#3 - The Commoditization of the Enterprise

Teams v Slack, Bundling/Unbundling, Microsoft's future & "deep" products

Recently the company I work for switched from Slack to Microsoft Teams, as part of a bigger push to re-embrace the entire Office365 suite. “Ugh”, we all thought. Surprisingly though, a few months on, I’ve been pleasantly surprised by how much I enjoy using Teams.

Using Teams (and actually the whole Office365 suite again after many years in “let’s-just-use-the-best/coolest-tools”-land) over the past few months has got me wondering about tool-overload, the state of productivity software in 2019, the cyclical nature of bundling and exactly where we are in that cycle right now.

Planet of the Apps

It’s not news to anyone, but I think many of us feel that we’re drowning in tools and more distracted by team chat than ever. The need for productivity tools that actually make us productive is clearer than ever.

Slack has, unfortunately for them taken a lot of the hits on this debate. I don’t actually think Slack itself is the problem, I honestly believe it’s more the always-on, asynchronous, “I-expect-an-answer-in-30-seconds” nature of how many of us communicate and collaborate at work nowadays. Slack is undoubtedly, whether they planned for it (unlikely) or not, a great enabler of this workplace misbehaviour.

SaaS company Okta put together a big report annually on this very topic of workplace app usage and as always, came up with some very interesting findings.

Firstly, and importantly, we’re not imagining it. We are using more and more apps, tools and software products at work.

The number of apps per customer, according to their study, is on a steady growth trajectory. On average, companies surveyed during 2018 had more than 70 software applications installed. Keep in mind, this is total installation #’s and across all departments (i.e. sales, marketing, IT, engineering, ops etc) however, I think the point is just as valid - there are simply so many tools we’re required to use now at work.

No wonder we feel distracted and sometimes, plain unproductive.

Didn’t we choose this? Wasn’t this all part of the “Consumerisation of Enterprise Software” we were all rooting for?

When it first launched, Slack was like a breath of fresh air. It was the poster child for the burgeoning “consumerisation of enterprise software” trend.

The idea behind the “consumerisation of enterprise software" trend being that because we’d become accustomed to high-quality, high UX-focused products in our personal lives (Instagram, Snapchat, Google Maps, Tinder etc), it was only natural then that we’d demand the same quality of our productivity/work apps. We’d had enough of crappy enterprise software!

It was the start of the “unbundling of enterprise software”.

Bundling vs Unbundling

One of most classic theories of business is the notion of bundling vs unbundling - two related, yet vastly different strategies for going to market. As Jim Barksdale, Netscape’s CEO once classically noted:

There’s only two ways I know of to make money: bundling and unbundling”.

The funny thing about bundling and unbundling though, is how cyclical it is. Just as you think an industry has been finally “unbundled to death”, a new company with a unique bundling strategy seems to pop up out of nowhere, offering customers a new way to consume a product, often with a sexy new business model.

Take the music industry as an example. For years, the album / $20 CD (if I remember correctly) was the only way you could buy music. A classic case of bundling. Then came piracy, Napster, Kazaa and other MP3 sharing programs. These products unbundled the CD and created a new way of acquiring and consuming music, in an unbundled form - disconnected from the album/single packaging we’d become so accustomed to. Years later, Spotify and Apple Music would launch and successfully re-bundle music again into one simple offering, in a new format, with a new business model - all you can eat for a monthly subscription.

Side note: One wonders what a future unbundled version of music consumption, in a post-streaming world could look like?

Anyways back on topic. At work, the unbundling of the classic Microsoft Office productivity suite of Word, Excel and Powerpoint has been a significant trend.

This unbundling trend has given rise to some insanely popular products: Google’s G-Suite, Basecamp, Dropbox, Slack, Notion, Airtable just to name a few.

The Great Unbundling of Microsoft Office

Microsoft is in a interesting position when it comes to the state of enterprise productivity. Of course, they still dominate this market and always have. Office365 is a $10 billion+ business with somewhere over 130 million active monthly users. Office is literally the household brand name when it comes to office productivity.

However, over the past decade (or so) - more and more enterprises, driven by this Consumerisation of Enterprise Software have added more and more non-MSFT tools to their stack. Again, a quick look at Oktas’s research suggests this to be the case.

We found that 76% of Okta’s Office 365 customers have one or more apps that are duplicative of apps offered by Microsoft. Over 28% are chatting on Slack. Nearly 24% are connecting with their colleagues on Zoom.

In other words, 76% of surveyed Office365 customers are using/paying for a competitor product that they could’ve gotten for free as part of the Office bundle. Interestingly, and very relevant to this conversion is that 28% of Okta’s Office365 customers are using Slack…. We’ll come back to this point.

So even dedicated Microsoft customers are looking elsewhere to add to the stack. Most of this likely driven by employees, not necessarily management or strategy.

The Commoditisation of Enterprise Software

Slack was (and still is to be fair) slick, fast and delightful to use. If one disregards the "distraction factor”, it really is a wonderful product. Slack’s brand voice is delightful and the product really has a personality.

