large chat competitor couldn't currently compete with. They all however were optimstic about the new features and improvements that Microsoft were planning to roll out soon including conference calls, cross-channel posting, and channel moderation.

 

Microsoft Pricing & Convenience Wins with Decision Makers => Even though some respondents were clear that Slack offered a better solution to customers, most of our respondents admitted that in terms of pricing and convenience of on-boarding it was clear that Microsoft Teams was a more sensible approach for decision makers. Although this was somewhat different from start-ups and smaller businesses, at larger companies it was clear that Microsoft Team's inclusion as part of the Office platfrom that clients were already paying for and using make it a much more logical buy.

 

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