As Microsoft Teams stutters, a look at the risk factors for remote work platforms

As office workers across Europe started the new week working from home Monday morning, many encountered an unwelcome hitch. The Microsoft Teams messaging channel for remote collaboration couldn't take the strain and suffered a two-hour outage. There were later problems as US workers joined the network, and the issue has recurred in Europe again this morning. Meanwhile, video chat service Zoom greeted workers on the US West coast yesterday morning with a partial outage on its recently introduced cloud-based phone call offering.

With most of Europe rapidly shutting down almost all face-to-face social interaction, and similar strictures starting to roll out in the US, many businesses are hoping that distributed working will allow them to keep going until the worst of the coronavirus lockdown is lifted. While that's little consolation to those in the transport, hospitality, retail and co-working industries, the hope is that at least the rest of the economy can keep the global wheels of commerce, finance and the supply chain turning.

Do remote work platforms have the capacity to keep working?

But that hope depends on several untested assumptions, one of the most critical being whether the digital teamwork platforms have the technological — and financial — capacity to keep working. And that's before taking into account other big assumptions, such as whether an organization's IT and security infrastructure can cope with remote working at scale, or whether its management and employee culture is ready.

Co-ordinating all of these issues is a big project, even at the best of times. At diginomica, we've mapped out an entire framework called collaborative canvas for building out an enterprise foundation for more effective digital teamwork. It's not something to put in place overnight. In the absence of a ready-planned strategy, organizations are going to have to make do as best they can and trust their people to adapt rapidly. But that's undermined in a flash if the recommended platforms fail at the first hurdle.

Turning to Microsoft Teams must have seemed like the obvious choice before Monday's problems set in. It's available free of charge to enterprises that already license Office 365, and it's operated at global scale by Microsoft. What's not to like?

Slack CEO cites limits to Microsoft Teams

But as Slack CEO Stuart Butterfield pointed out in his company's Q4 earnings call last Thursday evening, Teams has its limitations. He's biased, obviously — Microsoft positions Teams as its Slack killer and the two companies often trade barbs. But Slack has experience of head-to-head comparisons carried out by customers who also, inevitably, have longstanding relationships with Microsoft. Butterfield called out one such review at a Fortune 100 retailer:

Having paused their Slack expansion at 10,000 users about a year and a half ago, [they] went on to deploy Microsoft Teams to around 30,000 other employees in an attempt to evaluate the service.

The process was plagued with challenges, from a near complete lack of engagement to architectural deficiencies, which caused overwhelming administrative complexity. The result was so frustrating both for end users and administrators that last quarter they ended their Microsoft Teams evaluation and signed an agreement to go wall-to-wall on Slack.

Butterfield adds that Slack has engineered its platform over the past few years to serve enterprise collaboration at a much larger scale than Microsoft Teams, which he says has a limit of 5,000 users and 200 channels per instance. In particular, its shared channels functionality, which allows organizations to have private conversations with closed groups of users from other organizations, gives Slack a unique edge, he says:

I do not believe it's possible for anyone to replicate what we've done there on a technical side in the next several years.

What about Slack's financial resilience?

Where Slack faces challenges, whatever its technical merits, is in its financial resilience. Like many of the standard bearers of the digital generation, Slack's financial and business plan is predicated on rapid growth in revenue. That was one reason the stock price fell on Friday after the company revealed a sharp decline in its growth rate — annual revenue grew 57% over the previous year to $630 million, but the year-on-year growth rate for Q4 was 49% and the outlook for the current year is around 35%. Even that outlook was hedged with "pronounced uncertainty" due to coronavirus, admitted Butterfield.

The path to profitability depends on continued growth outstripping costs. Slack is still losing money at an eyewatering rate, posting a GAAP operating loss of $588.3 million for FY2020, almost as much as it took in as revenue. The non-GAAP figure was $130 million and that remains unchanged in the guidance for the current year, although the company does aim to stem free cash outflow and projects this will fall to less than $20 million by year end.

In the short term, however, any boost in takeup of Slack due to coronavirus is more likely to hurt rather than help those figures. CFO Allen Shim says:

While the pipeline currently remains healthy, we see risk due to increased customer uncertainty and travel disruption, particularly in the enterprise segment ...

On the positive front, we are seeing customers begin to work remotely and many are looking to Slack to help manage this. Over the last week we have observed a significant spike in creative teams which typically start out as free.

Risk of slowdown in enterprise projects

What that means is that the spike in takeup will add load to infrastructure without generating new revenue. While Slack is looking at ways to speed self-serve onboarding of smaller businesses to accelerate them on the path to becoming paying customers, the bulk of its revenue comes from larger accounts — almost half its revenue now comes from the 893 customers who are spending more than $100,000 in annual recurring revenue (of whom 70 spend more than $1 million a year), and 95% comes from those spending $1,000 or more. The total paying customer base now numbers 110,000.

Slack's gameplan over the past few years has been to focus on building up sales to the enterprise market, and that's been largely successful. But the danger is that a slowdown in corporate investment will put such plans on hold, with the knock-on effect of reducing the funds available to invest in additional infrastructure to support new customer uptake. Slack is going to have to hope that the overriding need for remote collaboration is going to outweigh the impact of budget freezes. One anecdote from Butterfield sums up the quandary:

Last week, we closed a deal with one of the world's biggest asset managers. I got an email from the CTO, the day he signs in. 'Just FYI, this was the last PO I'm signing before the doors closed.'

The good news there is that Slack is considered important enough of an investment that people are still making it and we won that customer, which is great. But it's a little hard to have visibility into how the second part of that story is going to impact us going forward.

My take

The takeway for customers is that, along with all the disruption of moving to more remote working and distributed teamwork, you should also expect service disruption to the underlying platforms as they adjust to new spikes in demand.

Rolling out the necessary infrastructure is going to be a technical and logistical challenge for all of them. Those investments will also have to compete with other priorities — in larger providers such as Microsoft and Cisco, these services will be competing for resources with other divisions. In pureplay startups such as Slack, Zoom and the rest, there's a limited supply of finance to draw on.

This is before any other considerations kick in, such as what is going to be the view of national governments on the need to keep such services operating? If the advice is to stay away from offices and work from home, does that mean that remote working platforms have now become priority national infrastructure? That may lead to different outcomes in Europe and Asia than it does in the US, for example.

There's no easy answer to these unknowns for now, but this an area to monitor closely over the coming weeks and months.