Insulation for MSFT Stock
Over the last two years, a Silicon Valley startup named Slack took aim at Microsoft Corporation (NASDAQ:MSFT). The little firm wanted to topple Microsoft stock (MSFT) by invading its home territory, the office space.
But my guess is that their plan will backfire.
For those who’ve never heard of Slack, it is a messaging app that connects workers in different locales. Unlike “Whatsapp” or “Facebook Messenger,” this messaging app is configured for work. I know it sounds like a boring and trivial concept, but most Silicon Valley startups swear by Slack.
Slack’s sales have more than tripled in the last year. The company hauls in an estimated $140.0 million of annual revenue and it has 4 million paying users. But more importantly, venture capital funds think it is the next big thing.
They are tripping over themselves to invest in Slack. A $200.0 million investment this past April brought the company’s total valuation to $3.8 billion. It’s the “Cinderella” of startups. (Source: “Microsoft Takes Aim at Slack With New Messaging Service,” Fortune, November 2, 2016.)
That being said, I’m not convinced it can take down Microsoft stock. You know why? Because Microsoft recently unveiled their own version of Slack, called “Microsoft Teams.” The name isn’t quite as catchy, but it will be included with the “Office 365” suite.
And here’s the kicker: Microsoft already has 85 million paying customers who use Office 365 software.
Eight-five million. All of those subscribers will now have access to a Slack-like service, except they won’t have to pay extra. The new feature will come as part of their existing Microsoft subscription.
Any way you look at it, this is bad news for Slack. Just consider the option that 85 million people will face. They already cough up money to Microsoft for “Outlook,” “Word,” “Excel,” “PowerPoint,” “Publisher,” and a whole host of other programs.
Slack comes along and tries to win them over. Some of them might be tempted. After all, they’ve heard that Slack can increase productivity and connect remote workers to the ongoing office dialogue.
They are on the verge of signing up, but then…
…they find out Microsoft has a free version. No extra fees, no mess. The two products are identical, save for two things. One, Microsoft Teams will integrate with the rest of Office 365. And two, Microsoft Teams is free for existing users.
I keep hammering on that point because it is devastating for Slack.
In consumer markets, it is possible for a paid product to flourish despite there being a free alternative available. People are whimsical and swayed by how they feel. They would rather pay $90.00 for a designer t-shirt than accept a free, unmarked shirt. It’s illogical, but it happens.
However, that kind of irrational behavior isn’t as common in business. The most efficient solution usually wins, because there are hidden costs to extravagance. This is why Microsoft Word and Excel are not standalone products. They were packaged for efficiency.
MSFT stock has been built on a long line of these boring, but essential, products. Almost every business on the planet uses them, so it’s going to take a lot more than a tiny messaging app to unseat the king of the office space.