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Slack Accuses Microsoft of Illegally Undermining Competition With Teams Bundling

By Evan Niu, CFA – Jul 23, 2020 at 10:00AM

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There's precedent that bundling can sometimes violate antitrust laws.

Bundling can be remarkably powerful strategy, maybe even too powerful in some cases. That strategy is at the heart of a formal antitrust complaint filed in the European Union by Slack (WORK), alleging that Microsoft (MSFT -1.01%) is violating competition laws by including Teams in its ubiquitous Office suite. Microsoft has become Slack's biggest competitor amid the latter platform's skyrocketing popularity in recent years, which has only accelerated during the COVID-19 pandemic.

The complaint is also eerily reminiscent of similar past skirmishes among tech companies.

Slack app interface on Mac

Image source: Slack.

Bundling Teams in Office

Slack CEO Stewart Butterfield has dismissed the competitive threat posed by Microsoft on numerous occasions since Slack went public. "There's still a lot of people choosing Slack, despite the fact that they have Teams bundled in for free," Butterfield said late last year.

"We're confident that we win on the merits of our product, but we can't ignore illegal behavior that deprives customers of access to the tools and solutions they want," Slack communications and policy exec Jonathan Prince said in a statement. "Slack threatens Microsoft's hold on business email, the cornerstone of Office, which means Slack threatens Microsoft's lock on enterprise software."

Teams is included with Office and oftentimes launches when a work PC is booted up, which Slack has previously argued has the effect of inflating Teams users and other engagement metrics. The upstart challenger alleges that Office customers can't remove Teams and the strategy hides "the true cost to enterprise customers."

History repeats itself

If this all sounds somewhat familiar, that's because Microsoft used a similar tactic in the late '90s as internet browsers were emerging as one of the most critical software applications for users. Back then, Microsoft leveraged the dominance of Windows to bundle Internet Explorer in an effort to undermine Netscape Navigator.

Microsoft famously lost one of the biggest antitrust cases in U.S. history over the browser wars, before getting slapped with a $730 million fine by the European Commission over a decade later for a similar practice that the company blamed on a technical error. This history is not lost on Slack.

"Microsoft is reverting to past behavior," Slack General Counsel David Schellhase added. "They created a weak, copycat product and tied it to their dominant Office product, force installing it and blocking its removal, a carbon copy of their illegal behavior during the 'browser wars.'"

Separately, Alphabet (GOOG -1.26%) (GOOGL -1.01%) subsidiary Google was hit with a massive $5 billion fine in 2018 over bundling its own services in with Android. In addition to pre-installing its own apps, the search giant allegedly used the Google Play store as leverage in order to prevent smartphone manufacturers from making smartphones running modified ("forked") versions of Android.

In other words, there is some precedent that extreme bundling strategies can in some cases violate antitrust laws when used by dominant companies. The ball is now in the European Commission's court to see if Microsoft has crossed any legal lines...again.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Microsoft, and Slack Technologies and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. The Motley Fool has a disclosure policy.

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