Slack and Atlassian Join Forces: A 'Sharp Blow' to Microsoft's Collaboration Market

On Thursday, Atlassian announced the sale of its chat tool's intellectual property to Slack, a move that further narrowed the competitive landscape in the communication platform market. Slack is often seen as an established player in this market, and this deal marks Atlassian's formal exit from direct competition in this space.

"Through this partnership, we are exiting direct participation in the communication space," said Atlassian CEO Mike Cannon-Brookes during the company's Q4 fiscal year 2018 earnings call on Thursday. The reduction in competitors opens the door for Slack to win over Atlassian's enterprise customers.

Atlassian's HipChat and Stride will be discontinued and replaced by Slack. Customers can choose to migrate, as HipChat Cloud and Stride will be shut down in early 2019.

When considering fiscal year 2019 planning, Atlassian "concluded that while the communication market remains large, the additional investment required to compete effectively would be unlikely to generate returns comparable to its other products," said Cannon-Brookes.

"Atlassian would face significant losses if it invested engineering and sales resources in a subpar chat tool instead of focusing on its core product suite," Carrie Basham Young, CEO and founder of Talk Social to Me, said in an email to CIO Dive. She believes this partnership will enable two "agile" companies to "provide reliable solutions for customers who do not rely on Microsoft products."

An ideal combination in the software space

Forrester Vice President and Principal Analyst Art Schoeller told CIO Dive that this partnership was a mutual decision because both companies needed it. HipChat needed to migrate to the cloud and embrace modernization, while Stride had already achieved that goal but "it was too late."

Slack is broadening its horizons to attract larger enterprise customers, striving to "solidify its position as the hub for all kinds of work," Slack Chief Product Officer April Underwood said in a statement emailed to CIO Dive. Ultimately, Slack aims to become "an open platform that serves as a unified interface where a company's tools, knowledge, and human capital converge."

For example, in May of this year, Slack announced that its platform would open up to integrations with other workplace software, including Atlassian's Jira.

Currently, Slack's directory features more than 1,500 apps, and 94% of Slack users use apps and integrations. Underwood told Fortune that since the company has no intention of developing add-on services like sales tracking, expanding the app directory will help round out Slack's existing performance portfolio.

"Atlassian's tools, including Jira, Trello, and Bitbucket, have been installed by hundreds of thousands of Slack teams," Underwood said in the statement. She noted that this partnership reflects a shift in enterprise IT, where "people are using highly specialized, interoperable tools to build the tech stack that best fits their needs."

The current state of the market

By 2021, the communication platform market is expected to reach approximately $49.5 billion, as enterprises seek more efficient conversations, document sharing, and task and project management.

Choosing a platform ultimately comes down to how all employees, including frontline workers, need and prefer to communicate. Consumer internet portals like AOL, MSN, and Yahoo once offered instant messaging versions beyond email, but that was before the cloud computing era.

Eventually, these services evolved into social networking services on Facebook and Twitter. According to Forrester, around 2010, team messaging features began to emerge through Facebook Messenger and WhatsApp.

Although the market is still "Microsoft's to lose," Slack's ongoing media coverage and reputation for innovation will prompt enterprises to rethink how they collaborate.

As workplace communication continues to evolve, some users accustomed to Atlassian products will lament the departure of Stride and HipChat, "but it's too late to do anything about it," said Schoeller.

Moving into the enterprise market

Slack's process of refining its customer base has become easier. Atlassian claims to have more than 125,000 customers, nearly double Slack's 70,000 customers. In comparison, as of March of this year, Microsoft Teams was used by 200,000 organizations.

Slack is most popular among small and medium-sized businesses, but it does have an impressive enterprise customer base. Last October, Slack partnered with Oracle to integrate its software into Oracle's enterprise software, when about 30,000 Oracle employees were already using the platform.

In January of this year, Slack added customers such as Target, BBC, Liberty Mutual Group, Workday, and E*Trade. These additions brought the number of organizations on its enterprise platform, Enterprise Grid, to over 150.

At the time of the announcement, analysts warned that companies would need to clarify their value proposition or risk losing customers who might be "satisfied enough with Google and Microsoft solutions," according to Reuters.

Schoeller believes this partnership will have minimal impact on Slack's existing customers. He said that if the migration to Slack is not smooth enough, customers using Atlassian's chat tools might switch to Teams or Workplace by Facebook.

However, Basham Young pointed out that migrating from Atlassian platforms to Slack could encounter obstacles in enterprise agreement negotiations, licensing fees, navigating toolset integrations, and cloud deployment decisions.

If Atlassian customers use communication platforms on on-premises servers, enterprises will need to decide how to migrate to the cloud to use Slack. Therefore, before Atlassian discontinues Stride and HipChat services, Basham Young advises enterprises to conduct "user research" to understand where and how employees use these platforms. Only after completing this assessment can enterprises determine whether Slack meets their needs.

Slack versus Microsoft

By Microsoft's standards, this partnership will not shake its foundations, but for Slack, it is an entry point to more enterprise customers, which is Microsoft's territory. "Right now it's mainly a battle between Microsoft Teams and Slack, with some Workplace by Facebook thrown in," said Schoeller.

"The bundling of Teams with Office 365 is a proposition that's hard to counter," said Schoeller. Teams adoption is growing, and its ability to fill gaps is largely unmatched. Schoeller said this partnership is both sides "joining forces to try to counter" this "Redmond giant."

From the outside, this partnership appears to be a competitive attack on Microsoft, but "it's more like a sharp jab to its ribs," said Basham Young.

Nevertheless, "Microsoft has doubled down on Yammer and Teams over the past 12 months," said Basham Young, "both from a development and a human resources perspective."

But Teams also has its shortcomings. For example, Microsoft's downplaying of Skype for Business while promoting Teams "has caused customers a lot of headaches," said Schoeller. Customers relying on Skype for Business are facing a difficult transition, even though it is the right move for Microsoft. Full voice and video capabilities are not Slack's strong suit, but Stride excelled in this area.

While Microsoft is "prepared to fight a full battle for end-user collaboration experiences," "Slack poses a real threat to Microsoft" because users love Slack. Microsoft has therefore had to try to replicate a Slack-like experience with "lower enterprise agility."