Few technology companies have enjoyed the same meteoric rise to fame as Slack. After it launched in 2009, Stewart Butterfield’s workplace communication company took the world of business-to-business (B2B) software by storm, garnering interest by breaking well-established patterns of growth. They developed a cult-like following of over ten million daily active users (DAU), were crowned the fastest-growing B2B application of all time, and eventually went public via a direct listing in 2019, valuing the company at a whopping 23 billion dollars. It’s also one of the few companies to achieve verb status, which I’d argue is one of its finest accolades—Slack me.
At the heart of their success was the fact that Slack was a product-first company. Their technology was so good (and still is) that it could do most of the heavy lifting to grow the company organically.
However, a good product alone isn’t enough to win. To drive adoption, accelerate growth, and capture market share, companies must have an equally strong go-to-market (GTM) strategy. Unfortunately for Slack, the gaps in their GTM were eventually exposed when Microsoft Teams entered the foray.
Where Slack focused on building a great product, Microsoft excelled (ha!) at GTM, which—among anti-competitive practices and billions more dollars—enabled them to usurp Slack as the most used workplace communication solution.
A Note on Antitrust
Markets are at their best when competition exists. Competition means more options, innovation of business models, and technology breakthroughs, all of which ultimately benefit customers. To prevent the formation of monopolies and promote healthy competition in the market, antitrust laws were chartered by regulators, dating as far back as the 1890s. Such laws are why mergers and acquisitions like Visa’s attempt to buy the startup Plaid are sometimes blocked. However, there’s a high degree of inconsistency around the deals and activities considered anti-competitive, most of which are becoming increasingly political in recent times—Amazon, Meta, and Google take center stage in that regard.
A very legitimate argument can be made that Microsoft surreptitiously engaged in anti-competitive practices to flank Slack and squeeze it out of the market. While they employed the right GTM plays, it would be naive to overlook that this was a David Vs. Goliath situation. In hindsight, there are important lessons we can learn. However, activities like this could be corrosive to our innovation ecosystem, detrimental to customers, and subjugate our economy to monopolies that even Rich Uncle Pennybags couldn’t dream of.
Ironically, at the time of writing this post, Microsoft pegged a new market opportunity to pursue thanks to the success of graphic design company, Canva and unveiled their copycat product called Designer.
A Dud of a Global Accelerant
Amidst the pandemic, a time when global reliance on B2B software surged, Slack stagnated. Especially in comparison to other “work-from-home” companies like DocuSign and Zoom Video—both of whom reported triple-digit growth in their company valuations—Slack could not use the tailwinds of remote work to accelerate their growth.
Microsoft Teams, the objectively weaker product, corroborated by several review sites like Trust Radius and G2 Crowd, was significantly eating into Slack’s total addressable market. By late 2020, they had amassed over 75 million DAUs, dwarfing Slacks’ 13 million. The competitive pressure from Microsoft caused Slack to buckle and sell itself to Salesforce in July 2021.
Microsoft’s strategy was based on three activities that enabled them to challenge the market leader at its own game: Understand the buyer personas jobs to be done (JTBD), bundle value, and finally, leverage established distribution to support customer acquisition. This three-pronged strategy is what skewered Slack despite its amazing product.
Jobs to Be Done
GTM is about connecting your product or service with the customer—not the consumer. The distinction is essential because it clarifies who’s paying for your product instead of using it. While there are circumstances where the buyer and user persona may overlap, the needs of these two groups will differ, something Microsoft inherently understood.
Over the past two years, digital transformation has been rampant across all sectors of the economy. Taking center stage is adopting cloud-native solutions to help reduce operational overhead and promote efficiency throughout businesses. It shouldn’t come as a surprise that the adoption of Software-as-a-Service (SaaS) solutions is up by over 60% in the past year.
This SaaS frenzy put unexpected pressure on IT teams, who are often tasked with building out a portfolio of technology to support their organization’s workforce in a secure yet efficient manner. With an average of 254 applications to manage, uncertain economic conditions, and growing concerns around securing a digital workforce, IT teams had a very straightforward job they needed to be done by their technology: reduce complexity, increase security, and minimize costs.
