Slack to Microsoft Teams: "Damn You!"

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When Slack (WORK) reported its last quarterly earnings results on June 4th, 2020, investors weren’t happy. Investors were expecting Zoom-like growth but Slack disappointed. 

What’s wrong with Slack? For investors, it’s Microsoft Teams. 

Slack introduced an entirely new way to work and was primed to grow and dominate.  Then Teams happened. Teams is successful because it is:

  • Exploiting Microsoft’s existing customer base. It’s not winning customers who would have never considered Microsoft in the first place. Those customers will continue to choose Slack. 

  • Free while Slack isn’t. Technically, Teams requires an Office 365 subscription but all Microsoft customers have that. Sadly for Slack, these customers make up a big portion of Slack’s addressable market. 

It’s true that there is no risk in Slack’s customers switching to Teams. That was never the goal for Microsoft though. Teams to Slack is like Instagram Stories to Snapchat. Stories removed the impetus for Facebook users who haven’t been introduced to Snap to try it. In the same way, Teams is an effective way to prevent a Microsoft customer from even trying Slack. 


So What’s working for Slack?

  • Over the past few years, Slack has made “chat” its competitive advantage. Slack’s chat client is so superior that if you’re job is chatting, you’ll always choose Slack. 

  • Slack Connect: Slack has not only made its chat client better but also expanded who you can use it to chat with. Last year, Slack introduced Slack Connect (Shared Channels) - a feature that allows Slack to connect different enterprises to each other to chat. Unlike Teams, Slack is not deeply integrated with a bunch of other applications, so it is easier for Slack to horizontally connect different enterprises. For different enterprises connecting to each other chat is the point, not integrating with other apps which vary from one enterprise to the other. 

Bottom line whenever chatting is the point, Slack’s strengths prevail and Microsoft Teams loses. Also, Slack Connect is Slack's pass for continued success. 


It’s clear that Teams has reduced Slack’s addressable market and Slack will not come near the heights its investors envisioned when it filed its IPO. However, its position is not so vulnerable and it will be profitable in the future. Is Slack a good long term investment? Can it beat the returns on VOO over the next two years? Drop a line and let me know what you think.

 

Disclaimer: This post is merely my own assessment and is not an investment recommendation. For professional advice, seek input from a licensed investment advisor.

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