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Microsoft Corporation Launches Its "Slack Killer"

By Evan Niu, CFA – Nov 2, 2016 at 2:27PM

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Microsoft Teams is here, and Slack should be worried.

Introducing Microsoft Teams. Image source: Microsoft.

Following a string of rumors that Microsoft (MSFT 1.05%) was preparing to launch a new offering intended to challenge Slack directly, the company has done just that.

A couple months ago, reports surfaced that the software giant was building a Slack competitor that would be branded Skype Teams, after Microsoft decided not to pursue a massive $8 billion acquisition of the hot enterprise messaging start-up (which would have likely ended poorly, given Microsoft's penchant for overpaying for large acquisitions). It turns out that Microsoft is going with Microsoft Teams, and it will be part of the Office 365 suite.

Here's what you need to know about Microsoft's shot at taking down Slack.

It looks like a Slack replica, which isn't a bad thing

Microsoft Teams has pretty much everything you would expect from a chat app, and naturally integrates with the rest of Microsoft's collaboration tools such as SharePoint, Skype, and OneNote, among others. The app uses the same security protocols as the rest of Office 365. The interface even looks nearly identical to Slack's. There are a wide range of customization options for teams so that they can tailor the experience to their needs.

Microsoft says general availability will be in Q1 2017, although Office 365 Enterprise and Business customers can use a preview version starting today. Detailed pricing information is not available yet.

Video source: Microsoft.

While deep integration with Office 365 is an obvious requisite, much of Slack's success is tied to its ability to integrate with a large number of third-party services. This has been critical to Slack's rise, and Microsoft knows it. The software giant is launching a developer preview immediately in order to get developers building their own integrations with Microsoft Teams.

Should Slack be scared?

In a word: yes. Slack even took out a full-page newspaper ad welcoming Microsoft to the enterprise chat party, in a move reminiscent of what a certain company from Cupertino did decades ago. Slack says it's "validating" to have Microsoft jump in, since it confirms Slack's belief that all businesses should use modern collaborative chat apps. The ad is an open letter to Microsoft, and the full text can be found on Slack's website here.

It's true that Slack has enjoyed meteoric growth over the past few years, largely driven by word-of-mouth referrals, but in the grand scheme of things, Slack is quite small compared to Microsoft. Last month, Slack said it now has 4 million daily active users (DAUs), of which 1.25 million are paid users across 33,000 paid teams. With paid plans starting at $6.67 per month, that translates into an annual run rate of $100 million in revenue.

In contrast, Microsoft now has 109 million total Office 365 subscribers, which includes 85 million commercial seats and 24 million consumer subscribers. There is inevitably a large overlap between Slack's and Microsoft's customer bases, and Microsoft will attempt to aggressively cross-sell Microsoft Teams. This all comes at a time when Slack's user growth has slowed, which is in part a function of a larger user base.

Meanwhile, Microsoft isn't the only tech giant to come after Slack. Facebook (META 0.85%) just launched Workplace, aggressively undercutting on price at just $3 per month (larger teams can get prices as low as $1 per month). Facebook has had limited success in the enterprise to date, since most people still associate the company with personal social networking, but Facebook has a strong record of executing once it sets its mind on something. Facebook's experience building social tools naturally conveys to enterprise collaboration.

Combined, Microsoft and Facebook absolutely threaten to take a big bite out of Slack.

Evan Niu, CFA owns shares of Facebook. The Motley Fool owns shares of and recommends Facebook. The Motley Fool owns shares of Microsoft. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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