Microsoft’s Decision to Separate Teams and Office Will Help Zoom and Salesforce

On Monday, Microsoft announced that it would separate its Teams and Office bundles in response to scrutiny from European regulators, providing a reprieve for its rivals.

Recently, Zoom has found it difficult to compete with Microsoft’s communications product suite. Zoom’s video chat software gained popularity during the Covid epidemic. Long desiring a break of this kind, Slack—currently owned by Salesforce—filed an antitrust complaint with the European Commission in 2020, citing what it saw to be Teams’ unlawful integration with Office.

Some consumers will have to pay extra to access the same capabilities after Microsoft’s most recent announcement. According to prior pricing lists and a blog post, for instance, new Office 365 E3 customers will pay $3 more per person per month for the split than they would for the combined package.

In a note published on Monday, analysts at Mizuho Securities stated that,  “while customers believe Zoom is a superior platform vs. Teams” and other suppliers, “the bundling of MS Teams to Office 365 has always been enticing for customers to consider Teams.”

After peaking at more than 350% in 2020 and 2021, Zoom’s revenue growth dropped to 2.6% in the most recent quarter and has now remained in the single digits for seven consecutive quarters.

The Mizuho analysts stated, “In our view, the unbundling of MS Teams should help alleviate some enterprise churn headwinds,”

Businesses that already pay for the Microsoft bundle have the option to continue using Office and Teams as is or, according to the blog post, “if they wish to switch to the new lineup, they can do so on their contract anniversary or renewal.”

With Office, which includes Teams, Microsoft made about $53 billion in sales last year, an increase of roughly 14% over 2022. During the company’s October earnings call, CEO Satya Nadella informed analysts that Teams had over 320 million monthly active users.

Salesforce, a rival of Microsoft in several domains such as collaboration and communication technologies, paid $27 billion to acquire Slack in 2021, making it the company’s most costly acquisition since its establishment 25 years prior.

Months before Salesforce made the deal public, in July 2020, Slack lodged a European lawsuit against Microsoft.

David Schellhase, Slack’s general counsel at the time, was cited in a news release as saying, “Microsoft is reverting to past behavior,” alluding to the “browser wars” of the 1990s. “They created a weak, copycat product and tied it to their dominant Office product, force installing it and blocking its removal.”

The year before, Slack didn’t seem to be very concerned about Teams. During a December 2019 earnings call, Stewart Butterfield, the founder and former CEO of Slack, stated that although the majority of the company’s top clients utilized some features of Microsoft’s Office 365 suite, they preferred using Slack for messaging over the Teams app.

On Monday, Zoom’s stock fell by almost 1% while Salesforce shares increased by 0.4%. A request for feedback from Salesforce was met with silence from a Zoom representative.

In order to avoid a competition inquiry from the European Union, the Financial Times reported last year—citing anonymous sources—that Microsoft will soon allow businesses to purchase productivity software subscriptions with or without Teams. A few months later, the European Commission made public its investigation into Microsoft’s combination of Teams and Office.

Microsoft responded by launching separate Teams and other productivity software subscriptions in 31 European nations.

“To ensure clarity for our customers, we are extending the steps we took last year to unbundle Teams from M365 and O365 in the European Economic Area and Switzerland to customers globally,” a Microsoft representative stated. “Doing so also addresses feedback from the European Commission by providing multinational companies more flexibility when they want to standardize their purchasing across geographies.”