In a recent video titled "Slack vs Microsoft Teams: The Monopoly Pricing Showdown," Ajit Kumar, CEO of Monetizely and author of "Price to Scale," breaks down one of the most consequential pricing wars in recent SaaS history. This case study reveals how Microsoft leveraged its monopoly position to outmaneuver Slack through strategic bundling tactics, ultimately forcing Slack's sale to Salesforce for $27.7 billion.
Slack's Meteoric Rise (2014-2016)
Slack's growth story initially seemed unstoppable. After emerging from beta in 2014, the company rewired workplace communication for millions of knowledge workers and achieved extraordinary milestones:
- By end of 2015: 1.7 million daily active users with 93% customer retention (compared to the SaaS industry average of 48%)
- April 2015: Raised $160 million at a $2.8 billion valuation with 750,000 daily active users and 200,000 paid seats
- 30% conversion rate from free to paid (vastly outpacing the industry standard of 2-5%)
- October 2016: 4 million daily active users, 1.25 million paid seats, and a valuation exceeding $3.8 billion
- $100 million in annual recurring revenue with 300% year-over-year growth
As Kumar notes, "Slack burst out of beta and in just two years rewired how millions of knowledge workers talked… growing from zero to a three billion valuation company in just 30 months. A growth trajectory that placed it amongst the fastest growing enterprise software companies in history."
Microsoft's Strategic Counterattack
Microsoft recognized Slack as a threat to its productivity software dominance—where it held approximately 70-80% market share through Office 365. Rather than competing directly on features or standalone pricing, Microsoft executed what Peter Thiel would call a classic monopoly power move.
In November 2016, Microsoft previewed Teams and made a critical strategic decision: bundle Teams free inside Office 365, which had already penetrated 80% of Fortune 500 companies and reached 85 million monthly active users.
Kumar explains the devastating effectiveness of this approach: "Slack had spent three years hand-to-hand selling. Microsoft flipped the switch and walked into every cubicle on earth in a matter of seconds. This wasn't just competition, it was monopoly power at its finest. The ability to bundle products at zero marginal cost to eliminate stand-alone competitors."
The Adoption Arms Race (2017-2020)
Microsoft's bundling strategy produced dramatic results:
- July 2019: Teams reached 13 million daily active users
- November 2019: 20 million daily active users
- March 2020: 44 million daily active users (accelerated by remote work)
While Slack continued to grow, its quarterly growth rates declined from 49% to 39%. The market quickly recognized Microsoft's structural advantage, reflected in Slack's stock performance post-IPO.
Kumar identified the fundamental pricing challenge: "Why will someone pay $12.5 per seat when Teams already shows up on the invoice marked as $0? This price anchoring effect, a classic monopolistic tactic, fundamentally alters purchasing decisions across the market."
Legal Battles and Salesforce Acquisition
In July 2020, Slack filed an antitrust complaint with the European Commission, citing that 79% of IT decision makers felt pressured to adopt Teams due to its inclusion in Office bundles.
By December 2020, Salesforce announced its acquisition of Slack for $27.7 billion—a transaction Kumar characterizes as "leveling the playing field against Microsoft" rather than a highly profitable exit for Slack.
Even after regulatory intervention, Microsoft maintained its advantage. When forced to sell Office without Teams in Europe, Microsoft priced the separated components in a way that still incentivized bundle purchases: "The E3 bundle was at $20.75. Team Standalone was at $5.25, creating a mathematically perverse incentive where buying separately costs more than the bundle."
Critical Lessons for SaaS Companies
Kumar extracts several valuable lessons from this pricing war:
- Beware of playing against monopoly power: "Monopolists can afford to think about things beside making money. Microsoft exploited this advantage by using Office's large market share to distribute Teams at zero marginal cost."
- Price anchoring is monopoly power: "When Microsoft market teams has included in anchored customer psychology at zero. So once customer psychology is anchored at zero, the other player has lost their market."
- The monopoly test: "Does your company generate more than 70% of revenue from a single product in a specific market? If yes, then you have monopoly power and you can do the type of bundling strategies like Microsoft did."
- Monopolies kill innovation: "This bundling strategy reduced investment in workplace communication startups by 42% in 2017 and 2020 because monopolies by their very nature restrict output."
The Slack vs. Microsoft Teams story serves as a sobering reminder of how established monopolies can use pricing strategies to defend their territory. As Kumar concludes, "If you're creating a product and you're going against a monopoly player, please understand that even if you were shining a lot, by a very simple flick of a switch, the other player can change the game on you."
This case study demonstrates why even the most promising startups must factor monopoly power into their strategic planning—a lesson that extends far beyond Slack's specific circumstances to the broader SaaS industry.