Motley Fool Australia

Microsoft comes after Zoom with all-day free video calls

woman sitting at computer using Microsoft teams
Image source: Microsoft

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Microsoft Corporation (NASDAQ: MSFT) recently dropped its 40-minute time limit on video chats for Teams' free users, and will allow them to stay connected for 24 hours with up to 300 participants "in the coming months."

That decision, which will last "until further specified," indicates Microsoft wants to pull users away from Zoom Video Communications Inc (NASDAQ: ZM), which has become synonymous with video chats during the pandemic. At the time of Microsoft's announcement, Zoom capped its free meetings at 40 minutes for up to 100 participants.

But shortly afterward, Zoom announced it would temporarily remove its time limit for free users on Nov. 26 and Nov. 27. Does Microsoft's challenge spell trouble for Zoom, or is it too late for the tech giant to catch up?

Moving on from Slack to Zoom

Microsoft initially launched Teams as a competitor to Slack Technologies Inc (NYSE: WORK) in the unified enterprise communications space three years ago. Microsoft subsequently bundled Teams into Office 365 as a free service, with sparked antitrust complaints from Slack.

In October, Microsoft revealed that Teams had 115 million daily active users (DAUs), up over 50% from 75 million just six months earlier. Slack only had about 12 million DAUs last September, and it hasn't updated that figure since.

Slack's revenue continued to rise, but it remained unprofitable and is now reportedly willing to be acquired by Salesforce.com Inc (NYSE: CRM). Slack's antitrust complaints and retreat indicate Microsoft's free strategies are paying off. After all, Microsoft can easily afford to run Teams at a loss for years to drive smaller players out of the market.

That's why Microsoft is now setting its sights on Zoom. Zoom became a household name because it was free, easy to use, and hosted more users than traditional video conferencing services. But it also struggled with privacy and security problems as hundreds of millions of new users joined its platform.

Those missteps encouraged bigger tech companies with more robust security frameworks -- including Microsoft, Cisco Systems Inc (NASDAQ: CSCO), and Alphabet Inc's (NASDAQ: GOOG) (NASDAQ: GOOGL) Google -- to promote their own alternatives to Zoom. Cisco's Webex currently has a free time limit of 50 minutes, and Google Meet has an official time limit of 60 minutes -- but it's offering unlimited meetings until next spring.

Therefore, it wasn't surprising to see Microsoft remove Teams' time limit. It's also allowing users who don't have Microsoft accounts or the Teams app to freely join meetings through a web browser -- which mirrors Zoom's streamlined browser-based meetings.

Is it too late to catch up to Zoom?

Zoom's number of daily active meeting participants rose from 10 million at the end of 2019 to over 300 million in April. But that doesn't mean Zoom has 300 million DAUs since each individual user can be counted as multiple participants if they join more than one Zoom meeting per day. Microsoft also stated it had 200 million daily active participants in a single day back in April.

Zoom and Teams still can't be considered direct competitors, since Zoom is built on video calls while Teams is a unified communications platform for enterprise users. Microsoft's brand also doesn't seem to be strongly associated with video calls anymore, as seen with the tepid market response to its other Zoom competitor, Skype Meet Now, earlier this year.

That's why Microsoft is now leveraging the strength of Teams in the enterprise market to enter the consumer-facing market. It launched Teams for consumers earlier this year, which targets friends and families instead of co-workers, and removing time limits and login barriers might convince more people to try out the service.

Unfortunately, I think it will still be tough for Microsoft to pivot Teams from the enterprise to mainstream users. Microsoft expanded Teams in the enterprise market with aggressive bundling strategies, but it lacks that advantage in the consumer market, where Zoom enjoys a first-mover's advantage.

Teams will also face stiff competition from free alternatives like Facebook Inc's (NASDAQ: FB) Messenger Rooms and its own neglected Skype platform -- which still attracted 40 million DAUs back in March. In other words, offering free all-day calls probably won't stop most people from using Zoom as a verb for video calls in general.

The bottom line

Microsoft is leveraging Teams to expand Office 365, a core component of the commercial cloud business that generated over $50 billion in revenue (more than a third of its top line) in fiscal 2020. On its own, Teams won't generate significant revenue for Microsoft. But it's still a valuable tool for locking users into its Office ecosystem and keeping disruptive challengers like Slack and Zoom at bay.

Therefore, Microsoft will continue challenging Zoom in the video conferencing market with Teams, even though it could be a futile effort. Meanwhile, Zoom's investors should be more concerned about the stock's frothy valuations and a potential slowdown after the pandemic ends instead of Microsoft's latest moves.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of February 15th 2021

Leo Sun owns shares of Cisco Systems and Facebook. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Facebook, Microsoft, Salesforce.com, Slack Technologies, and Zoom Video Communications and recommends the following options: short January 2021 $115 calls on Microsoft and long January 2021 $85 calls on Microsoft. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Facebook, Slack Technologies, and Zoom Video Communications. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Related Articles…

Latest posts by Leo Sun (see all)