The Collaboration Software Market is Accelerating and will Consolidate

The biggest wave of consolidation is coming.The collaboration market always ebbs-and-flows from best-of-breed products to consolidated suites. Consolidation will be driven by 3 things: 

1. Asset values of market leaders will give them a war chest, pressure to expand their product line to grow mid-to-large enterprise account value, and fulfill forward looking valuations.

2. The current user experience is fragmented across too many tools, and many users have new tool fatigue. 

2. Microsoft's Teams strategy is winning. Just as Sharepoint helped protect Office revenue and sucked the air out of many department-scale and enterprise-scale markets, Microsoft Teams is the centerpiece of the same play. Best-of-breed vendors have not collaborated effectively to compete against the integrated user experience of good enough native apps on the platform and may lose the ecosystem opportunity.

The crisis accelerated adoption and created new problems. The rapid shift to Work From Home accelerated at least 3 years of growth in 3 months. Many department-scale customers rapidly went to enterprise-scale, and collaboration hold-outs were won over. The most dramatic shift was for communication tools (Zoom, Slack, Teams) that are necessary but insufficient for distributed teams. Collaboration and coordination tools accelerated, but at a lower rate if not part of a bundle. 

Some organizations will remain fully remote, but don't know to make that work. Synchronous modalities currently can be a tax on productivity and capture little knowledge as a by-product of getting work done. There are only a few distributed organizations at-scale (GitLab, InVision, Automattic), and they have cultivated a very different written culture. Learning, development, and collaboration, particularly for entry level employees is a challenge. 

Most organizations will be hybrid-distributed.Social capital developed before the crisis is what enabled the rapid WFH shift to work, and it needs a continual refresh. How an office with flex-shifts mirrors remote work, new security models to support WFH endpoints, and other factors will make enterprise management a challenge.

A new wave of consumer innovation may refresh the enterprise. Lately enterprise software has surprisingly innovated. New design patterns and behavior shifts may emerge, similar to how Web 2.0 drove Enterprise 2.0. The a new category leader will emerge as an AI-first product borrowing from consumer patterns. 

With this outlook, collaboration vendors have 3 imperatives. Revisit your partner ecosystem and M&A through the lens of the competitive threat, be opportunistic, but also cooperate with others on an integrated product and GTM strategy. Accelerated adoption does not mean sustainable adoption, consider re-segmentation and bundling. The war for the mid-to-large enterprise is underway, will be fought on a named account basis, and may require verticalized solutions beyond current horizontal positioning.

What this means for major vendors. Taking the three imperatives into account, large publicly traded collaboration software vendors competing against the Microsoft bundle need a bolder collaboration against the common threat. In the first salvo of the war, you saw Slack giving most-favored nation status to Google, and Atlassian conceding Stride to focus resources and strengthen the partnership with Slack. Meanwhile Teams marches on with marketshare, strengthening the bundle with new products like Airtable killer Microsoft Lists. The rise of Zoom even made Google fight it with an anti-user experience without even delivering a better native experience than Microsoft's video conferencing product. The strength of the best-of-breed stack is the quality of the individual products plus the ecosystem. But the weakness is the lack of integrated user experience and contextual collaboration. Plus, most of these vendors grew bottom-up, and have been playing catch-up on mid-to-large enterprise solutions.

One of two things will happen and likely both: a major vendor will expand it's product footprint to expand per-account revenue and cross lines of partnership to further spark consolidation, or, and this is my hope, a coalition will form. Opening the constraints of large and small vendors for integrated user experience (e.g. a 3rd party app canvas in the Slack sidebar) and better distribution.

Photo by Aron Van de Pol on Unsplash