It also came with a number of key innovative features. ⌘+K to switch conversations, Emoji Reactions and all your work piping back into Slack via a killer set of integrations (Jira, Github, Salesforce, Zendesk, Twitter etc). It felt then like it really was a game changer.

The challenge for Slack though, is just how quickly those features have become a commodity.

What does this mean for Slack? Well, it means Slack will have to start fighting a fight they probably don’t want to fight. Yes, they can and will likely continue to innovate better than Microsoft, and come up with new and exciting use cases.

But to win the enterprise they have to fight against - the bundle. Against the default choice. Against the integrated stack. Remember, “No-one ever got fired for buying IBM”.

To bring this discussion back to where we started: Microsoft Teams.

Back in 2016, Slack posted this cheeky ad in the New York Times, welcoming Microsoft to the chat-collaboration space upon the launch of Teams, with some “friendly” advice, such as “it’s not the features that matter” and “do this with love”.

2019: Teams overtakes Slack in Daily Active Users

It turns out, rather ironically that it may indeed not be the features that matter.

It was announced in mid-2019 that Microsoft Teams had overtaken Slack in active daily users - reaching 13 million DAUs compared to Slacks reported 10 million DAUs.

Now, as I wrote above - there are plenty of Office customers using Slack, and Slack is certainly still on an impressive hyper-growth journey themselves (this article is absolutely not a knock on Slack), but there is something interesting at play here.

What’s behind this impressive growth in Teams usage? A couple of things primarily:

  • Cost - Teams is bundled together with Office365 subscriptions. This means, customers that would pay separately for Slack, can get Teams as part of the same Office subscription.

  • Huge Existing Customer Base - customers using Skype for Business today are being encouraged to transition to Teams which will be discounted on July 31, 2021. This is a lot of already loyal, locked in users that Microsoft sales reps can migrate to Teams immediately.

There is one more factor though - I call it “Own The Stack, Go Deep”.

“Own The Stack, Go Deep”

As I noted previously, the amount of applications now that a typical knowledge worker is supposed to use on a daily basis is skyrocketing. Whilst the “pick your tools” idea was cool and exciting in 2014, I sense a high level of tool-fatigue amongst people I speak to - who just long for structure and order.

What Teams has managed to really do well is to build a truly “deep” product, and this is made possible by the fact that they own the entire productivity stack, they own the bundle.

Teams integrates natively and well with pretty much the entire Office stack: Outlook, Word/Powerpoint/Excel, OneDrive, OneNote, Planner and Forms.

Within the same application I can natively create an Outlook invite, access my OneDrive storage directory, edit a Powerpoint presentation and video-or-chat with a colleague. No application switching, no trying to figure out what my login is to that app. All in one.

It’s a pretty compelling case for a large enterprise, looking to add structure and efficiency to IT workflows.

The case against Teams and Microsoft

Of course, Microsoft is still, in many ways, up against it. As Ben Thompson wrote a few months ago:

“At the same time, the reason to use Microsoft is very much grounded in the past: Office documents are familiar, and Exchange remains the standard for enterprise email. The advantage of going with Microsoft is that everything works mostly as it has previously. That, though, raises an existential question that Nadella’s Microsoft has yet to answer: why would a new company, without any attachment to Microsoft-based workflows, choose Office 365?”

It’s all well and good for existing Microsoft-people to get excited about Teams, the stack and the integrated bundle - but a brand new company starting tomorrow - that’s another question. As Ben mentions, Slack is creating new customers, whilst Microsoft is trying to lock in existing ones.

I’d be surprised if this wasn’t one of the core strategic discussions ongoing at Microsoft right now. How to continue to innovate on productivity software, to create new customers and deliver products to a new generation of workers who have no affiliation to the Microsoft legacy of the past.

Summary

At the end of the day, there are really only two viable options for a fully integrated enterprise productivity stack today - Microsoft Office365 and Google’s G-Suite.

We must always remember though, that we in tech live in our a bubble. We find Microsoft to be archaic, as Ben says - “grounded in the past”. We find it unfathomable that someone would choose Cisco over Zoom, but it happens everyday in the corporate world.

Can that change? Absolutely. Do Slack, Zoom and others pose a threat to Microsoft? Absolutely. A real threat.

However, enterprises all around the world still value brand, a low risk, familiarity, the bundle business model and the integrated product stack. IT managers don’t want to manage 70 software subscriptions, contract negotiations, invoices, training documents and security protocols.

Employees will continue to demand better products, but at as of this moment in time, Microsoft still reigns supreme when it comes to delivering on those factors - in one convenient, familiar bundle.

If Microsoft can satisfy employee demands by building quality, innovative products, they have a very good shot at maintaining their position as the dominant and #1 player in enterprise productivity. If they cannot, things will certainly get interesting over the next few years, despite the benefits of the bundle.


Feedback, discussion and critique is welcomed —> @jamesepember