Slack legally challenges Microsoft cloud bundling strategy

Slack has filed a lawsuit with the European Commission which could offer hope to niche cloud service providers as supply chain rationalisation hovers on the horizon.

Jamie Davies

July 22, 2020

4 Min Read
Slack legally challenges Microsoft cloud bundling strategy

Slack has filed a lawsuit with the European Commission which could offer hope to niche cloud service providers as supply chain rationalisation hovers on the horizon.

In suggesting Microsoft is abusing its dominant position to extinguish competition in a rapidly developing segment, Slack is also mounting a wider challenge to bundling trends. It is becoming much more common for cloud companies to bundle in additional services for ‘free’ to sweeten the deal for customers, though this is a trend which certainly favours the cloud giants.

Microsoft has started to bundle the Teams and Office products into the same offering, effectively locking out specialist service providers such as Slack. This is an example in the collaboration segment of the cloud market, but there are certainly others. Conferencing services such as Zoom could face a similar threat should Microsoft, Amazon or Google more keenly integrate such features into portfolios.

This challenge from Slack could be a saving grace for many specialist service providers who face similar threats from the expanding cloud giants.

“Slack simply wants fair competition and a level playing field. Healthy competition drives innovation and creates the best products and the most choice for customers,” said David Schellhase, General Counsel at Slack.

“Competition and antitrust laws are designed to ensure that dominant companies are not allowed to foreclose competition illegally. We’re asking the EU to be a neutral referee, examine the facts, and enforce the law.”

While some will certainly offer sympathy to the plight of Slack, one would hope the European Commission considers what is actually beneficial to customers today.

Antitrust laws are in place to ensure there is healthy competition in a segment, primarily to prevent monopolies and market abuse. Innovation is spoken about a lot, but this is a helpful by-product of competition and stringent antitrust laws, not the primary objective.

Although encouraging innovation should certainly be a consideration, the European Commission will also have to consider context; the world is perhaps heading towards a recession, where revenues and profits will be under pressure. Innovation is critical in the digital world, but a primary concern of some customers will be to minimise expenditure.

When we spoke to Nicholas McQuire, SVP and Head of Enterprise Research at CCS Insight, this trend was noted.

“Up to now, there has been a tendency to not be fully committed to cloud,” McQuire said, with regard to digital transformation to date.

McQuire suggested the potential recession would certainly favour the larger service providers such as Microsoft, Google and Amazon. Not only can they offer collaboration tools such as instant messaging and video conferencing, they can offer cloud services and software, as well as storage solutions. All of this bundled together in a single commercial contract is more often cheaper and simpler than purchasing individual services from specialist providers.

Slack is effectively telling the European Commission and the industry that the customer is craving innovation and best-in-breed services, which in a perfect world is true, but this world in imperfect, filled with nuances, complications and downturns. We are in a downturn and we suspect there are numerous decision makers hoping to tighten the purse strings, especially as many purchasing decisions over the last few months would have been kneejerk reactions.

COVID-19 forced a change in working habits in almost every organisation. Remote working solutions company Riverbed Technologies recently released research which suggested 71% of UK organisations were not prepared for a work-from-home dynamic. At the beginning of the lockdown period, priority was given to business continuity as opposed to strategic adoption of new services. There will have been some short-sighted or ill-informed decision making during this period. This suggests there could be rationalisation programmes on the horizon, with niche providers being squeezed out in favour of bundled contracts.

This is why the Slack lawsuit filed with the European Commission is so important. In leveraging the depth and breadth of its portfolio, Microsoft could be deemed to be in violation of antitrust laws. It would surprise few to see the European Commission favouring this argument, it is very sensitive to competition contraction after all.

This is effectively a challenge to the dominance of the major cloud players, and should it be successful, there will have to a rethink of strategy. This should also be viewed as a glimmer of hope for the pureplay service providers who were sitting in the shadows of the cloud giants threatening to throw their weight around.

Get the latest news straight to your inbox.
Register for the newsletter here.

You May Also Like