Please ensure Javascript is enabled for purposes of website accessibility

Did Slack Admit Defeat by Filing Antitrust Claims Against Microsoft?

By Leo Sun - Jul 25, 2020 at 8:15AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The remote collaboration underdog claims Microsoft’s bundling strategies are illegal and unfair.

Slack (WORK) recently filed an antitrust complaint against Microsoft (MSFT -0.40%) in the European Union, claiming Microsoft's strategy of bundling Teams into Office 365 is anti-competitive.

In a blog post, Slack claims Microsoft "illegally tied its Teams product into its market-dominant Office productivity suite, force installing it for millions, blocking its removal, and hiding the true cost to enterprise customers." Jonathan Prince, VP of Communications and Policy at Slack, stated the company "can't ignore illegal behavior that deprives customers of access to the tools and solutions they want."

Slack's General Counsel David Schellhase insisted the company "simply wants fair competition and a level playing field," called Teams a "weak, copycat product," and accused Microsoft of illegally leveraging "its power from one market to another" with its software bundles. Schellhase also stated Slack was holding similar conversations with U.S. antitrust regulators in a press call, although no formal complaints have been filed yet.

Microsoft Teams.

Image source: Microsoft.

Slack's move against Microsoft isn't surprising since the tech giant hasn't been shy about its plans to beat Slack. But it also contradicts Slack CEO Stewart Butterfield's claim that Microsoft was "not a competitor" in a CNBC interview earlier this year.

So is Slack admitting defeat by filing antitrust claims against Microsoft?

Slack officially considers Microsoft to be its top competitor

Slack's management often dismisses the notion that it directly competes against Microsoft, yet it still calls Microsoft its "primary competitor" in its latest 10-Q filing.

In the filing, Slack admits Microsoft has "substantially broader product offerings" and leverages those relationships "in a manner that discourages users from purchasing Slack." It claims Microsoft can offer Teams at "zero or negative margins," bundle it with other services, and use forced product migrations, installations, and "closed technology platforms" to gain users.

Slack's Windows app.

Image source: Slack.

Slack says Microsoft's "particularly aggressive" strategies have "caused certain prospective customers not to purchase Slack," and admits that competition "has harmed and may continue to harm our business."

In a series of follow-up tweets, Butterfield stated that Teams was being "given away for free" in Office 365 bundles, and Skype for Business users were being "force-migrated" to Teams. He noted those bundles and upgrades were "impossible to avoid" and "turned on by default."

In Slack's blog post, Schellhase called Microsoft's Teams strategy "a carbon copy of their illegal behavior during the browser wars" two decades ago, in which Microsoft was pilloried by antitrust regulators for bundling Internet Explorer with Windows to gain market share against competing web browsers.

Slack is still growing -- for now

Slack's warnings sound dire, but its platform is still growing. Its revenue rose 50% annually last quarter, its billings were up 38%, and its number of paid customers grew 28% to 122,000.

The value of those customers is also rising. Its number of paid customers generating over $100,000 in annual recurring revenue rose 49% annually, and its net dollar retention rate hit 132% -- which indicates it's not only retaining its existing customers, but generating more revenue per customer. It still expects its revenue to grow 36%-38% for the full year.

However, Slack is still unprofitable, and its losses are widening. This makes it tough for Slack to survive a prolonged war against Microsoft, which is firmly profitable, generates most of its revenue from other businesses, and can continue to offer Teams for free at "zero or negative margins."

Microsoft claimed Teams surpassed 75 million daily active users (DAUs) in April, up from 44 million in March, as the COVID-19 crisis forced more people to work from home. It didn't update that user count in its recent third-quarter report.

Slack doesn't regularly update its user count, but it revealed it had 12 million DAUs last October, and 12.5 million concurrent users in March. Therefore, it's likely that Slack still reaches fewer DAUs than Teams, and that gap could widen as Microsoft aggressively promotes Teams to Office 365 users.

Is Slack admitting defeat with its antitrust claims?

I don't consider Slack's antitrust filings against Microsoft to be an admission of defeat, since its platform is still growing and retaining users. However, Slack is admitting it could struggle to outlast Microsoft -- which reportedly tried to buy Slack for $8 billion four years ago -- over the long term.

On the bright side, if Slack's complaints trigger antitrust actions against Microsoft and force it to unbundle Teams from Office 365, the competitive headwinds could fade and light a fire under its stock.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Leo Sun has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Microsoft Corporation Stock Quote
Microsoft Corporation
MSFT
$290.17 (-0.40%) $-1.15
Slack Technologies, Inc. Stock Quote
Slack Technologies, Inc.
WORK

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
394%
 
S&P 500 Returns
127%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/18/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.