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Technology Stocks : Microsoft Corp. - Moderated (MSFT)
MSFT 214.32+0.7%Jul 9 4:00 PM EDT

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From: Glenn Petersen6/7/2020 2:33:20 PM
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Microsoft Takes On Zoom and Slack in a Battle for Your Work Computer

The tech giant sees Teams, its group conferencing and collaboration software, as critical to its future

By Aaron Tilley
Wall Street Journal
June 2, 2020 10:39 am ET

When New York City’s education department ordered teachers to stop using Zoom videoconferencing for classes in April, because of security concerns, Microsoft Corp. MSFT 2.34% seized the moment.

A team of 50 Microsoft staffers worked around the clock with administrators and teachers across New York’s school district, the nation’s largest, to convert them to Microsoft Teams, the company’s rival conferencing and collaboration software. Microsoft also gave the district expedited access to features that made Zoom so instantly popular, such as the ability to show more people on the screen at once and a raise-your-hand button.

Microsoft counted more than 110,000 Teams users inside the district a month later, when the department allowed Zoom access again.

The pandemic has supercharged a battle over the future of business computing, pitting Microsoft against a growing list of rivals. More is at stake than chatting over video calls. Chief Executive Satya Nadella has hailed Teams as critical to Microsoft’s future, in essence, a new operating system that would serve as a hub for the company’s more famous products such as Word, Excel and PowerPoint.

Years of market-share jockeying have been compressed into months with so many white-collar workers operating from home. Tens of millions of additional people are now using Teams and other products from companies including Zoom Video Communications Inc., Slack Technologies Inc. and Alphabet Inc.’s Google.

Some rivals say Microsoft has deployed sharp-elbowed business tactics reminiscent of an earlier era, when its Windows operating system dominated the software market—putting pressure on startups by copying product features, seeding doubt about competitors to potential customers and bundling its software to gain an edge.

“They want to kill us, as opposed to have a great product and make customers happy,” Slack CEO Stewart Butterfield said.

Microsoft said it was focused on working with rather than inhibiting competitors, including thousands of partners who integrate with Microsoft services.

That said, since the pandemic, “the world has changed,” said Jared Spataro, corporate vice president for Microsoft 365, which encompasses Teams. “We intend to compete and win.”

Global weekly downloads of business apps like Teams on smartphones surged from around 33.7 million in early October to 80 million in mid-April, according to data tracker App Annie. Videoconferencing app downloads have reached 50 million a week, from five million, during roughly the same period.

In April, Microsoft reported that Teams had grown to 75 million daily users, more than double its early March figure. On one day, it logged 4.1 billion meeting minutes.

“As Covid-19 impacts every aspect of our work and life, we’ve seen two years’ worth of digital transformation in two months,” Mr. Nadella said in April, when Microsoft reported stronger-than-expected earnings.

Among Microsoft’s rivals, Zoom said in April it had 300 million daily participants across its paid and free services—a broader measure than Microsoft’s unique 75 million daily users—up from 10 million at the end of last year. In March, halfway through its quarter, Slack said it saw a 40% increase in customer growth compared with the prior two quarters.

More deep-pocketed rivals are also in the fray. Facebook Inc. launched a group videochat feature in April called Messenger Rooms. On April 29 Google said it was making its videoconferencing tool, Google Meet, free to all. Peak daily use of Google Meet is up 30 times from the start of the year, the company said, now surpassing 100 million daily meeting participants.

Microsoft’s Teams software gives it a hook to lure and keep customers for its broader portfolio of services based in the cloud, where companies increasingly store their data and run applications.

Business from its cloud services has helped propel the company to a market cap of more than $1 trillion in April 2019—becoming the third company to do so, after Apple Inc. and Amazon.com Inc. In recent months, Microsoft has been trading places with Apple as the highest valued company in the world.

Annual revenue grew from more than $86 billion in 2014, when Mr. Nadella took over, to more than $125 billion in 2019, largely driven by its commercial cloud business.

Videoconferencing quickly became the killer app of the coronavirus era, which put Zoom, a nine-year-old company run by former Cisco executive Eric Yuan, more directly in the crosshairs for Teams.

Microsoft accelerated development of new videoconferencing features to better compete, Microsoft Teams head Jeff Teper said.

It announced real-time noise suppression in its conference-call function to reduce background sounds from keyboards or home vacuum cleaners. It introduced custom backgrounds, a feature popular among Zoom users. And it deployed special support for prominent customers, including the National Football League, which used the software to run the 2020 draft.



Zoom CEO Eric Yuan, center, at the opening bell during the company's IPO in April 2019. Photo: Victor J. Blue/Bloomberg News
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One of the appeals of Zoom is that it showcases as many as 49 people at once on a screen—and Microsoft has also scaled up how many people can be visible during Teams meetings at the same time. Teams currently shows up to nine participants on a single screen, even when meetings involve as many as 250 members. That is being increased to 49 on screen at once, Mr. Spataro said.

Zoom declined to comment.

Microsoft has had an especially intense feud with Slack, which operates a group messaging platform that it has also tried to position as a hub for cloud apps.

Slack, launched in 2014, grew out of efforts to build a videogame company. The game wasn’t a hit, but the code the San Francisco-based company wrote to help employees communicate proved useful.

