News Analysis
On April 1, Microsoft announced it was unbundling Teams from Microsoft 365 and Office 365. It wasn't an April Fools' joke.
The decision followed a similar move made by the company last September, when it unbundled Teams from Microsoft 365 in the European Union and Switzerland in what was widely seen as an attempt to appease EU regulators.
Unbundling Stems From Anti-Competitive Complaint
EU regulators started looking into Teams following a 2020 complaint made by Slack which argued that bundling Teams into Microsoft 365 gave Microsoft an unfair and anti-competitive advantage. Microsoft first introduced Teams in 2016 as a complementary offering to Office 365, but bundled it into Microsoft 365 the following year.
Microsoft's September 2023 announcement placed a large question mark over the future of Teams globally. It was unclear at the time how U.S. competition authorities might react and whether Microsoft might be forced to unbundle Teams from Microsoft in America too.
What This Means for Microsoft 365 Customers
Microsoft framed the new Teams-less licenses of Microsoft 365 and Office 365 subscription services in terms of clarity rather than competition, stating the move would give users transparency into costs and licensing options globally.
Effective April 1, Microsoft now offers:
- A new lineup of commercial Microsoft 365 and Office 365 suites that do not include Teams in regions outside of the EEA and Switzerland.
- A new standalone Teams offering for Enterprise customers in those regions.
What this means is that for new customers outside of the EEA and Switzerland, Teams as a standalone will cost $5.25 per user/month. The price of Microsoft 365 or Office 365 licenses without Teams will range from $7.75 user/month for its E1 offering to $54.75 for its E5 offering. Anyone interested in both will need to purchase two SKUs, including one for Microsoft 365 (no Teams) or Office 365 (no Teams), and one for Microsoft Teams.
Worth noting, however, is that for companies that don't want Teams, the reduction of cost is only $2.25, whereas the new Teams standalone offering costs $5.25.
Existing customers can continue to use, renew, upgrade and add seats to their current plans as usual when their renewal comes up or opt in to the new licenses.
It is unclear what impact this will have on Teams or on the evolution of Office 365 or Microsoft 365. Microsoft claimed in its 2024 Q1 results that Teams now has 320 million monthly active users, which represents 80% of the overall number of Office 365 monthly active users.
In a note from Morgan Stanley cited by Techcrunch, the analysts suggest that the unbundling is unlikely to change very much. "The O365 commercial growth trajectory, as more consolidation (not less) seems to be the direction of travel for CIO’s due to macro pressures and technological progress like GenAI driving stronger gains for the broader suites and deeper data sets,” the note reads.
Related Article: EU Commission's Use of Microsoft 365 Breached Its Own Data-Privacy Rules
Microsoft Wants to Avoid an 'Antitrust Mess'
So what exactly is happening? Deep Analysis founder Alan Pelz-Sharpe said Microsoft is clearly unbundling Teams to avoid an antitrust mess.
“It’s less about actually losing and more about the global perception of them breaking antitrust regulations and essentially stiffing customers. Hence, it makes sense to make the change global rather than local,” he said. "It’s good for Salesforce/Slack for sure, but in many ways it may be a phyric victory.”
The pandemic and the rush to remote work drove every company that didn’t already have universal video conferencing and collaboration tools to quickly adopt them. As Teams was bundled into existing Microsoft licensing it made financial sense to adopt Teams rather than paying separately for Zoom or Slack, he added.
Today, most larger firms have already made those decisions and few are likely to change back. It's hard to move from one already busy collaboration platform to another and doing so often results in a huge loss of corporate knowledge and history.
“Even so, moving forward it somewhat levels and opens up the competitive playing field for Zoom, Slack and others, but those brief few years of sudden mass adoption are already over,” Pelz-Sharpe said.
There is some evidence that regulators are getting tougher and Microsoft may just want to avoid confronting them.
“In reality, if it came to a fight, the tech giants can drag these situations out for years. So again, yes the regulators are taking them on, but where there is bad publicity and a perception that they may be ripping people off it makes sense to just avoid the fight,” he said.
