Big companies have an unfair advantage in distribution and bundling
Originally posted at The Investing Desk: https://www.the-investing-desk.com/blog/why-slack-lost-to-teams
Salesforce recently bought Slack for $27B. A win for investors in every stage. Even if you invested just recently, you got a nice bump on the stock price when the sale came through.
But the sale is also a defeat in some way. Slack couldn’t stand as a standalone company against its competition — namely, Microsoft teams.
Even though Slack had the superior product (debatable, but most will agree), it had lost to teams.
The reasons for the failure against teams also mark the reasons why Slack worth so much for Salesforce. And these reasons are relevant for many other SAAS products, in the productivity space and out of it.
Bundling multiple products together in one package is a superpower mostly reserved for big companies only.
By bundling products together, you can:
- Lower sales & marketing costs — instead of paying for each product, you market the entire package together, reducing fixed costs.
- As a result, this lowers the CAC when split between the products.
- It also raises the LTV. Even if the customer stops using one product in the bundle, he might already depend on another.
All these effects are multiplied when sold to big organizations like Office 365 is.
And of course, Microsoft Teams enjoyed all these benefits as part of the Office 365 bundle.
Selling a new product for a company is challenging.
You have to find a champion. That champion needs to be convinced your specific product is the solution to the problem. He then needs to convince management.
Management will require market research and competitors’ presentation. Due diligence for the supplier. Security validation. Price quotas. Integrations with the company data. Maybe complex integrations with internal users. And more and more headaches.
Suppose your champion idea is “I need internal chat communication” — even though he might think Microsoft Teams is inferior to Slack in that regard. In that case, it will be well worth it to start with that product, given the organization already has an Office 365 subscription.
And many organizations do. That’s the power of distribution.
Independent SAAS companies need to resolve this
Slack’s example is just one. This pattern is repeated with many other products and not only within Microsoft.
Just a quick look at the task management field reveals how impatient Microsoft is to prevent anyone from getting out of their ecosystem:
- Microsoft tasks is trying to kill Trello.
- Microsoft lists is trying to kill Monday.com. (Full disclosure: I’m a Monday.com employee).
- Microsoft To Do is trying to kill every personal task management app.
- Microsoft Planner is a weird combination of all (??)
All these products are widely regarded as either on par or, in most cases, inferior to their competition.
But Microsoft isn’t playing the product game. They play the bundling and distribution game.
They need their offerings to be “good enough” to keep the customers in their ecosystem. They don’t need to be the best.
Startups in this field, and any other field that suffers the same troubles, need to find a solution.
Yes, one solution is to be so good that it’ll be worth the hassle to use your product despite the bundling and distribution advantages of the big company. But it is unsustainable for the long term, as we saw with Slack.
Maybe there is a way to get these advantages as a standalone company. Bundle Salesforce offerings with Slack without outright having to purchase the company for that.