Within a couple of years, Slack had become one of Silicon Valley’s buzziest startups. Its potential to replace email with online chat was its main selling point, but Mr. Butterfield also has said Slack can serve as a portal to other software systems, with links to Twitter Inc.’s social-media messaging tool or business software from Salesforce.com Inc.

In 2015, Microsoft approached Slack about a takeover, but Slack said no, according to a person familiar with the talks. Microsoft declined to comment on the matter.



Slack CEO Stewart Butterfield at the opening bell during the company's IPO in June 2019. Photo: Michael Nagle/Bloomberg News
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When Microsoft launched Teams in November 2016, Mr. Butterfield responded with a sarcastic, open-letter newspaper ad. “Dear Microsoft, Wow. Big News!” it read. “We’re genuinely excited to have some competition.”

Ben Canning, a former product manager for Microsoft Teams who is now vice president at Bellevue, Wash.-based collaboration software company Smartsheet Inc., said that in designing Teams, Microsoft essentially matched some popular Slack features to make shifting to its software intuitive. Slack “threatened to become the place where people spent the bulk of their time,” he said. “We recognized that team collaboration was something that Microsoft had not done a great job with.”

Microsoft approached potential customers, telling them Slack lacked security and compliance features companies would need, said Mr. Canning, who was in product development and worked closely with the sales team. The Microsoft pitch was that customers could integrate those functions on their own or simply adopt Teams, where they were included, he said.

Last July, a few weeks after Slack’s stock-market debut, Microsoft issued a press release saying Teams had reached more than 13 million daily active users, topping Slack’s roughly 10 million figure. The numbers Microsoft issued, Mr. Butterfield said, didn’t accurately compare with Slack’s active user counts. He also said Microsoft issued the release to undermine investor and customer confidence in his company. But Slack was stuck in a quiet period, unable to respond.

Microsoft released an updated set of user numbers, similarly showing Teams ahead, a few months later in November, ahead of Slack earnings. Slack’s stock dropped 10% that day.

Microsoft said it provides accurate metrics on active Teams usage, and disputed the notion that it released usage figures to undermine the competition. “Our disclosure decisions are driven by hitting key metrics, alignment to our earnings cycle, or proximity to key events like Inspire, one of our biggest events of the year, not in response to competitors,” Mr. Spataro said in an emailed statement.

Todd McKinnon, chief executive of Okta Inc., the workplace tool that helps companies provide secure access to cloud-based software for employees, said Microsoft sales representatives have offered to cover the engineering costs for customers to migrate from Okta to its version. That engineering bill, he said, could reach $1 million for some users.

Microsoft declined to comment on the issue.

Microsoft was perhaps the biggest winner in the personal-computer revolution with the 1985 launch of Windows, which became the most successful piece of software ever sold.



Bill and Melinda Gates enter a federal courthouse in April 2002 during the Microsoft antitrust case. Photo: The Washington Times/ZUMA PRESS
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In the 1990s, the U.S. government sued Microsoft on antitrust grounds for allegedly using the dominance of Windows to stifle competition in the burgeoning browser market. The two sides ultimately settled, but Microsoft was slow to take advantage of the internet’s arrival and largely fumbled the shift to mobile devices a decade or so later.

Since becoming CEO in 2014, Mr. Nadella has sought more partnerships than Microsoft has in the past, including with rivals like Oracle Corp. and Google. Although Washington has targeted the competitive practices of other big tech companies, Microsoft has largely escaped scrutiny.

However, officials working for House Antitrust Subcommittee Chairman David Cicilline, a Democrat from Rhode Island, have started asking Microsoft competitors about the software giant’s business practices. A spokesman for Mr. Cicilline’s office declined to comment.

Microsoft includes Teams for companies that pay for Office 365, which includes Word, Excel and PowerPoint. While Slack and Zoom have free versions, paid versions with the features most businesses want start at $6.67 per person a month on Slack, and $14.99 per host a month on Zoom. Mr. Teper said when he was appointed to run Teams in January, the job came with orders from Mr. Nadella to integrate more Microsoft products.

Microsoft says bundling serves customers’ needs. “The thing we heard customers value the most is the ability to chat, meet, call and collaborate all in a single experience,” Mr. Spataro said. “You don’t have to pull together Slack, Zoom, Dropbox or perhaps Google apps.”



Mr. Nadella spoke during the company’s annual Build developers conference, held online, last month. Photo: Kyodo News/Getty Images
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Cosmetics giant L’Oréal SA abandoned more stand-alone tools and adopted Teams in part because of the bundled features, said its Americas division chief information officer, Michael Kingston. “Microsoft has been smart about how they integrate Teams into rest of their productivity platform,” Mr. Kingston said.

Microsoft raced to add users attending virtual classes in schools during the pandemic. The 125,000 students in Duval County, Fla., almost overnight became Teams users, as did students at Italy’s historic University of Bologna.

The New York school district was already a Microsoft customer for Office 365 applications, but it wasn’t widely using the free features of Teams. Instead, many teachers were using Zoom.

Zoom’s surging popularity triggered a spate of security problems, including a phenomenon called Zoombombing, in which people gain unauthorized access to a meeting and hijack the event, prompting Mr. Yuan to apologize in early April.

In a Microsoft blog post days later, Mr. Spataro declared: “We safeguard your privacy by design.”

Write to Aaron Tilley at aaron.tilley@wsj.com

wsj.com
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