Win-Win? (Premium)

As I observed in Nice Guy (Premium), Microsoft’s approach to antitrust in recent years is quite a bit different than it was when the U.S. Department of Justice (DOJ) was trying to break up the company and European Commission (EC) regulators were forcing the company to add a “browser ballot” to Windows. Thanks to now-president Brad Smith, Microsoft presents itself as a kinder, gentler Big Tech giant, one that is willing to compromise in all matters and work with, not lobby against, the rule of law.

It’s a good story. And it’s true to some degree, of course: Microsoft’s conciliatory behavior in the wake of the regulatory demands required to acquire Activision Blizzard, even the insane requirements demanded by the demented idiots at the UK Competition and Markets Authority (CMA), is an historic case study for us all. But it’s important to remember that Microsoft, for all its feel-good vibes, is still a publicly owned American corporation whose primary mission is to be as profitable and powerful as possible.

And Microsoft is quite good at that. Its market capitalization now stands at an incredible $2.44 trillion dollars, second only to Apple ($2.95 trillion). And it generates enough cash each quarter to invest tens of billions of dollars in building out an artificial intelligence (AI) infrastructure that can be rivaled by only a small number of companies, ensuring not only that its dominance of certain sub-markets will continue, but that it will continue to grow, getting even bigger than it is now.

Reconciling these different aspects of Microsoft is difficult. But today’s news that the software giant will unbundle Teams from Microsoft 365 is a great example of this dichotomy.  So let’s think about what this all means for a moment.

The key point, to me, is that this unbundling applies only to the European Economic Area (EEA) and Switzerland. Customers in other parts of the world are unimpacted, meaning that Microsoft will continue bundling Teams everywhere else.

Ideally, consumer- and competition-friendly laws and regulatory requirements in one jurisdiction would benefit customers in other locales, but that’s obviously not always (and probably not usually) the case. For example, when the EU passed a so-called “right to be forgotten” law aimed at Google Search, this nicety was not passed along to users elsewhere in the world and, as important, it doesn’t apply to EU citizens outside of the EU. Similarly, the EU’s General Data Protection Regulation (GDPR) required tech companies to make sometimes-onerous changes to how they store user data … but only in the EEA.

But why wouldn’t Microsoft just make this unbundling change in the U.S. and elsewhere? What is the net impact of this change on the company?

One might argue that Teams is already established, as it has over 300 million active users, and so unbundling can’t possibly hurt Microsoft financially. But Microsoft is making many other concessions (to the EU) with regards to Microsoft 365 and third-party interoperability, which should make it easier for Slack and others to slide in as a Teams replacement. Microsoft 365 will now cost less than before (€2 per user per month), and new commercial customers will still be able to purchase a standalone Teams offering for €5 per user per month, which is probably less than the similar Slack offering but competitive. (You can see some of Slack’s pricing here, enterprise customers probably pay lower per month based on scale.)

Likewise, Microsoft is also going to allow third parties to host its Office web applications, another interesting integration concession. This means that Slack could offer integrated access to the web versions of Word, Excel, PowerPoint, and other web apps inside of its own app, just as Teams does now.

These all seem like reasonable, even generous, concessions, and they all seem to point to that kinder, gentler, and more conciliatory Microsoft that most (incorrectly) associate with CEO Satya Nadella. But are they giving away anything here really? And what is the net impact on customers?

By unbundling Teams and offering the now-Teamless Microsoft 365 for €2 less per user per month, some customers will save money. But those that do use Teams, which in the enterprise space has to be most of them, can “stay with their current productivity suite.” That is, Microsoft will still let them use the bundled Teams … and pay what they were paying. New customers, interestingly, will pay higher prices, about €3 more per user per month, to use Microsoft 365 and Teams. Assuming future growth, always a good bet, Microsoft should come out ahead here.

The interoperability changes will likewise help Microsoft.

Letting third parties (like Slack) integrate into Microsoft 365 (as does Teams) now will help decision makers at whatever companies stick with the products they prefer. And that means that those that may prefer Slack over Teams for whatever reason can otherwise stick with Microsoft 365. Microsoft will get €2 less per user per month, sure. But the calculation here is that this core enterprise crowd prefers the Microsoft stack and will continue using it. (Note that I previously argued that Slack isn’t really competitive with Teams and that there is big difference between startups and Microsoft’s core enterprise customer base.)

That second integration bit is even more interesting because it’s vague. It’s not clear “how” Slack (and other third-party apps) will connect with the Office web apps, but it certainly won’t be free. If this access requires even a basic Microsoft 365 commercial account for each Slack user, that’s another $6 (USD) per user per month. Microsoft still wins.

Does any of this mean that Microsoft is really just a wolf in sheep’s clothing, that its concessions are anything but, and that it is trying to pull one over on the EU? I guess you could make that argument, but ideally these concessions will be a win-win. That is, they will satisfy Slack’s competitive concerns and thus the EU’s antitrust concerns, but they will also provide Microsoft with additional streams of customers and revenues. This will do to Office and chat-based collaboration what web browsers did to Windows by providing more choice.

In this view, just as Windows doesn’t necessarily “lose” because a customer chooses Chrome, Microsoft 365/Office doesn’t necessarily “lose” when a customer chooses Slack. In fact, the availability of that choice is one factor that might keep customers on the underlying Microsoft platform.

Maybe.

The fundamental problem here, from my perspective, is the limiting of this change to the EEA and Switzerland. If this was truly a win-win, wouldn’t Microsoft just do this everywhere in the world? Aren’t the EU’s concerns everyone’s concerns?

I don’t know. It is possible that Microsoft will expand this change to include other markets in the future should the EU accept them, for example. And it certainly doesn’t make sense for Microsoft to promise that now, since the EU may in fact find this offer lacking. Without knowing, we can only speculate.

And so we will. But the one thing we should never question is whether Microsoft plans on coming out ahead. Just as is the case with all the concessions it’s made to get Activision Blizzard in-house, which may sometimes seem extreme in isolation, these concessions will not leave it in a worse place. Microsoft will still be better off on the other side of this, Mr. Smith will make sure of it. That much, I think, is certain.