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Microsoft Teams has ‘weak engagement’

Slack CEO Stewart Butterfield said on Wednesday that most of Slack’s top customers use parts of Microsoft’s Office 365 suite, but are choosing Slack for messaging anyway, instead of the competing Microsoft Teams app.

Following Slack’s third-quarter earnings report, Butterfield told analysts that the company now has more than 50 customers paying at least $1 million a year, up from 30 in the same quarter a year earlier. He said almost 70% of those customers also use Office 365, which includes popular products like Word, Excel, PowerPoint and SharePoint.

“In general we continue to see tremendous adoption across customers of the Office suite,” Butterfield said. “They choose Slack despite having a bundle alternative” that wraps in Teams, he said.

The battle with Microsoft is a critical one for Slack, because its much larger rival has a market cap in excess of $1 trillion and has been selling its enterprise software suite to the world’s biggest companies for decades. Slack shares have dropped more than 40% since their first-day close in June and plunged 8.4% on Nov. 19, after Microsoft said publicly that Teams had more than 20 million daily active users, ahead of the 12 million users Slack reported in October.

Slack has tried to get the market to focus on Slack’s engagement metrics, noting that Microsoft may count people as users even if they’re not really using Teams, but simply have it open while using other Office 365 apps and services. Butterfield said, “just look at the weak engagement numbers that Microsoft themselves reported about Teams.”

Slack’s latest results suggest that it’s holding up against Microsoft’s challenges. The company reported revenue growth of 60% in the quarter to $168.7 million, topping analysts’ estimates by more than $10 million, while also recording a narrower-than-expected loss. The stock rose about 3% in extended trading.

Butterfield acknowledged in the Q&A part of the analyst call that there’s confusion in the market, which is “deliberately created.” He said that Teams has users who were recently pulled over from Skype for Business. Now, when they use that service to make a phone call, they’re a Teams user.

“It has nothing to do with what people do use Slack for, why people are switching to Slack, the strength of the platform or any of that,” he said. “I want to just be candid and say we haven’t figured out the right way to message that.”

Butterfield said the reason so many Office 365 users choose Slack for messaging is because it integrates with Microsoft services like calendar and various collaboration tools.

A Microsoft representative didn’t immediately respond to a request for comment.

WATCH: Where this analyst stands on the Slack-Microsoft debate

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