(Bloomberg) -- Atlassian Corp. is selling its corporate chat software to rival Slack Technologies Inc. and taking a small stake in the startup, as they face greater competition from Microsoft Corp.
Slack will pay an undisclosed amount over the next three years to acquire Atlassian’s HipChat and Stride products, chief executives from both companies said. Slack CEO Stewart Butterfield described both the payment and the investment by Atlassian in his company as “nominal” in financial terms but important strategically. He declined to elaborate on the former.
The deal gives Slack more customers, most of whom pay a monthly service fee, and allows Atlassian to exit a business that failed to generate as much demand as expected. Combining the two businesses bolsters Slack at a time when Microsoft is pushing a rival product called Teams to some 135 million Office cloud customers. Microsoft introduced a free version of Teams this month in a bid to lure people who don’t subscribe to Office 365.
Taking out a competitor is good for Slack, said Butterfield: “There’s fewer choices for people.”
The deal lets each company focus on the area where they lead—Slack in chat rooms and Altassian in project management software. The two companies share lots of customers already. Hundreds of thousands of groups using Atlassian products like Jira and Trello have Slack accounts, said Atlassian co-CEO Mike Cannon-Brookes. Those include Capital One and NASA’s Jet Propulsion Laboratory.
Atlassian, which is set to outline the agreement in a quarterly earnings report Thursday, said the impact of lost revenue will be largely offset by Slack’s payments over the next three years. Although HipChat predated Slack, the younger company quickly added more features and attracted more users. “Hipchat and Stride are not doing as well as some of Atlassian’s other products,” said Wayne Kurtzman, an analyst at IDC.
Atlassian made a last-ditch effort less than a year ago to keep pace with Slack and Microsoft in chat software. In September, it tried to move HipChat customers to a new product that combined more of the features that Slack and Microsoft have been adding to their chat services. Called Stride, the app offers audio and video conferencing and project-tracking. When not enough users showed up, Atlassian entertained the idea of a sale. “We’re very proud of what the team has built,” said Cannon-Brookes. “But at the same time, it is a crowded space, and there’s a pragmatic option there.”
About two months ago, Atlassian President Jay Simons met Butterfield for breakfast and asked if he wanted to acquire the chat business, Butterfield said. The two companies had worked together in the past on software projects and shared congratulatory baked goods to celebrate product releases, said Cannon-Brookes. The agreement marks the first time Atlassian is making a strategic investment in another company, he said.
Atlassian will continue to manage the chat products and customers until the cloud services are shut down in February. Customers with HipChat installed on their own servers will be able to use it for an extra few months or as long as two years, depending on the version.
Slack and Atlassian will make it easy for customers to move, but they won’t be forced to switch, Butterfield said. He expects most will transition, though, adding “single digits” in percentage of market share to Slack. Butterfield and Atlassian declined to say how many people are using HipChat and Stride. Microsoft claims 200,000 organizations use Teams. Slack said it has 500,000, totaling 8 million people who use the service every day. Three million of those accounts are paid.
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