Stewart Butterfield, CEO and co-founder of Slack, attends the annual Allen and Co. Sun Valley media conference in Sun Valley, Idaho, July 10, 2019.

Gerry Miller | CNBC

Microsoft might be the primary competitor for Slack, but the widespread adoption of Microsoft’s software is not a major problem for Stewart Butterfield, co-founder and CEO of the messaging app.

Microsoft’s Teams service, however, is a direct competitor to Slack’s messaging platform.

As a component of the Office 365 productivity app bundle, the Teams app is a hallmark of Microsoft’s Commercial Cloud category that investors scrutinize to track its transition from licenses to subscriptions. Office products and cloud services represent a quarter of all revenue for Microsoft — the world’s most valuable public company.

Last week, Microsoft said Teams had more daily active users than Slack. One executive also suggested that the company’s user base could expand further, as the number of monthly active users of Office 365 for commercial use has reached 180 million.

“If it’s based on the bigger distribution, I don’t think that’s really a threat,” Butterfield said Monday at the Fortune Brainstorm Tech conference in Aspen, Colorado.

Butterfield’s view draws on Harvard Business School professor Clayton Christensen’s concept of disruptive innovation. Butterfield said that if a smaller company’s product resonates with customers, it could make inroads against a firm that does many more things.

He pointed to Microsoft’s push to compete with Google in the internet search market, after it had become dominant in operating systems with Windows.

“Tens of billions of dollars into that [search engine] and I don’t know what their market share is now — 9% or something like that,” Butterfield told Fortune’s Adam Lashinsky. NetMarketShare put Micorsoft’s search engine Bing at 8.6% on desktops and laptops for the month of June.

Butterfield also cited Google’s efforts to popularize its Google+ social network following the rise of Facebook, including by playing it up in Gmail and requiring people to use it in order to leave comments on YouTube videos.

Exposing Google+ to so many people didn’t ultimately make a difference, Butterfield said, and Google shut down the consumer product earlier this year.

“I think that it’s harder and harder, not because there’s anything wrong with Microsoft, because it’s hard for us at this point, given the size that we’re at — it’s hard to maintain a real focus on quality, on user experience, and the bigger you get, the harder it is,” said Slack’s CEO. “So if the competition was based on the quality of user experience, and that’s where all the effort is, that would probably be more daunting for us.”

Butterfield said Microsoft is an incredible company and that it has been a good partner to work with — Slack recently came out with a calendar integration for Office 365. Microsoft reportedly once tried to buy Slack but ended up backing away.

“Whatever Microsoft does, we’re still going to do the same thing that we would do for customers,” Butterfield said.

Shares of Slack rose 3% on Monday after analysts at Barclays and Canaccord Genuity initiated coverage with overweight and buy ratings on the stock, respectively. “We have conducted dozens, perhaps hundreds of hours of analysis on these companies and the segment, and Slack looks like the winner in this space,” wrote the Canaccord analysts, led by Richard Davis.

Slack stock has yet to close above the $38.62 price at which it ended the day when it debuted on the New York Stock Exchange last month.

Watch: Slack is a company investors should keep long-term, says analyst



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