Zoom vs Slack: Wall Street’s Misguided Comparison

Last week, both Zoom and Slack reported their quarterly earnings, the first real quarter with full COVID-19 impact. Zoom, by any standard, hit a home run. Slack also delivered a great quarter (at least a double or triple to extend the baseball analogy), but its stock price tanked, because Wall Street expected a Zoom-like quarter and was disappointed.

Investors, along with the financial and tech media, often lump Zoom and Slack in the same work-from-home (WFH) bucket, and thus place similar expectations on them. These expectations, which led to the wide divergence in post-earnings reactions, reveal a fundamental misunderstanding of just how different these two products are and could become in the future.

Slack is not a consumer app, Zoom could be

In its most basic form, Slack is a group messaging app, which gives off the impression that it is a consumer app. Slack is most certainly not a consumer app and does not have a consumer use case with a consumer market. Its core use case is workplace collaboration, particularly for engineers and developers as its main audience.

What sets Slack apart from other similar tools, though, is its consumer-like feel combined with both enterprise features and user experiences that delight developers, like webhooks, keyboard shortcuts, integration support, etc. In fact, inside some large tech companies, the more technical teams (e.g. engineering, product, data analytics) often use Slack, while the non-technical ones (e.g. marketing, sales, HR) use Microsoft.

Slack is very much at the forefront of a trend that’s driving the “consumerization” of enterprise products, but it’s ultimately still an enterprise product, focused particularly on the growing developer community. When Slack CEO, Stewart Butterfield, was answering a question about its new partnership with AWS (more on this topic below) during its Q1 2020 earnings call, he reinforced this positioning:

“Obviously, a lot of developers on AWS, SAP it's not a very popular tool with developers, and we really want to ensure that we keep that population happy.” -- Stewart Butterfield, Slack Q1 2020 earnings call

Zoom is also a leader in this “consumerization” trend. But what separates Zoom from Slack, and every other company in this space, is a real consumer use case for videoconferencing that the COVID-19 pandemic has exposed. Zoom weddings, birthday parties, dance and fitness classes, yoga, happy hours, game nights, etc. are now how people live. Zoom has become a “verb” company, like Google and Netflix. That can only happen if there is a consumer market for its product.

(Note: I’m purposely not including Zoom’s new usage in spaces like online education, healthcare, political campaigns, and local governments in this discussion, because I consider them B2B use cases, not consumer ones.)

Not surprisingly, many of the questions lobbed at Zoom CEO, Eric Yuan, during last week's earnings call were about his product vision for Zoom in the consumer space, all of which he smartly avoided, because that future, while full of potential, is too uncertain at the moment. This potential is also why his announcement -- free Zoom users (mostly consumers) will not have the end-to-end encryption feature that enterprise users (mostly companies) will have -- was met with intense scrutiny from privacy advocates.

For the consumers doing messaging, there are many alternatives to Slack. For the consumers doing videoconferencing (assuming there is a use case in the long-term), there are few alternatives to Zoom.

Slack will never eat into the market occupied by iMessage, Whatsapp, WeChat, Line, Signal, etc., nor should it be expected to. Zoom can and does eat into FaceTime, possibly spearheading a new consumer category for videoconferencing.

While Wall Street may have missed these differences, these two companies are already preparing for their two very different futures, as revealed by the way they are architecting their respective cloud infrastructures.

Zoom = Multi-Cloud; Slack = All-In AWS

Zoom has always been a multi-cloud company, using AWS, Azure, and its own data centers as infrastructure. Slack has always been built on top of only AWS. In the last few months, both companies have doubled down on their existing cloud infrastructure posture.

Zoom is expanding its multi-cloud sprawl, adding more AWS capabilities and Oracle Cloud into the fold. (I’ve discussed the Oracle addition at length in “Why Zoom Chose Oracle” as a strategic move to shore up more capacity at a good price and help expand into government contracts.) Curiously, Zoom has not expanded its usage of Azure, perhaps either due to competitive reasons with Microsoft Teams or the fact that Azure has little extra capacity to spare.

A recent report by The Information reveals that Zoom is in talks with Google to use GCP’s Web Risk API, a cybersecurity product that can potentially alert Zoom users to “links to such websites that scammers send to other users through Zoom’s chat function.” Google, who has been operating quite a few global-scale web services like Search and Gmail, has arguably the most expertise in helping Zoom users defend against these types of attacks.

If this deal with GCP materializes, it would protect Zoom users from phishing scams and look-alike domains, as the company tries to build its reputation as a trustworthy consumer product while figuring out what its consumer market playbook ought to be.

Taking a step back, Zoom’s multi-cloud posture is increasingly sophisticated -- using different cloud platforms for a specific, differentiating service -- in order to meet a future where it has to satisfy both large enterprise customers and everyday consumers.

Meanwhile, Slack is going all-in on AWS, now more than ever.

Prior to the most recent partnership announcement, Slack was already committed to spending at least $250 million USD on AWS over five years through 2023, as shown in its S1. The new partnership will commit Slack to spending at least $425 million USD on AWS over a five-year period that ends in April 2025. Two other noteworthy parts of the new partnership are:

• Amazon will use Slack internally for its 800,000 plus workforce, replacing IBM as Slack’s largest single customer by far.
• Slack will integrate Chime for its native voice and video calling feature, AWS’s own look alike product to Zoom and Microsoft’s Teams that has garnered little traction outside of Amazon internally. (Going forward, it will be interesting to see if Slack displays any “powered by Chime” type branding.)

Staking its future on AWS, arguably the most successful and most trusted cloud platform to date with both large enterprises and new startups, makes perfect sense for Slack. To continue its growth journey as an enterprise-grade SaaS, Slack is entrusted with its customers' entire work messaging history, along with employee information, shared files, and many integration points with other workplace tools. Building that trust by further integrating top of an already-trusted cloud platform like AWS is a no-brainer.

On the other hand, going multi-cloud may prove to be more trouble than it's worth. If a multi-cloud infrastructure isn’t architected and operationalized properly, it could lead to security issues with multi-tenancy or service downtime that directly leads to revenue losses. Slack has already suffered from this once while only operating on AWS -- a $8.2 million revenue loss caused by outages during its very first quarter as a public company. Further complicating its infrastructure stack might make things worse.

Of course, building on top of Azure would also yield similar benefits, given Azure’s strength among large enterprises. But Microsoft Teams’s rivalry with Slack, unhealthy or not, has precluded any partnership possibilities. Slack’s deepening relationship with AWS also forecloses the already remote possibility that Microsoft may acquire Slack.

The zero-sum rivalry between Slack and Teams is the exception, not the norm. Most of these relationships are interconnected and intertwining. Everyone in the cloud, SaaS, and broad enterprise tech industry is a “frenemy”. Zoom may use a GCP service, but it still competes with Google Meets. Dropbox has partnerships with both Microsoft and Google, but it still competes with OneDrive and GSuite, respectively. The “frenemy” list goes on.

I hope the takeaway from this analysis is not that Slack is a bad company. Slack is growing just fine, more than fine, by any enterprise SaaS standards. It just shouldn't be compared to Zoom.

Zoom is truly in a league of its own.

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