WORK Slack Technologies Inc

CEO takes aim at Microsoft's Teams, a competing product in office collaboration

By Sarah E. Needleman 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (September 6, 2019).

Competition is heating up between Microsoft Corp. and its smaller rival Slack Technologies Inc., as the companies battle in the market for providing software that helps workers communicate and complete a range of office tasks.

After Slack's first earnings report since its public-market debut, the company's chief executive shared anecdotes about large customers that he said pay for Microsoft's broad-ranging Office 365 software, yet still use Slack as their primary collaboration tool rather than the tech giant's competing product, called Teams.

"They still chose Slack, because only Slack was capable of meeting their needs," Stewart Butterfield, the San Francisco company's chief executive and co-founder, told analysts Wednesday.

Slack and Teams both allow workers to send messages, documents and images to individuals or groups, as well as engage in videoconferencing. They also are integrated with other software to help users execute a range of tasks, from employee training to tracking sales data.

Slack was founded 10 years ago as a game company before pivoting to enterprise software in 2014. It made its public-market debut in June.

Microsoft launched Teams in 2017 as a free chat-based workspace in Office 365, its software suite that includes programs such as Word and Excel, though it can be accessed independently as well. In July it said that Teams had more than 13 million daily users, with some analysts questioning whether the battle with Slack was already won. That is because Slack said in January it had 10 million daily users, and it hasn't publicly updated that figure.

Microsoft and Slack, in addition to Cisco Systems Inc. with its Webex product, and the Workplace collaboration tool from Facebook Inc., are competing for a slice of the growing enterprise-application software market. Microsoft Chief Executive Satya Nadella has said the company is learning more about how Teams can be used with each client signed up.

"It's the communications tool. It's the collaboration tool. It's the line-of-business tool for meetings as well as business process," Mr. Nadella told analysts during a July conference call.

Microsoft declined to comment Thursday on Slack's CEO's remarks.

On its earnings call Wednesday, Slack touted a new feature called Shared Channels, with executives describing it as the most important addition to the platform to date. Due to roll out widely later this month, it allows customers to collaborate with people outside their organization while meeting compliance rules. Mr. Butterfield said greater than 20% of Slack's more than 100,000 paid customers have opted to test the feature, exceeding internal expectations.

Being able to attract more paying customers is critical to Slack, which unlike Microsoft isn't buffered by other business units. The majority of Slack's customers use a free version of the tool, but on Wednesday the company touted having 720 customers who each account for at least $100,000 in annual recurring revenue in the July quarter, up from 645 in the prior three-month period.

Slack's share price fell as much as 17% in extended trading Wednesday after the company warned that revenue growth in the current quarter wouldn't be as strong as in recent ones. Slack also forecast wider-than-expected losses in the current period, casting a pall on the stock despite the company beating second-quarter estimates on revenue and raising its full-year revenue outlook.

Those losses moderated Thursday, with the stock closing off 3.4%. Some industry analysts said investors overreacted, arguing that deceleration should be expected for a hypergrowth company like Slack. KeyBanc analyst Brent Bracelin said Slack's market opportunity is still huge, even with Microsoft being involved.

"It's not a winner-takes-all market," Mr. Bracelin said. "This is a really, really large space."

However, a study last year from Spiceworks, a marketplace that connects tech buyers and sellers, forecast Microsoft Teams would record stronger customer growth than Slack over the next two years because it comes free with Office 365, which offers ubiquitous programs such as Word and Excel.

World-wide spending on collaboration software is expected to rise to $16.5 billion this year and eventually reach more than $26.6 billion in 2023, according to research firm International Data Corp.

Mr. Bracelin said Slack has an advantage over Microsoft in helping businesses get more productivity out of workers by automating and streamlining routine tasks. Slack offers users more than 1,800 third-party applications that work on top of its software, compared with just a few hundred for Teams.

Slack's user-engagement numbers are another sign of strength, D.A. Davidson & Co. analyst Rishi Jaluria said. People spend an average of 90 minutes daily using its software, Slack said, far more than the average time spent with some popular consumer applications such as Facebook and the mobile game "Candy Crush Saga."

Videogame publisher Activision Blizzard Inc. said people spent an average of 38 minutes each day playing its "Candy Crush" games in the first quarter. Facebook users also are logged on for an average of 38 minutes a day, eMarketer said in April.

"Engagement is a key metric because if people are using your software and getting value out of it, they will continue to do so for the foreseeable future," Mr. Jaluria said.

Write to Sarah E. Needleman at sarah.needleman@wsj.com

(END) Dow Jones Newswires

September 06, 2019 02:47 ET (06:47 GMT)

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