Related Article: Teams vs. Slack Debate: Which Is Better for Collaboration?
Second-Guessing Microsoft 365 Investments
The long-term impact of Microsoft's decision on the adoption of its 365 suite will depend on how businesses weigh the importance of an integrated productivity suite against the costs and benefits of standalone products, said Ari Harrison, director of IT at SGC subsidiary Bamko.
One of Microsoft 365's key selling points is its comprehensive nature. Its cohesive and deeply integrated ecosystem of productivity tools and services streamlines workflows and simplifies IT management and deployment, making it an attractive proposition for businesses of all sizes, he said.
Teams has become indispensable for many organizations, serving as the central hub for collaboration, communication and productivity. Its integration with other Microsoft 365 components like Outlook, SharePoint and OneDrive has been a critical factor in its widespread adoption and use.
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Harrison believes removing the core communication tool, Teams, from the Microsoft 365 bundle and introducing a standalone pricing model at $5.25 per user, diminishes the offering's appeal and may force businesses to reassess the value they derive from the entire Microsoft 365 suite.
Any organizations that has invested in Microsoft 365 primarily for access to Teams might now explore alternative solutions that offer better value or more favorable terms effectively achieving what the original EU investigation aimed to do.
The scenario presents a significant opportunity for competitors like Slack, which has already established itself as a powerful and flexible platform for team collaboration and communication. Slack offers many of the same core functionalities as Teams and is known for its extensive integration capabilities with a wide array of third-party apps and services.
“With Microsoft potentially alienating a segment of its user base through the unbundling of Teams and its new pricing strategy, Slack and similar platforms could see an influx of businesses looking for more cost-effective or comprehensive alternatives to the Microsoft ecosystem,” he said.
Microsoft might also reevaluate its pricing and bundling strategies as another result of this decision, especially if there's a significant shift in the market towards alternative solutions. As businesses increasingly look to maximize the value and efficiency of their IT investments, the dynamics of the productivity software market could see notable changes in the coming years, Harrison said.
Related Article: The Myth of the Digital Workplace Hub
Disaggregated Software Models
The decoupling could indeed signal a growing trend towards more disaggregated, consumer-choice-driven IT and software service models, said Cyber Command founder Reade Taylor. The evolution aligns with the industry need for customizable and diverse toolsets that cater to the unique demands of modern workplaces, he said.
The trend is promising for fostering a competitive landscape where innovation thrives, and consumer choice is paramount. Moreover, it exemplifies the significant influence regulatory bodies can exert on shaping the technology ecosystems, steering them towards more open, competitive, and user-centric configurations, Taylor said.
"Through a lens refined by years of merging IT services and support with software development, I regard this development as a pivotal moment that could redefine the future trajectory of workplace technology landscapes,” he said.
Unbundling Teams underscores a strategic shift towards more flexible, user-centric software offerings, said Thinksia principal consultant Timothy J Williams.
The decision could inadvertently enrich Microsoft’s ecosystem by encouraging third-party integrations and partnerships that enhance Teams and Office 365's value proposition. Adaptability and responsiveness to market and regulatory pressures are crucial in maintaining a competitive edge and fostering innovation. This action by Microsoft is a testament to that principle.
“The landscape of workplace collaboration tools is exceedingly competitive, yet deeply interwoven with broader business ecosystems.,” he said.
“Companies now might be more inclined to reassess their technology stacks, considering alternatives or integrations that better align with their unique operational needs and strategic goals,” said Williams. Such shifts bear watching, as they herald changes not just for Microsoft, but for the entire ecosystem of workplace technology providers.
Will This Hold off EU Regulators?
While Microsoft may be trying to head-off regulators before they act, the EU's recent history of regulation inside and outside of tech has shown it won't be deterred from acting where it believes competition and privacy rules have been breached.
Even with this major concession, it remains possible the EU will charge Microsoft with a violation of antitrust regulations. It could ultimately result in an antitrust fine for Microsoft of up to 10% of its global turnover, which would be a bitter pill to swallow.