In a recent interview, when asked about Slack’s (NYSE: WORK) mounting competition, CEO Stewart Butterfield stated: “A smaller company, if it has real traction with customers in some cases has a bit of an advantage against a larger company with multiple lines of business.” He propped this statement up with two case studies: Microsoft’s (NASDAQ: MSFT) Bing v Google (NASDAQ: GOOGL) and Google Plus v Facebook (NASDAQ: FB). In both cases the plucky young underdog came out on top. Ah yes, Google and Facebook, the Bad News Bears of technology.
Butterfield’s reliance on these tales of modern-day David and Goliath is apt because Slack is a minnow in this pond. It is facing some of the giants of the technology industry with two of the biggest companies in the world looking to take advantage of the growing internal communication market. Will Slack’s user experience-loaded sling be enough to fend off these behemoths?
While these numbers don’t bode well for Slack, let’s look at the bigger picture for a second. Microsoft holds over $130 billion in cash reserves. In April, Office 365 had 180 million users. It has acquired both Skype and LinkedIn in the past 10 years to dominate the enterprise communications market. It is one of the most valuable companies in the world and has owned this space since Windows 95. Its launch of teams in 2017 wasn’t to stake a claim to Slack’s throne, it was to try and kick out the imposter who had somehow snuck into the castle.
Butterfield acknowledges Microsoft’s embarrassment of riches when it comes to a potential customer pool in the same interview, “if it’s based on the bigger distribution, I don’t think that’s really a threat”, reiterating Slack’s focus on user experience and quality. This preference of quality over quantity of users is fascinating, mostly because it seems to be working. It is backed up by one very telling fact when comparing the two: Slack claims that from its 50 top customers, 70% of them are paying for a subscription to Office 365. To these users, Slack’s offering is that much better than Teams that it’s worth foregoing an already paid for solution in Microsoft Teams.
Facebook has recently announced that its internal communications software Workplace has grown to 3 million users, acquiring a million users in the past 8 months. Workplace differentiates from Slack and Teams in a few ways, the first being its applicability for large enterprises, with 150 companies of over 10,000 users amongst its customers, including Walmart, the world’s largest private employer. These companies use Workplace to bring together workers across all branches of the business on to one communication platform.
The second is its push toward video communication. Workplace can facilitate video conferencing of up to 50 people, compared to Slack’s limit of 15. It recently announced a number of video features to be rolled out including: an app on Facebook Portal, captioning videos, auto-translation, and a P2P architecture to speed up video transmission. Think in terms of leaving a video message for 10,000 people and you can see the benefit of some of these features.
The third is the pricing. Workplace’s business plan comes in at $3 per user per month, compared to $6.67 for Slack’s standard plan. This pricing strategy may be enough of a factor alone for bigger companies to go with Workplace.
In investing, a lot of us are guilty of thinking in terms of a zero-sum game. The truth of the matter is that internal business communication is not going to be dominated by one company.
For Slack to succeed, its competitors do not have to fail. Microsoft Teams and Facebook Marketplace will claim their chunks of the market, Amazon (NASDAQ:AMZN) is even releasing an Alexa for Business for those managers who need at least one person in the office to listen to them, but for those companies prioritising communication in their workplace, Slack will dominate the competition. The Enterprise Collaboration Market is going to grow by $17 billion in the next 5 years and Slack is at the top of the queue, jostling with the big boys to be served first.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in Amazon, Facebook, Microsoft and Slack. Read our full disclosure policy here.
Content Manager at MyWallSt
Michael's first and favorite stock is Square, which he sees becoming a massive player in the payments industry and a leader in the war on cash.