Why the evolution of enterprise messaging is a big problem for Microsoft

Introduction and gap in the market

Communication apps have been big business with consumers for a while. Facebook, with its Messenger app, now has over 800 million users and spent some $21 billion (around £15 billion, or AU$28 billion) on WhatsApp, which has over one billion users, while Snapchat is valued at around $15 billion (around £10.5 billion, or AU$20 billion) and has captured the younger millennial market – people under 24 – resoundingly.

Big businesses, however, have remained stuck with email. As anyone with an interest in enterprise technology is aware, emailing someone to chat – or have a conversation at a fast pace – is virtually impossible and the technology has stuck around because there was little else to replace it. Until now.

Microsoft provides the majority of big companies with technology, such as servers, and software, like Office, but has not been a prominent force in promoting other forms of communication beyond Outlook (email) and Yammer (instant messaging), the latter being the company it bought in 2012 and has done almost nothing with.

This gap in the market – which is just starting to become apparent as more and more people sign onto social networks and wonder why, exactly, talking to colleagues needs to be so hard – is being filled by younger, nimbler companies.

Slack

Picking up the Slack

Slack, for example, is under five years old, but has a valuation of over $4 billion (around £2.8 billion, or AU$5.3 billion) and hundreds of thousands of users who check back multiple times a day. HipChat, developed by Altassan, an enterprise company that just went public with much success, also seeks to banish email and has seen a big uptake by developers and engineers.

Facebook has also thrown its hat into the ring, launching Facebook at Work. The software, available for a per-user fee, looks just like Facebook but has increased chat and privacy controls as well as offering the ability to “follow,” not “friend,” people. The company isn’t ready to talk about how successful the offering has been yet, but more and more companies are adopting the network.

The Financial Times, a well-respected business newspaper, recently launched a pilot programme for Facebook’s software. “We hope Facebook at Work will help further foster a culture of collaboration and a sense of community across our global workforce,” said Darcy Keller, the company’s senior vice president of communications and marketing, implying that email does not do that.

“I think Facebook lets us communicate, discuss and solve problems that other solutions, such as email, simply can’t,” said Kevin Hanley, the head of design at RBS, in an interview. “We love the fact that Facebook at Work gives you the ability to opt-in to forums and groups you want to be part of rather than being on the receiving end of email distribution lists that you want to opt out of.”

Slack is following a similar path and has become a big hit with teams that need to communicate quickly and efficiently. It has become so popular, in fact, that families have started using it. “I sat with my parents, downloaded the mobile app for them, set up their account, and taught them how to use it so now they actually use it regularly,” wrote Nicole Zhu, a software engineer describing her experience of using Slack with her family.

Disrupting Microsoft

Email erosion

Email is still the main driver of corporate communication in the world, but its lead may be eroding. Microsoft is selling more and more subscriptions to Office 365, which includes Outlook, but has recently been looking at beefing up Skype, according to reports. The company mulled an offer for Slack but Bill Gates, the company’s founder who now works in an advisory capacity, was against the decision and pushed for the development of Microsoft’s current products.

Email

The decision is understandable given the (abysmal) success of Microsoft’s recent acquisitions – Nokia, for example – but it does expose the company getting blindsided by a smaller, quicker firm that focuses on one specific area. A recent brouhaha with Okta, another enterprise company that focuses on employee logins, shows how worried Microsoft is.

Okta has, for the past few years, sponsored Microsoft’s Ignite conference but was recently “dis-invited” from it, according to the CEO, Todd McKinnon. The company is tiny compared to Microsoft – a recent fundraising round valued it at $1.2 billion (around £850 million, AU$1.6 billion) – but appeared to represent a big enough threat to warrant removal from the event. (It has since been re-invited, by the way.)

Scared of the small fry

Microsoft is a company that is terrified of other, smaller companies unbundling its software – focusing on smaller parts, like logins, and doing it better – which could erode its position in the market as the go-to enterprise software company. This is driven by the adoption of the cloud over Windows, weakening Microsoft’s position in enterprise as everything works with everything else.

Email is still the dominant form of communication in 2016, but as that changes over the coming years, Microsoft’s position becomes more precarious and Slack, HipChat, and others could move in. Office 365 becomes a far less attractive proposition without email, and that is likely a big worry for Microsoft’s management.

Other big enterprise companies like Amazon, which operates Amazon Web Services, have not entered the messaging space which could, in the future, prove to be a weakness. However, companies like Slack rely on AWS to operate so Amazon makes its money that way.

Ben Thompson, an analyst who writes for Stratechery, has described Amazon’s method as an “internet tax” that shields it from larger trends – even if the ‘next big thing’ isn’t something Amazon already does, it will likely be based on AWS.

HipChat

Disrupting Redmond

With regard to Slack and its potential to “disrupt” Microsoft, Thompson also had some thoughts. “It’s hard to see anyone – including Microsoft – having a bigger opportunity than Slack” when it comes to enterprise, he wrote. “Whatever [users] want to do almost certainly involves communicating, which means Slack and its competitors are the best-placed to be the foundational platform of the cloud epoch.”

Of course, an “opportunity” is just that: it could happen, or it could not. But Slack, which has now grown to 2.3 million daily active users, is well placed to make things happen and could become the next big enterprise company.

Facebook and HipChat represent a challenge to Slack, but each has its own benefits. Facebook, for example, is much more of a ‘hub’ with pictures, status updates, and chats, while HipChat is geared towards technical work. It’s possible that a range of options will survive and thrive, but it’s likely that Microsoft’s will not be one of them.

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