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Microsoft unbundles Teams, but change won't affect market

Microsoft's decision to separate out Teams from its Office 365 and Microsoft 365 products might satisfy regulators, but won't change adoption trends.

Microsoft is unbundling Teams from Microsoft 365 and Office 365 offerings, but the licensing change is likely too late to significantly affect the collaboration tools market.

On Monday, Microsoft introduced a new lineup of commercial Microsoft 365 and Office 365 suites that do not include Teams to customers outside Switzerland and the European Economic Area (EEA), which includes EU countries as well as Norway, Iceland and Liechtenstein. It also plans to sell a new standalone Teams service to enterprise business customers for $5.25 per user, per month, according to a blog post from Microsoft.

The move mirrors Microsoft's efforts to unbundle Teams from its Office products last year in the EEA and Switzerland in response to an antitrust investigation that the European Commission launched in July 2023. Other companies offering collaboration tools such as Zoom and Slack have also raised competition concerns over the Microsoft Teams bundling.

Enterprise customers with existing 365 subscriptions that include Teams can continue on those plans, but new 365 subscribers will have to license Teams separately if they want access to the application, according to the blog post. While the change addresses concerns that multinational companies could face licensing complexity if they have one arrangement in the EU and another elsewhere, it's unlikely to do much more -- including shake up competition, according to Forrester Research analyst J.P. Gownder.

Zoom and Slack will both try to use this as a market opening, but I don't think it changes the fundamentals of the market much.
J.P. GownderAnalyst, Forrester Research

"Zoom and Slack will both try to use this as a market opening, but I don't think it changes the fundamentals of the market much," he said.

Impact to enterprise businesses, communications products

Microsoft product purchasing is unlikely to change for enterprise businesses, Gownder said. Outside the EU, customers will likely continue purchasing bundled options and add the separate Teams license.

Enterprise customers using other communications products such as Slack, acquired by Salesforce in 2021, or Zoom might save on costs by eliminating Teams and pursuing an unbundled option. But overall, unbundling Teams will likely have little impact on what is already an established market, Gownder said.

Microsoft's licensing changes come years after COVID-19, which ushered in a remote work mandate and drove businesses to quickly adopt video conferencing and collaboration tools, said Alan Pelz-Sharpe, founder of market research firm Deep Analysis. Teams, launched in 2016 as a complementary service, was already bundled into existing Microsoft licensing. During the pandemic rush, it made financial sense for businesses running Microsoft software to turn to Teams rather than pay for Zoom or Slack separately.

Four years later, large businesses that have already adopted Teams are unlikely to switch to another service, Pelz-Sharpe said. Moving from one collaboration platform to another is no easy task, often resulting in a significant loss of corporate knowledge and history, he added.

"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.

Microsoft avoids antitrust scrutiny amid EU investigations

Microsoft's move to unbundle Teams "seems like a wise move" in light of EU regulations and the potential for more restrictions to crop up in other geographies, Gownder said.

Indeed, the EU recently opened noncompliance investigations into Apple, Meta and Google under its Digital Markets Act, which requires companies to be interoperable in certain situations with third parties and to remove processes favoring their own products.

Pricing stands to be the next battleground in Microsoft's licensing regime change, Gownder said. The company will likely argue that offering unbundled products should result in a higher price for each individual component of the former bundle because the costs to Microsoft are higher.

"This contention is true, at least to some extent," he said. "It's more expensive for them to manage, develop and sell a set of unbundled products. It will also necessitate higher marketing budgets to clarify their offerings in the unbundled world."

While regulators won't like seeing price increases, it would be hard to contend with, Gownder said.

Makenzie Holland is a senior news writer covering big tech and federal regulation. Prior to joining TechTarget Editorial, she was a general reporter for the Wilmington StarNews and a crime and education reporter at the Wabash Plain Dealer.

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