Battle for Teleconferencing
The fight to dominate the new age of work
Teleconferencing apps have become a new worldwide sensation. The industry has seen vast growth with the presence of the COVID-19 global pandemic, mainly because of considerable saturation in the sector. We have come to realise how much we really need each other and how crucial it is to show up for your colleagues and clients every day whilst leveraging the online tools we have at hand. Competition to grab a piece of the evolving enterprise has grown fierce in recent months. The market has been dominated by a few companies - Microsoft and Zoom. Besides these existing companies, a series of partnership deals concluded recently between Slack and Amazon. On June 4th, Slack and Amazon announced a multi-year agreement to provide communication tools to distributed teams in a bid to take on Microsoft Teams and Zoom. Terms of the agreement have not yet been disclosed; however the Securities and Exchange Commission (SEC) administration suggests that Slack will now pay Amazon Web Services (AWS) no less than $425m over a period of five years. This comes at a $175m increase from prior commitments which were scheduled for payment by July 2023. The race to acquire teleconferencing companies reflects the new trend as businesses move from traditional face-to-face communication to online discussions to cope with the demand of worldwide transformations. Attractive as it is, this fast-growing industry faces a rather controversial reaction from the public due to changes in teleconferencing apps and the long-term impacts of the partnership between Amazon and Slack which remain blurred.
The number of Slack users at Amazon remains undetermined, but with the large scale of employees at Amazon (1 million employees), this form of developer integration is of great significance and may result in Amazon becoming Slack’s largest customer to date, overtaking IBM which currently has over 350,000 users. Amazon will adopt Slack’s service for in-house communication for its Amazon Web Services (AWS) teams, whilst Slack utilises Amazon Chime for operating its voice, video, and screen-sharing features. Voice and video conferencing are a particular weak point of Slack compared to Microsoft Teams, but this new integration should mean it will be vastly improved in the future. This partnership may simply provide Slack with the support it needs to effectively compete against Microsoft Teams where we have previously seen strong competition and against Zoom which is currently on a mission to boost its cloud infrastructure. Slack has been steadily growing its enterprise business, despite Microsoft’s big push with Teams recently. They have been able to restructure more than their competitors, and this has improved their flexibility to world events. That said, one of the major challenges faced by apps in the market is that all these competitors will be pushing harder to gain greater market share. Also, there are now new competitors, flexible companies, that will be aggressively competitive as volumes increase in a bid to gain market share. All in all, the partnership seems to be benefitting both parties as of now: Amazon gets an important partner for AWS and its Chime platform, and Slack benefits from the reliable and secure features of AWS, promoting an improved service for its customers.
However, if we are really paying attention to what is happening here, there is a bigger deal on the cards. The partnership between Amazon and Slack puts a barrier in the place where Microsoft has been most popular, in Teams. We are watching Microsoft embrace open source, much more publicly, and much more aggressively. Not admitted by many in public, Microsoft is perhaps one of the unassailable developer communities in the world, and in technology’s overall history, comparable to open source. The real question is, will Microsoft eventually get acquired by Amazon? Seems like the natural next step.
As consumers and businesses have recently become more reliant on teleconferencing apps with the stay-at-home mandate in place, shares of both Amazon and Microsoft have significantly surpassed the broader market for online communication. With its range of digital tools, Microsoft is in a solid position to effectively compete against Amazon. In 2019, Amazon acquired approximately 32% of worldwide cloud infrastructure in comparison to Microsoft Azure which ranked second with only 17%, allowing Amazon to become the leading company in an extremely fast-developing public cloud market. Worldwide spending on public cloud services is expected to reach $500 billion by 2023 according to International Data Corporation (IDC). Given its brand dominance and its familiarity with millions of people, it is estimated that by 2023, Microsoft’s flourishing Azure cloud service could potentially turn out to be the business’ largest source of revenue which has grown by more than 50% for five consecutive quarters in most recent years according to the Motley Fool.
As we have seen in previous scenarios of corporate strategy, an effective strategy will yield profit and therefore growth, subsequently resulting in a greater market share in most cases. A good example of this is Royal Mail’s acquisition of six different companies including eCourier (2015) and NetDespatch (2015), allowing it to become the leading parcel delivery provider in the UK with a 47% market share.
There are currently no real publicised records of Amazon acquiring Microsoft Teams. Meanwhile, this could potentially be seen as an underlying intention of the recent partnership between Amazon and Slack and an unprecedented strategy of Amazon to assure the future of the enterprise. Microsoft’s balanced approach and healthy margins make it a worthwhile future investment for Amazon which will be making an already lucrative software business even more profitable. Microsoft and Amazon represent two of the most premier global tech companies so a successful acquisition will essentially create a mega monster in the teleconferencing industry with seemingly endless profits.
Mariam Hamze is a BSc Economics student at Greenwich University, looking to pursue a career in mergers & acquisitions.