Slack Ready to Battle Microsoft Teams

Corporate messaging service Slack has some advantages over its chief rival, Microsoft, despite Slack having fewer users, CEO Stewart Butterfield says.

“It’s hard to maintain a real focus on quality, on user experience, and the bigger you get the harder it is,” Butterfield said in an interview at Fortune’s Brainstorm Tech conference in Aspen, Colo. on Monday.

Since debuting its workplace messaging app five years ago, Slack has quickly become a popular alternative to communicating by email, attracting 600,000 customers in 150 countries. But it faces a tough adversary in Microsoft, the leading provider of corporate office software, including Outlook email and the Slack-like Teams messaging app.

Asked whether his company was in danger of being crushed by Microsoft, Butterfield pointed out that a young Microsoft overtook IBM at the height of its domination. Then Google defeated Microsoft in Internet search when it was just an upstart, Butterfield noted, and then was itself defeated in social networking by the then-tiny Facebook.

“The lesson that we take from that is that a smaller company if it has real traction with customers in some cases has a bit of an advantage against a large incumbent with multiple lines of business,” he said. On the other hand, “there’s plenty of (small) companies have been crushed, as well,” he conceded.

Slack’s stock lost 4% in one day last week after Microsoft disclosed it had 13 million daily active users for its competing app, Teams. That’s more than Slack, at least according to its most recent disclosure as of the end of January, when it had 10 million such users.

And last month, Microsoft banned its own employees from using Slack internally, citing potential security concerns. Microsoft has a long track record of defeating rivals with the help of its vast array of offerings and connections with almost every major company in the world.

But Butterfield also praised his rival, saying Microsoft was “an incredible company” and that its Azure cloud services unit has been “a great partner” for Slack. Slack uses Azure as a backbone for its own service.

“They’re big enough that they end up working with and competing with all kinds of people around the world,” Butterfield said of Microsoft. “Whatever Microsoft does, we’re still going to do the same thing for customers…it doesn’t really matter what Microsoft does.”

Slack was among a wave of notable tech companies that have gone public this year including Lyft, Uber, Pinterest, Zoom Video, and PagerDuty. But all of the others did a traditional Wall Street initial public offering, in which a syndicate of banks sells new shares to investors and then delivers the proceeds to the company—minus fees. But Slack did a direct listing, issuing no new shares and simply allowing its existing shareholders, including its employees, to sell their holdings in the offering.

Slack didn’t go the traditional IPO route largely because it didn’t need to raise any more money, Butterfield said.

“We took advantage of the very generous funding environment over the last five years and had over $800 million on the balance sheet,” he said. “We didn’t need to raise any money, but we still wanted to be public.”