The European Commission’s (EC) announcement in Q3 of 2023 that it is launching an investigation into Microsoft’s bundling off its Teams collaboration solution with its Office 365 suite of applications has potentially huge ramifications for the collaboration market.

Rivals such as Cisco, Google, RingCentral, Salesforce/Slack, and Zoom have been wilting in the face of Microsoft’s dominance, and separation of Teams and Office 365 offers their best hope of mounting a realistic challenge.

The Microsoft investigation

The EU has stated that: “The Commission is concerned that Microsoft may be abusing and defending its market position in productivity software by restricting competition in the European Economic Area (‘EEA’) for communication and collaboration products.”

It is important to state that at this stage Microsoft has not been found to be in the wrong and has confirmed that it will “continue to cooperate with the Commission” and that it remains “committed to finding solutions that will address [the EC’s] concerns.”.

There are similarities between the EC’s previous investigation into Microsoft’s bundling of Internet Explorer with Windows. Such is the dominance of Microsoft’s 365 suite that any solution included within the suite is likely to become Enterprise’s default choice.

Microsoft would rightly point out that using Office 365 does not prevent enterprises using collaboration solutions other than Teams and that many of its competitors’ platforms already offer integrations with Outlook and other Office 365 applications. However, bundling Teams and Office 365 means that the alternative for enterprises is paying additional fees for their collaboration solution.

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Enterprises rationalize spending

During the pandemic the costs of collaboration solutions were less important than the need to connect employees who were suddenly working from home. In addition, many vendors offered enterprises some form of reduction on their usual charges – although this did not prevent the now Salesforce-owned Slack from lodging the complaint with the EC in 2020 that has eventually led to the now ongoing investigation.

Following the end of the pandemic, enterprises have begun to review their collaboration needs. The economic turbulence cause by the pandemic and other geopolitical conditions (most particularly the knock-on effects from the war in Ukraine) have meant that these reviews are intent on rationalizing spending on collaboration solutions. When Teams is essentially ‘free’ and already fully integrated with Office 365, it is no wonder that most enterprises have opted to make it their primary or only collaboration platform.

Microsoft can outspend its rivals in terms of R&D and this investment has made Teams a powerful tool. The differentiation competitors can offer in terms of the user experience is often not enough to persuade enterprises to spend additional hard-earned currency. The impact of Microsoft’s dominance is clear in the fact that its rivals are either growing slowly or seeing their revenues decline. This is despite the fact that GlobalData’s market research shows that the collaboration market has grown at double-digit percentage rates in terms of CAGR since 2020 and will continue to do so until at least 2026.   

The Importance of Diversity

Market diversity is important to foster the innovation needed to help enterprises do business more efficiently and in a way that supports trends such as hybrid working and inclusivity in the workplace. Innovation through competition will also be vital in generating the use cases that will unlock the potential of AI in the workplace.

The EC’s investigation and its consequences are set to play a pivotal role in the future shape of the collaboration technology market in a way that will impact a significant percentage of the workforces of the next ten years.