Microsoft honed in on this, which is why they shipped a half-baked product that met the basic needs of the workforce. Security was ensured, integration was offered, and rudimentary workplace communication functionality was met.
Bundling value is one of the oldest and most effective strategies for accreting value in business. It’s based on the simple understanding that consumers and B2B buyers make thousands of decisions daily, resulting in decision fatigue. Bundling seeks to simplify choices for buyers such that the mental effort necessary to make a decision is minimized because the calculus around perceived value from a product or service is so apparent.
For IT teams, the choice was clear: pay $6.67/month per user for an excellent, point solution that your workers will adore, or for 35% less, get a swath of productivity tools, a globally recognized brand, and easier vendor management. For an overwhelmed, risk-averse, and value-driven buyer, the business case for Microsoft is highly compelling.
However, let’s take an example to drive this point home further.
For a company like Okta (where I work and happily use Slack), the cost of using Slack for our 5,000 employees would land somewhere around $400,200 per year, excluding any volume-based discounts. Opting for Microsoft solutions (which we’d never do because they’re a competitor of ours) would amount to $300,000 for not just Teams but also tools such as Word, OneNote, PowerPoint, and Excel (the real GOAT). Additionally, adopting Outlook would likely mean we could scrap our Google Workspace license to save even more money.
Through bundling, Microsoft had a winning monetization strategy that ensured their buyers could spend less, get more, and be confident with the brand they were purchasing. Let’s see how those same buyers feel when Microsoft inevitably starts hiking is prices.
Bottoms-up SaaS motions are excellent plays for technology companies looking to drive down their customer acquisition costs (CAC) because it offloads the distribution of a solution from people to the product. Additionally, it capitalizes on changing B2B patterns where buyers prefer to try a solution before fully committing their organization’s resources. It’s why over 50% of companies deploy Product Led Growth (PLG) as a critical strategy for customer acquisition, and over 90% plan to increase their investments in PLG.
However, despite its proven success, businesses, particularly those looking to move into the enterprise segment of the market and achieve scale, inevitably turn to sales reps to support their GTM motions. Sales will always remain a human endeavour, which is why companies are hiring sales reps at a record pace.
Distribution and channels to market via people is a considerable advantage for platform companies such as Microsoft, who have established relationships with organizations worldwide. An upsell of technology means lower CAC and greater annual recurring revenue (ARR) per account, which translates to sweet bottom-line margins and a greater lifetime value (LTV) from a customer. Unfortunately, using a traditional sales model was something Slack resisted until 2016 when it decided to move upmarket. While it reaped the rewards of this strategy (40% of its revenue comes from less than 1% of its customers), its salesforce paled compared to Microsoft. For context, their workforce equates to approximately 9% of Microsoft’s salesforce. In other words, Microsoft has 12 times more people working in just sales than Slack has in its entire business. The massive disparity here enabled Microsoft to crush Slack through sheer numbers while benefiting from market tailwinds.
Conventional Silicon Valley wisdom used to suggest a strong product is enough to win in the market. However, the story of Slack Vs. Teams highlights the heightened importance of GTM. Microsoft didn’t beat Slack by shipping a better product; it won by having deeper empathy toward its buyers, bundling value, and tapping into an unmatched distribution network. Though they had an unfair advantage, it’s hard to deny the strategic moves Microsoft made that prevented the market from cutting Slack, some slack.
Most founders build their businesses with some type of exit strategy in mind, such as a public offering or an acquisition. For Stewart Butterfield, he should hold his head high, knowing Slack accomplished both. Despite the less-than-ideal ending to its independence as a company, Slack will always be revered as a successful technology company. They set a new precedent for growth that imbued the technology ecosystem with an exuberance around customer acquisition. They redefined workplace communication with a magnificent, magnificent product. And finally, they employed hundreds of people worldwide, offering a sense of security. They deserve heaps of credit for what they accomplished and for the lessons they’ve afforded us. :thanks: