Insider Report Nov 2023
Curated Enterprise Communications News and Insights from November 2023
Guest Contributor Dmitry Netis: Dmitry currently serves as Managing Director and Co-Head of Technology Banking at The Benchmark Company, a middle-market boutique investment bank based in NYC. Dmitry has over 25 years of experience serving as a strategic advisor to many growth companies, assisting them with strategic positioning, restructuring, M&A, and financing options. He has been immersed in the cloud communications and customer engagement sectors for over 15 years as one of the first Wall Street research analysts covering this space, serving more than 4,000 institutional equity managers and private equity clients. He has published on many of the early pioneers, private companies, and giants in enterprise communications. Prior to joining Benchmark, Dmitry served as a Chief Strategy Officer and Head of Corporate Development with AudioCodes and as a research analyst with investment banks William Blair and Stephens.
Dmitry and Dave worked on this report together. Some areas are clearly in Dmitry’s voice, indicated in blue type. None of the information provided by Mr. Netis, herein constitutes a recommendation, solicitation or offer by The Benchmark Company, LLC. or its affiliates to buy or sell any securities, futures, options, or other financial instruments or provide any investment advice or service. The opinions expressed herein reflect Mr. Netis’ personal views about the companies discussed and are not the opinion of The Benchmark Company, LLC or any of its affiliates.
Everybody gets a GPT Bot! At its first developer conference day, OpenAI announced expanded context (pipe a book into the prompt), a way to build custom query sets (“GPTs”), and more. I haven’t seen so much AI excitement since Alexa skills were the future.
What stood out were custom versions of ChatGPT and a crowdsourced store that allows users to sell their chatbots. Anyone can build a chatbot, and this doesn’t require coding skills. Instead, customization is done by the data used to train it. Anyone can build a bot for their specialized needs, such as recipes, history, or whatever topic they happen to have data on.
The new GPT store will create a marketplace for verified users to sell their GPTs. It’s conceptually similar to Apple’s App Store, and some creativity and imagination could be a new path to becoming a millionaire. Though expect lots of lawsuits over training data.
Grok and X.AI: Of course, Elon Musk would have a bot to challenge OpenAI. Of course, he claims it will outperform ChatGPT 3.5. Of course, Musk is hyping it up even though it is not generally available. The name “Grok” is stolen from the classic Mars-related sci-fi book “Stranger in a Strange Land.” The product Grok comes from xAI. This is another “solve for X” Musk company, and Grok will live on X (Twitter).
Two important characteristics make Grok “special”: It has a sense of humor, and it has access to data on X. The former means it’s rude and flippant (humor is harder). The second likely means it won’t be very accurate. Musk expects to include Grok for paid X subscribers. It’s part of his plan to expand X beyond social media.
Notion Thrown For a Loop: Notion was on top of the world last month. Customers are finding its cloud-delivered service/app liberating. It hasn’t crossed into the mainstream but has impressive growth and adoption, especially internationally. I have good news and bad news for Notion. The good news is that billions are about to discover the Notion approach; the bad news is that they will do so by trying Microsoft Loop.
Microsoft Loop is a collaborative, customizable productivity tool that appears to be inspired by Notion. Personally, I think Loop should have been built into Teams, or at least Planner or even OneNote, but then again, I thought Teams should have been built into Outlook.
The Return of Neutrality? It’s taken much longer than expected, but the FCC is about to restore net neutrality, or at least attempt it. Following a two-year absence of a fifth commissioner, FCC Democrats have initiated the reinstatement of net neutrality rules from the Obama era.
Net neutrality is fairly obvious and fairly normal in the US and globally, but Obama made it formal, and now it’s a partisan issue. The FCC repealed net neutrality in 2017 during the Trump administration. The impact was not as bad as feared, but that’s partly due to several states implementing their own rules and the carriers being on good behavior during all the lawsuits. Neutrality makes sense, especially compared to different internet rules in each state.
The carriers and the GOP argue that reinstating net neutrality is “unlawful” despite consistent court rulings that affirmed the Obama FCC’s authority and consistent rejections of attempts to challenge new state-level protections. As TechDirt wrote: “It’s GOP mantra to treat absolutely any effort to hold the telecom industry accountable as extreme and somehow unhinged. Similarly, it’s GOP mantra to pretend that the broken and heavily monopolized U.S. telecom industry is somehow the pinnacle of free market innovation, when even the dimmest among us know that’s simply not true.”
Now that the Commissioners have voted to restore neutrality, we head into public comments on the proposed change. The chair will determine to incorporate comments into a final draft. The commission will then vote on enacting the regulation as soon as early 2024.
Public commenting was a spectacle itself during the repeal of net neutrality. Fortune: “FCC Chair Ajit Pai admitted in a commission statement Dec. 3 that fraudulent comments in the millions, including [a] ‘half-million submitted from Russian email addresses,’ were made in a public process prior to the commission’s allegedly foregone decision to reverse net-neutrality policies set in the Obama Administration.” Over 22M comments were received, most using identical language, temporary or duplicate addresses, or believed to be generated by spambots. Additionally, ISPs funded 8.5M fake comments opposing net neutrality in a campaign backed by major broadband providers that used real people’s names without their consent.
Layoffs and AI: 2023 has been filled with layoffs in the tech sector. What caught my attention this month was that LinkedIn laid off 668 people across its engineering, product, talent, and finance teams. It seemed odd. I barely used LinkedIn before this year. Elon inspired me and many others to take the plunge. In fact, LinkedIn is where the cool people have moved. Shouldn’t it be hiring?
No. The platform is turning to AI. This includes using AI to provide personalized digests, help users create content, enable new features that analyze posts on users’ feeds for personalized suggestions, and assess whether vacancies are suitable. I think we know the answer to the last one.
Meetings and Messaging
Tadpole Cam: There’s a new webcam in town, and it comes from Opal. The Tadpole is the company’s second webcam. The C1 was Opal's first webcam. It was well-regarded for its design, but it also had a lot of quirks. The new Tadpole is specifically designed for laptops instead of desktops. The webcams-for-laptops market is largely ignored, yet most laptops have crappy cameras. This one has a half-inch, 48MP Sony IMX582 sensor with an f/1.8 lens that supports 4K video. $175.
Nureva MTRs: The classroom audio master achieved MS Teams certifications for its pro series audio conferencing systems. The HDL410 audio system now joins its HDL310 with certifications for extra-large Microsoft Teams Rooms.
Poly-HP MTR News: HP-Poly introduced new MTR offerings. The Poly Lens App for Microsoft Teams Rooms on Windows streamlines device management. The Poly Studio Base Room Kits offer comprehensive solutions tailored for meeting spaces. Furthermore, HP-Poly has expanded its range of Teams-certified devices, encompassing video bars, headsets, and webcams.
The Poly Lens Room App simplifies MTR setup, analytics, and management. The Poly Lens Room App provides robust management and monitoring tools through the Poly Lens Cloud Admin portal. The Poly Studio Base Room Kits include an HP collaboration PC, a USB touch controller, and a video bar or camera. The two newly introduced Poly Studio Base Room Kits provide alternative ways to customize USB-based meeting rooms.
This is largely what we expected from HP’s acquisition of Poly as meeting rooms shift away from specialized solutions and toward mainstream options. HP-Poly can not only bundle AV with compute but also provide its global network of partners with better Microsoft and AV opportunities. As a result, HP-Poly will benefit from both the rise of Microsoft Teams and the rise of hybrid work.
Amazon Connect Q: AWS introduced Amazon Q at its re:Invent conference this month. A new generative AI tool, Amazon Q becomes the new Agent Assist for Connect. Though intended to be a broad AI engine across AWS services, the company opted to launch with Q as an option for Amazon Connect. Unfortunately, it was also reported that there are lots of internal employee concerns that it ‘hallucinates’ too much and may leak training data.
Q is an LLM evolution/replacement of Amazon Connect Wisdom that will supplement real-time interactions by generating suggested responses and actions for agents to take (using Q with calls also requires Connect Contact Lens). It does this by leveraging company content stored in Amazon Bedrock. It also offers integrations to over 40 popular data sources, including Salesforce, Google Drive, Microsoft 365, ServiceNow, Gmail, Slack, Zendesk, and AWS S3.
Naturally, AWS would launch its own generative AI solution alongside Microsoft, Google, and others. Like the others, Q has “guardrails” that allow companies to manage their security needs, though these guardrails are currently in preview. Everything about Q is about integrating multiple AWS services and repositories. Be careful with that rabbit hole, Alice. Pricing for Amazon Q in Connect starts at $40 per agent per month.
Q is much more than agent/customer assist. It’s a full development environment that supports code creation, SQL queries, testing, code management, and troubleshooting. Working directly in Amazon Redshift — a cloud data warehouse service that uses SQL to analyze structured and unstructured data across operational databases and data lakes — Q’s capability of enabling SQL query authoring in natural language is impressive, as much as it is productivity enhancing. For example, asking Q, “Which state has most concert venues?” and following up with “Find the top five users from Seattle who bought the most number of tickets” will generate the appropriate SQL query in seconds. Q will become both business- and developer-friendly for customer engagement professionals.
To bring it all back to AWS re:Invent 2023 was a huge success, a gathering that is now bigger than Dreamforce with more than 60,000 attending in person and over 500 vendors exhibiting their products and services.
Also, based on its showing at re:Invent, Amazon Chime, as an application, seems to be disappearing, partly buried by competitive solutions and partly buried by the Chime SDK (CPaaS). No sessions were dedicated to the Chime application, though see AWS Alianza news below.
RingCentral Launches RingCX: In a formal launch event hosted on RingCentral Events, the provider announced that RingCX is now generally available and introduced a new WEM add-on (beta). It is integrated with both Ring’s MVP UCaaS and its RingSense AI platform. Several (of the 50) pilot customers spoke at the launch.
What you need to know: Cloud, native, AI-first, rich omnichannel, low cost, and integrated with Ring’s suite. I wasn’t sure how serious Ring was about its new CCaaS; the answer is Dead Serious. It is being positioned as a comprehensive CCaaS solution. I initially thought RingCX would be positioned as a small, simple solution. I have bigger doubts now about the future of RingCentral’s partnership with NICE.
It will probably take a few years for RingCX to meet the criteria for the CCaaS MQ, and much longer to make the upper right quadrant, but that’s not as important as near-term revenue growth.
Verint Bots-R-Us: Verint hosted an analyst event this month. I was a little concerned about Verint as many of its customers are becoming competitors, but I did not fully appreciate how the company is transforming its business (for the third time). Verint started in recording, transitioned into WEM, and is now transitioning into contact center automation. Its healthy WEM business is funding its new future.
The “Open CCaaS” stuff is a confusing way to describe their automation story. Like WEM, its automation solutions are meant to complement most contact center implementations. The automation is centered around its (30+) bots that are trained for specialized tasks. AI powers the bots, and the AI is powered by Verint’s Data Hub. The automation story is better as you learn more and even extends into WEM capabilities. Verint leadership also previewed some coming attractions that have the company moving into gamification and creative approaches to self-managing teams.
There’s no question that AI-powered bots will heavily influence the contact center and CX. Verint’s position and portfolio are attractive. My concern is that the providers are all heading to more or less the same place. The future is rosy with happier agents, lower costs, and better CX. This works for a bit, but realistically, the competition isn’t the status quo but the other providers. The big duels in the near term will be around AI and bot pricing models, access to customer data, and the ability to leverage it.
Mitel MiCCB 10: Mitel enhanced its MiContact Center Business application. Release 10.0 offers customizable notifications and more features. High points include improved integrations with popular business intelligence (BI) tools such as Tableau, Qlik, and Microsoft’s Power BI. Mitel considers it “the most customer- and agent-friendly version of MiCCB yet.” It offers text-enabled virtual hold, streamlined social media integration, and several UI updates. MiCCB 10.0 also includes new Web Content Accessibility Guidelines (WCAG) features.
Cresta Announces Generative AI for Contact Centers: Solutions include Outcome Insights, a diagnostic tool that identifies and quantifies the connection between behaviors and business outcomes; Knowledge Assist, a reference tool that generates a response to real-time conversation context; Opera provides insights to improve agent performance.
Omilia Agent Assist: The conversational AI provider launched Agent Assist, powered by its proprietary large language model (LLM) that advises and guides agents based on customer interactions. Guess what it can do? Features include real-time sentiment analysis, action suggestions, script adherence, content pushing to the agent from a knowledge base, real-time call transcription, and post-call summaries.
Genesys Budapest: Genesys opened its new Budapest R&D center with an exclusive mini-analyst event. No, not miniature analysts, but exclusive because it only invited five analyst firms (Frost, IDC, Forrester, Gartner, and Omdia). I’ve seen exclusive to one firm before, but five is an odd number.
Updates from their event: Pointillist was a smart acquisition (2021) — certainly compared to Bold360. However, the provider is still struggling to integrate it (thus still known as Pointillist). Genesys is integrating third-party gen AI, but not as cleanly as it did predictive AI. The Gen AI features released so far are pretty basic, but evidently, they showed some new stuff that’s not quite ready for release — perhaps explaining the need for a new R&D center. The event also included a testimonial from a customer that focused on the cultural changes necessary to move from Pointillist to CX.
Sinch and Zoho Announce Availability of SMS for Zoho Desk: The integration enables agents using Zoho Desk to address customer inquiries via SMS from a centralized platform. It appears to support two-way integration instead of the usual talk-to-the-hand notifications.
Gartner MQ UCaaS: Gartner published its annual Magic Quadrant for UCaaS. The report just published on Nov. 28, so I only have a few quick observations to share.
- Microsoft in the top right feels wrong. First, the majority of Microsoft Teams implementations use Direct Routing, so they are actually multi-provider solutions with varying degrees of reliability. The native solution from Microsoft is only three nines and is limited in global reach. Secondly, Microsoft has always been competitively weak in telephony features. They continue to narrow that gap, but I am doubtful they have eliminated it. Teams for meetings is very strong but weaker for intercompany or external users. Gartner sorts UCaaS capabilities into two groups: Must Have and Standard. Standard includes Contact Center and APIs — two areas where Microsoft Teams is weak.
- Like the CCaaS MQ, Gartner requires the providers to offer multi-tenant solutions. It’s an odd requirement because customers don’t really care if a solution is multi-tenant or not, and we are seeing more private CCaaS implementations. This approach effectively eliminates solutions from Avaya, Cisco, and Mitel — though Wildix qualifies.
- Events received little attention in the MQ. Cisco, GoTo, RingCentral, and Zoom are expanding into events significantly and rapidly.
- It is good to see Contact Center listed as a Standard capability. The UCaaS+CCaaS solution has been caught between the UCaaS and CCaaS MQs. However, this report has low aspirations for CCaaS: “a basic to midrange set of capabilities, and typically only require inbound calling and interactions.” The use cases don’t have to be so narrow.
- Zoom and Cisco are neck and neck, but oddly, Zoom wins on ability to execute, while Cisco wins on completeness of vision. Zoom has a broader vision than Cisco and has expanded its solution to include Workvivo, Zoom Docs, Email, Calendar, and Scheduling tools. Cisco has a bigger arsenal regarding its ability to (acquire and) execute. It has a global sales force, devices, account relationships, a network of providers, cellular integration, and a Microsoft alliance. Cisco just announced an unrelated $28B acquisition like it was no big thing. But Gartner tends to put a lot of weight on sales, and Zoom Phone has seen impressive growth.
- A strategic assumption states: “By 2025, 25% of office workers in the U.S. and Europe will not be provided wireline telephony (that is, all telephony that is not cellular), up from 5% in 2020.” While I can’t agree quickly with the numbers, I agree UCaaS voice telephony use is declining as more and more users switch to cell phones. This is why UCaaS Mobility 3.0 is so critical. In the US, you can get UCaaS service, native on the cell phone, from MS/Verizon, Cisco/ATT, and ATT (with RingCentral). UCaaS Mobility 3.0 solutions offer many benefits and will cause growth in UCaaS and enterprise cellular.
- The dot placements that surprise me are Google, DialPad, and Vonage. Google always does well on the ability to execute but never executes — especially in UCaaS. DialPad seems too far to the right on vision as it’s largely building what others have built. Vonage seems low on both vision and execution as its vision is more toward wireless (in line with strategic assumption), and it is well positioned to execute.
- Every analyst will have different opinions on where these dots get placed. I do respect the Gartner process and acknowledge that their analysts have enviable access to vendor and customer data.
UCaaS + CCaaS: It’s nice to see that Gartner has increased the importance of CCaaS in its UCaaS MQ. The fact that the services are often sold together speaks to emerging use cases in the employee experience (EX) market. An integrated cloud phone/contact center solution with an active directory, skills-based routing, auto-attendant(s), and an IVA/conversational interface has 60%-70% of the features of a traditional CCaaS stack. It can be very effective for an IT helpdesk, HR benefits desk, or sales/marketing inbound and outbound call center within a mid-enterprise or large organization.
DMG Consulting has been casting these users as “cheap seats” for years, noting over 30M potential users within a broader PBX-served market (of over 400M). The price is a fraction of a full-blown contact center application (which often registers in a $150-$200 per user per month range). Penetrating the EX market with a modern cloud-native UC/CCaaS stack could present an attractive opportunity. While Cisco and Zoom are well underway with their integrated UCaaS/CCaaS solution, building on their customer base and brand, numerous CCaaS and IVR/auto-attendant vendors are now working to offer native integrations with MS Teams. 8x8, AudioCodes Voca, Anywhere365, ComputerTalk, Luware, and Landis are among the most interesting ones.
RingCentral Events: Last August, RingCentral acquired the virtual events platform from Hopin. This month, that tech was relaunched as RingCentral Events. That makes four UCaaS providers (Cisco, GoTo, RingCentral, and Zoom) doubling down on events, though with some important distinctions in vision. The webinar and physical event sectors collided during the pandemic, and it’s unclear if they can ever be separated again. Events may indeed be the next high-growth area for UCaaS providers.
RingCentral Events leverages AI (of course) to enable content creation, question management, and the creation of clips from event content. Pricing starts at $750 annually for events with up to 100 attendees. RingCentral Events is available globally.
Hopin was young pre-pandemic and experienced spectacular growth, so although RingCentral Events just launched, it’s actually quite robust. RingCentral hosted its launch event on RingCentral Events. This is becoming a new theme. Cisco hosted its hybrid WebexOne on Webex Events, and Zoom hosted its hybrid ZoomTopia on Zoom Events.
TalkingPointz intends to publish a research note on Events in January.
RCS is Coming: In a stunning surprise victory for consumers, Google, service providers, enterprises, consumers, and other constituencies, Apple announced, “Later next year, we will be adding support for RCS Universal Profile … This will work alongside iMessage.” The decision was made likely to avoid a showdown with the EU. A surprising number of Apple customers don’t understand why this is important.
Because RCS supports rich formatting, it will unlock a new level of CPaaS and CX opportunities. For example, airlines can send a boarding pass to customers via text message (as opposed to a link to a formatted boarding pass). Barcodes are the big winner, so expect lots of changes around tickets, boarding passes, and other use cases.
RCS is the successor to SMS and MMS. It’s better in every way. RCS supports typing indicators and rich content. It once appeared doomed, but Google needed it for Android and recruited many service providers to adopt it. The last big barrier was Apple’s refusal to allow it on iPhones.
The final issue is encryption: Neither RCS nor SMS has it. Apple has offered encrypted messaging for over a decade, as do WhatsApp, Signal, and other OTT providers. Apple won’t support proprietary extensions for RCS, including the Google solution for E2EE. Perhaps a future iteration of RCS will support E2EE, but don’t hold your breath.
Apple presumably won’t support Ultra HDR, either. This month, Google added Ultra HDR to Google Messages to celebrate 1B RCS users. Ultra HDR is a new image format that is the standard JPEG format with HDR metadata. This approach means it’s backward-compatible with devices that only support HDR.
Infobip reported the dominance of conversational experiences, mostly messaging, for customer communications during Black Friday and Cyber Monday this year. The provider saw that RCS interactions jumped twofold on Black Friday and fivefold on Cyber Monday this year compared to the same days last year. That’s a 210% increase in mobile app messaging interactions on Black Friday and a 223% increase on Cyber Monday compared to a typical November day.
Sinch Virgin: Sinch announced that it’s working with Beyond ONE in Latin America. Based in the Middle East, Beyond ONE operates the Virgin Mobile MVNO there and in LATAM and Africa (and Friendi Mobile in the GCC), with 5.5M subscribers. It selected Sinch to supply several of its Operator Services capabilities, including online charging and solutions for messaging, fraud management, and network security.
Enreach UP: Enreach for Service Providers announced Enreach UP, a platform for UCaaS and CCaaS providers that can be white-labeled and customized. Numerous changes are occurring in this space as Enreach joins Ooma in transitioning from SP itself to SP platform provider. The two companies are joining Alianza, Cisco, and others to win over new SPs in the space and providers that are still using Genband, Metaswitch, and BroadSoft. Enreach believes its solution is differentiated by its APIs, mobile integration, agility, and speed of implementation. Enreach offers a UCaaS Mobility 3.0 and MVNO.
Ooma acquired 2600Hz last month. Ooma’s plans for independent (competitive) SPs are not clear.
Infobip Flows: Infobip now enables businesses to design and implement end-to-end customer purchase journeys within WhatsApp. Rather than continue directing customers to external websites, support services, or payment gateways, new WhatsApp Flows and Payments allow journey management within a WhatsApp chat.
WhatsApp Flows are customizable journeys within the WhatsApp Business Platform. Businesses can create structured, interactive customer journeys that guide users through various touchpoints, from initial contact to post-purchase support.
Once a customer initiates a WhatsApp chat, businesses can give them an “in-store experience” via mini apps within WhatsApp. For example, a journey on a website can be replicated in a WhatsApp channel. Personally, I like websites better than apps, but many disagree. Infobip allows businesses and customers to access product catalogs, read FAQs, make appointments, select services, and even pay in one conversational journey … in one app.
WhatsApp is incredibly dominant in certain markets. The app has over 2B MAU and is a preferred, dominant, and default channel for B2C communications in many markets. I’ve been resistant to it for years, but I signed up after a few weeks in Portugal.
8x8: While revenue growth remains challenged, the company posted a nice upside on its bottom line in the fiscal second quarter, sending the stock flying 36% due to subdued investor expectations and easing concerns about its ability to cover its debt obligations ($490M, a portion of which will mature in 2024). Operating margins improved to 12.8% (outperforming Street expectations meaningfully by 180 bps), and cash flow from operations grew 26% YoY. Service revenue was down slightly year-over-year and was at the upper range of guidance. Revenue guidance for the December quarter (fiscal 3Q) called for flat growth and operating margins in the 11%-12% range; full-year guidance remained unchanged.
8x8 announced +3M paid business licenses (phone and contact center combined) with Voice for Teams seats surpassing 400K, signifying its strategy to become a Direct Routing partner and calling plans supplier to Microsoft Teams while hoping to upsell the user base on CCaaS. In the quarter, Enterprise ARR (defined as ARR from customers that generate more than $100K ARR) grew 1% YoY and represented 58% of total ARR; channel sales contributed to 60% of total ARR. Small business and mid-market revenue grew 4% and 3%, respectively. The company ended the quarter with $150m in cash and investments, growing it slightly.
Bandwidth: Reported slightly upside results on revenue and EPS and delivered roughly inline annual guidance, calling for annual growth of about 3%. Ex-A2P fees, revenue was up 5% YoY while SMS messaging revenue grew 50%. Looking into 2024, which is an election year, should help boost revenue growth, with respect to A2P and, albeit cyclical, political messaging. Operating margins were 0.5% roughly inline with the prior quarter, while Adj. EBITDA margin of 9% saw a third straight quarter of improvement. Dollar-based net retention rate declined slightly to 104% as churn in UCaaS and CPaaS remains challenged given the macro backdrop. The company says it is on-track to achieve its mid-term targets (2026) of revenue CAGR of 15-20% and EBITDA margins of over 20%.
To achieve that, Bandwidth is hard at work diversifying its portfolio mix, driving more revenue with programmable services (A2P messaging) and direct enterprise solutions (for Global 2K); this mix at the onset of 2023 represented 19% and 5%, respectively, with voice and phone number management (global communications plans) taking up the remainder 76%. By 2026, the company expects A2P messaging and enterprise solutions to account for 30% and 10%, respectively. It operates in 60 countries now, covering 100% of the UCaaS and CCaaS vendors with its solutions. It has expanded its relationship with Microsoft — serving Microsoft Teams and Azure with phone numbers, messaging, voice/E911 services — moving now into Enterprise services with Direct Routing, Operator Connect and conversational AI solutions, building on its recent partnership with AudioCodes.
Five9: Five9 posted upside results on revenue and earnings, though top-line growth of 16% YoY has slowed from the prior quarter’s 18% and 20% in Q1. Annual revenue guidance was left unchanged (17% growth for the year), while earnings showed meaningful upside (6%). 2024 was calibrated to 16% growth, consistent with the prior six years, which the company typically outperforms. But it’s also nice to see this level of growth maintained in tougher economic times. Enterprise had strong showing, with subscription growth of 28% on an LTM basis (Enterprise segment accounts for 87% of LTM revenue). Adjusted EBITDA was 18% of revenue, with operating cash flow at a record 16%. Dollar-based retention rate was 110%, a tad below last quarter’s 112% and down 8 points from a year ago, due to the ongoing macro headwinds. Longer-term, by 2027, the company expects NRR to trend toward the high 120s, due to a higher mix of enterprise customers, which are buying higher ARPU products (AI and automation offerings). AI and automation saw over 250 deployments during the quarter, with 150% YoY growth in Agent Assist bookings. Mike Burkland expressed confidence around enterprise business inflection, boasting: “we're being pushed by legacy hitting the end of life and pulled by new AI/automation use cases.” This is also reflected in the amount of RFPs the company is now capturing. Gartner recognizing Five9 as a CCaaS Leader probably hasn’t hurt either.
Aceyus saw meaningful progress, with the pipeline growing by 30% since the close of the acquisition in August. Aceyus, in simple terms, is a play on data warehousing and management; its software ingests data from CRM, WEM systems, multiple ACDs, communication platforms, digital channels, IVAs, and other key sources of customer data. This mountain of customer data (and customer journey leveraging contextual data that lives in dozens of disparate systems) is extremely valuable for AI (to drive better accuracy of IVA/agent assist responses and predictive analytics) both for training purposes and production. The secondary effect is its enabling Five9 to move upmarket, streamlining the migration of large enterprise customers to the cloud, and leveraging Aceyus’ existing F100 customers.
Five9 is showing a knack for smart, strategic acquisitions, which will enhance its competitive position and drive shareholder returns. Aceyus follows other smart plays like Inference Solutions (IVA), Virtual Observer (WEM), and Whendu (IPaaS). The company is sitting on $700M of cash and equivalents, so it has plenty of dry powder left in the tank but has to continue to service its roughly $740M debt load.
RingCentral: The company posted roughly in-line results, showing progress on operating margin expansion from cost-cutting. Non-GAAP operating margins spiked to 19% and Adjusted EBITDA to 23% in the September quarter. Decelerating top-line/subscription revenue growth of 10% is a testament to the times as Ring goes up against Microsoft, Zoom, and Cisco as well as smaller vendors like Dialpad and Aircall. This blended growth is largely the result of continued growth of the contact center, with UCaaS flatlining or showing insignificant growth. Gross churn is being offset by new logos, and existing business seats upsell opportunity, which remains healthy but may dwindle if unemployment continues to rise. Dollar-based net retention rate registered at around 100%, which seems fine for this market but is below cloud SaaS / CX peers (with NRRs hovering at or above 110%). Push into multiple products appears to be the strategy to drive upsell/cross-sell and NRR higher. The new CEO, Tarek Robbiati, who is well regarded in the industry, coming from HP Enterprise and having spent many years in the telecom industry (Sprint and Telstra, among others), has signaled its core mission is to focus on upsell sales initiative and multi-product strategy to drive competitive displacement.
RingCX signals the third time the company has attempted to invigorate its own contact center offering as an add-on that will likely aim to supplant NICE partnership. Ring claims it is seeing Fortune 500 companies choosing RingCX with multi-thousand-seat wins while the product is still in controlled availability.
Twilio: Delivered a slight beat on revenue and EPS. Revenue grew 5% year-over-year (8% organically). The negative surprise was the net dollar-based expansion rate, which declined nine quarters in a row to 101%, although this has been a recurring theme with all cloud communications companies. Communications (CPaaS) business margins are hanging steady in the 50% range (while bucking further decline, they are a far cry from the mid-60s mark management had eyed after its IPO). Its Software business (aka Twilio Data & Applications) delivered flat growth at $127M from the prior quarter (up 9% YoY) and continues to disappoint. The group’s president, Elena Donio, was replaced by CEO Jeff Lawson, who will run this business until a new leader is appointed.
Audiocodes: Continues to execute under the radar, with Microsoft Teams being the biggest catalyst. The company delivered upside revenue and earnings, albeit relative to subdued investor expectations. For 2023, the company maintained its revenue guidance while showing meaningful improvement in earnings (based on recent cost reduction initiatives). Gross margins snapped back by nearly 300 basis points versus the June quarter on supply chain issues dissipating, while operating margins improved to 15.5% (from 9.5% in the June quarter). Microsoft business snapped back, growing 13% YoY, with Live subscriptions up over 50% YoY. Audiocodes commands a strong market share in the Microsoft Teams connectivity services (Direct Routing, Operator Connect, and local PSTN breakout), where it ships its cloud-native SBCs. Management touts its share within Microsoft DR at over 50%, with enterprise SBC market share hitting 22% in 2022 (based on research from Omdia). With the Live SaaS business projected to end the year at $48M, growing 60% this year, one might reckon this business accounts for the entire market capitalization of the company.
Zoom: The company posted a strong 3Q fiscal 2024 with operating margins of 39.3% (versus 34.6% a year ago) and operating cash flows growing 67% year-over-year. Online business churn improved some in the third quarter. While this is the lowest churn ever reported since October 2021 (3Q fiscal 2022), it remains quite high at 3% per month (36% per year). Said another way, this implies the entire base would churn out within three years. While the bottom line continues to surprise on the upside — a function of a wide-scale reduction in force last year and earlier this year — the revenue performance, both enterprise and online, is trending at a significantly slower pace. Growth in enterprise revenue and customers were roughly flat versus the prior quarter and up 8% and 5% YoY, respectively. Billed and unbilled contracts, termed remaining purchase obligations (RPO), increased 10% YoY to $3.6B. This pipeline has slowed materially in overall contracts and billings (over 12 months), indicating lengthening contract durations on a YoY basis. Guidance for the fourth quarter (January) called for revenue growing approximately 1% YoY.
One highlight was the company reaching ~7M paid Zoom Phone Seats. This is up from 4M in July 2022 and 5.5M in January 2023, solidifying its industry-leading position as a clear No. 3, trailing Microsoft at 17M and Cisco at 13M and widening the gap with the remaining providers. Zoom Contact Center added 200 customers, reaching ~700 customers as of October-end. Zoom Virtual Agent customers nearly doubled QoQ. Zoom Phone reached roughly $500M in annualized run rate revenue in the July quarter (2Q), and Zoom Contact Center has surpassed 500 customers.
Cisco: Cisco shares fell more than 11% after the weaker-than-expected guidance, which disappointed investors. A major cut to revenue outlook ($3.2B) from a tech bellwether sent the entire tech universe into a tailspin the following day. Cisco’s product orders declined 20% in Q1 fiscal 2024, with backlog depleting to historical levels and reverting to the mean, following the 17.4% and 20.3% product revenue growth in 3Q23 and 4Q23, respectively. The hardest hit area was networking and wireless access points, while enterprise and service providers segments also saw weakness. Security, Observability, and Collaboration segments fared better, the latter growing 3% YoY, driven by growth in Webex Calling and Contact Center, which was by far the best performance in recent history. Collaboration revenue has been taking a nosedive for the last three years and saw three consecutive quarters of double-digit declines in fiscal 2023, exiting at $4.05B in revenue. Cisco recently introduced AI capabilities, spanning the entire Webex suite as well as new workspace devices. Collaboration revenue up? Who could have predicted that? Link
NTT and Sapphire: NTT Data grabbed Sapphire, a midmarket specialist partner for SAP and ServiceNow. NTT wants to go big in SAP. Sapphire, based in London, has 1,200 midsized customers. Financial terms of the deal were not disclosed. Sapphire operates in the UK and US with support teams in India, South Africa, Argentina, Lebanon, and the Philippines.
The Business Section
AWS and Salesforce: AWS and Salesforce announced a significant expansion of their partnership. Now, Salesforce customers can manage data across Salesforce and AWS, with the ability to leverage generative AI technologies. Also, Salesforce will now support Amazon Bedrock, a fully managed service that makes foundation models (FMs) from leading AI companies available through a single API.
As part of this partnership, Salesforce will expand its use of AWS, including compute, storage, data, and AI technologies, through Hyperforce to further enhance popular services like Salesforce Data Cloud. AWS will also expand its use of Salesforce products such as Data Cloud. Data Cloud will allow AWS to create a single unified customer profile, allowing them to deliver more personalized customer experiences.
Amazon Bedrock becomes available through the Einstein Trust Layer to power AI-driven apps and workflows in Salesforce. And, for the first time, Salesforce will begin offering its products, including Data Cloud, Service Cloud, Sales Cloud, Industry Clouds, Tableau, MuleSoft, Platform, and Heroku, on the AWS Marketplace.
The partnership between these companies creates a challenge for competitors. It brings together the leading “AI CRM” provider with a leading IaaS (Infrastructure as a Service) and Contact Center provider. This should last as long as Amazon doesn’t launch its own CRM or Salesforce doesn’t launch its own contact center — but either of those possibilities seems plausible.
Actionary.co.uk: Actionary is a new CX advisory firm headed by Simon Harrison and Jim Davies. I wasn’t familiar with the term, so I turned to the dictionary. Webster defined actionary (from 1913) as “a shareholder in a joint-stock company.” Didn’t sound right, so I tried the Oxford English Dictionary: “This word is now obsolete.”
Actionary intends to help its clients sharpen their company vision and mission statement to ensure better alignment of marketing, revenue, and product strategies and achieve personalized goals based on a blend of thought leadership with leading industry research.
BV and Calltower: BV Investment Partners announced an investment in CallTower. Founded in 2002, CallTower offers global UCC solutions on Microsoft Teams, Zoom, Cisco Webex, Five9, and others. CallTower is based in Utah and serves over a million endpoints.
Alianza and AWS: More action for SPs to consider: Alianza announced a multi-year “Strategic Collaboration Agreement” (SCA) with Amazon Web Services (AWS). It appears that Amazon is using Alianza to fill the gap in its SP strategy. Ironically, SPs have been reluctant to consume cloud-delivered services. AWS has built a suite of communication services for SP infrastructure that includes 5G core, billing, OSS/BSS, digital customer experiences, billing, and now UCaaS. OTT apps have out-innovated SPs; the question now is whether the SPs will strike back. RCS is another bullet in the SP gun. This SCA involves compensation and incentives for a joint GTM.
Alianza itself utilizes AWS infrastructure and has already sold into more than 100 SPs, including Lumen and Brightspeed. Although the SCA is currently limited to North America, the pieces are in place for global expansion. Alianza has also built a new, brandable collaboration suite powered by the Chime SDK.
Alianza and AWS intend to introduce more products that leverage AWS services, such as Kendra, Lex, Polly, and more. The Alianza solution for CCaaS comes from Intermedia.
Metrigy’s UCaaS Report: Metrigy released its first report on the global UCaaS market. The report ranks the top 10 UCaaS providers, with Microsoft at the top, followed by Cisco, Zoom, 8x8, and RingCentral. It was noted that Microsoft has earned the top spot in the ranking based on market share, financials, market share momentum, product mix, customer sentiment, and customer business success. According to Metrigy experts, the global UCaaS market was worth $19B in 2022 and has grown 8% YoY. Metrigy forecasts that the market will grow at 5% CAGR, reaching $24.4B by 2027. By 2030, more than 75% of companies will use UCaaS for their calling, meeting, and messaging needs, up from roughly 30% UCaaS penetration today. Gartner predicts, though, that fewer employees will be using “wireline” UCaaS.
A quick analysis of the market size reported by Metrigy yields an estimate of ~65M UCaaS seats globally in 2022 (65M x $25 per user/month x 12). Of those seats MS Teams, Cisco Webex, Zoom, RingCentral, and 8x8 are holding on to about 46M (i.e., 17M, 13M, 7M, 6M, and 3M seats, respectively). That tracks the overall UCaaS opportunity as growing to about 70M in 2023 (8%), leaving about 24M seats for the remaining UCaaS providers.
Cavell Group Sees 100M Users with Top 3 UCaaS Vendors: Cavell Group this month shared a global forecast for the top 3 UCaaS providers, growing their share to about 100M seats by 4Q 2028, up from 37M today. Cavell estimates Cisco Webex growing casually to ~15M, Zoom nearly doubling to ~13M, and Microsoft pushing toward ~72M (from 17M today, with a 5-year CAGR of 33%).
SMB vs. Enterprise Traction: Part of why we see such assertive growth from Microsoft has more to do with the enterprise market than the SMB/midsize organizations migrating to cloud-delivered services. Based on conversations with enterprise system integrators, two-tier distributors, and VARs, only about 3% of enterprise PBX systems have moved to the cloud each year (though this accelerated during the pandemic). The US market of about 110M users represents about 3.3M seats and approximately $1B in revenue (ASP at $25 per user per month) coming from the enterprise. Put in the context of Metrigy’s 2022 $19B global market estimate, it isn’t hard to see that most of the UCaaS revenue was coming from the SMB segment.
This could mean several things:
- The upper end of the market (and the most lucrative one) has shown great affinity to existing PBX systems (what more do you need if dial tone is working?) and a less robust desire to move to cloud (paying per cloud seat becomes less economical when a certain threshold is reached for a large organization). This trend is visibly true in the contact center.
- That an SMB/mid-market base was the main growth driver of UCaaS in the last decade, through 2020, when both markets accelerated through the pandemic. The enterprise market is still carrying on today, and the SMB/mid-market is slowing.
- Microsoft’s ability to bundle multiple services and applications under the same contract (e.g., E3/E5 Office 365 subscriptions and emerging AI Copilot as a key productivity contributor) is what set it apart from the pack (with Cisco and Zoom also offering an extended bundle of enterprise applications) by garnering over 17M Teams Phone seats.
- The rest of the SMB/mid-market has been entrenched mainly in cloud-to-cloud transitions, with companies jumping ship from one UCaaS vendor to another due to heavier discounting or more services for the same price. The indirect channel looks to earn “new“ commissions via such moves and plays a very significant role in UCaaS provider selection. The same “ease of use” that attracts customers to UCaaS in terms of provisioning and de-provisioning of seats based on demand (e.g., elections or fundraising campaigns) carries the risk of subscription shifting to another vendor that can offer lower prices or more tools (features) for the same price.
A final note with respect to the market dynamic is that the +400M global user TAM being thrown around by vendors has lots of nuances. First, you’re not going to be selling in Russia or China. You’re probably not going to move far in India or the Middle East countries, either. This takes away half to two-thirds of those seats. Thus, US companies realistically are left with roughly 150-200M TAM to work with. If the top 3 vendors can really get to 100M by 2028 (as per Cavell’s forecast above), this leaves 50-100M seats to others, or less than half of the market’s share.
Generative AI – A Major Threat: Looking from the investor lens, both UCaaS and CX sectors have been out of favor for a period of time, going back to late 2021. Valuations, while highly attractive relative to other software peers, have not bounced commensurate with recent technology/software stock market recovery. While UCaaS risks are well understood (Microsoft), CX is less clear.
Sam Altman might have single-handedly created this overhang. We can debate all we want how AI works, what its impact on the industry will be (good or bad), or what percentage of human agents it could replace one day. Still, until its impact on the market is better understood, the CX space will remain subject to this risk, with investors both institutional and in private equity floundering. This is an opportunity that can lead to outsized returns in the future.
Most Likely Trades: Microsoft and Cisco remain consolidators of the UCaaS and CCaaS/CX markets. Zoom has $6.5B of cash on its balance sheet. It will likely make some interesting buys, not because it wants to, but because investors are now forcing the issue. Eric Yuan seems undeterred. Zoom has demonstrated it can build innovative products and garner significant market traction (such as its video-enabled CCaaS product with WEM and AI used by over 700 customers). If you were Eric, why would you change this incredibly effective innovation engine? New adjacencies? Perhaps, though those could be distractions.
While NICE and Genesys are likely playing the long game, Verint, Alvaria, and Calabrio may present themselves as acquisition targets. Whether Microsoft makes a move on CCaaS remains an unpredictable question; its Digital Contact Center Platform (a poorly slapped-together solution composed of fragments of Nuance, Dynamics 365, Power Platform, Teams, and Azure) has not exactly been a winner.
Twilio is still in a nearly two-and-a-half-year transition. The recent departure of the President of Data and Applications group (which represents ~11% of overall LTM revenue, housing Segment, Frontline, Engage, and Flex), highlights these struggles. However, with margin pressure from messaging and international revenue subsiding (see section below); carrier A2P pass-through now streamlined and well-understood by investors; internal realignment in sales and product organization bearing fruit after three massive rounds of layoffs (about ~2,700 employees); and low-margin and unprofitable divestitures (e.g., IoT business) now in the rearview mirror, the company may just be lean enough to begin climbing out the hole and be better positioned for 2024. The stock was up 25% in the last month alone, perhaps echoing that theme.
I suppose I should list Sam Altman, CEO of OpenAI, who got fired and rehired. Surprising how much drama this created. While it’s common for founders to get fired (including Steve Jobs and Jack Dorsey), it’s usually after the company turns south (would someone fire Musk from Twitter/X?!). What a clusterf*ck. It’s not clear what has changed. It’s likely MS will have a board seat, and OpenAI will have less conflict about profit. There’s also some mystery about what caused the board to fire Altman. There are hints that some dangerous/reckless R&D was occurring behind the scenes. We may never know … until it’s too late.
Andy Dignan was named COO at Five9. Kate Browne was named SVP of Service Innovation at TPx.
Windstream announced Paul Sunu as its new President and CEO. His first task will be to get re-included in the Gartner UCaaS MQ. Windstream was dropped this year for having fewer than 750K users. Sunu replaces the outgoing Tony Thomas, who left Windstream (and its board) after 17 years at the company. Sunu has worked as Windstream’s board Chairman since 2020 and will retain his position.
Mitel appointed Luiz Domingos as its new CTO and Head of Large Enterprise R&D. Domingos held a similar role at Atos, recently acquired by Mitel. He joined Unify/Atos in 2013. He will be responsible for Mitel’s technical vision and strategy. Salesforce promoted(?) Denise Dresser to CEO of Slack. Dresser replaces Lidiane Jones, who was CEO for less than a year. Dresser has been at Salesforce for 12 years. Jones is to become CEO of dating app Bumble Inc. Admittedly, it’s hard to say which company, Slack or Bumble, is more influential in enterprise communications.
Ventana Research was acquired by ISG. The UCC vendors and analyst firms continue to shrink. Other disappearing analyst firms include Recon Research, Wainhouse, and MZA.
- Telecom Sector Sees Major Layoffs Despite Historic Stretch of Tax Breaks, Regulatory Favors The Trump era doled out billions in tax breaks (AT&T nabbed $42B alone) and billions more to big telecom.
- The fight over return-to-office is getting dirty The data supporting RTO policies is threadbare, relying mostly on a few studies that use sample sets of questionable usefulness to back up their claims.
- 10 Tasty Analyst Relations benefits that will make you salivate The right chef using the right ingredients will whip up results that vendors hunger for.
- Dell and Meta partner to bring Llama 2 open source AI to enterprise users on-premises Hybrid LLMs.
- The Real Personal (AI) Computer With the Humane wearable AI Pin, are we on the brink of a new era where AI, 5G, the cloud, and wearable tech redefine the personal computer?
- Apple announces that RCS support is coming to the iPhone next year It’s true.
- CEO Nadella Declares An ‘Age Of Copilots’ Satya Nadella declared an “age of copilots” and shared a vision of new products called Copilot.
- Amazon will cut ‘several hundred’ Alexa jobs as it ends unspecified initiatives Shifting its focus to better align with what matters most to customers — generative AI.
- “Hallucinating” AI models help coin Cambridge Dictionary’s word of the year Cambridge Dictionary announced that its 2023 word of the year is “hallucinate.”
- Hybrid work setups will require a new set of tools for employees: Slack co-founder Cal Henderson The Slack co-founder speaks. I am surprised he’s still there, but more power to him.
- Secretive White House Surveillance Program Gives Cops Access to Trillions of US Phone Records A secretive government program is allowing federal, state, and local law enforcement to access phone records of Americans who are not suspected of a crime.
- NASA receives signal from 10 million miles away in space It represents a successful test of NASA’s Deep Space Optical Communications or DSOC experiment. It is also the first time data has been successfully relayed through a laser from farther away than the Moon.
- Self-checkouts will be scrapped at Walmart, Costco, and Wegmans A blow to the “self-service is better” camp.
- WhatsApp adds a quicker way to send short videos to your friends Async video is an area where enterprises are ahead of consumers — or at least ahead of WhatsApp.
Other Recent Stuff#
- Zoom Delivered What Copilot Inspired
- New Avaya Hires Add Cloud, Acquisitions, Engineering Depth to Executive Team
- Cisco Room Kit EQX and Campfire Blueprint Offer Flexible Meeting Configurations
- #WebexOne CCaaS with Jono (video)
- Assessing the 2023 Gartner Magic Quadrant for CPaaS (Video)
- GITEX Show Floor Walk-about (video)
- What is ALE doing in the Avaya Booth @ GITEX?
- Real-Time Recorded, Dave and Zeus on Zoomtopia (video)
- Thoughts on Zoomtopia (video)
- Google, Mio Team up for Chat Interoperability
- TalkingPointz Research: Conversational AI 2023 and Does CCaaS Matter?
- CXToday Video: Gartner CCaaS MQ 2023 Related: NICE Misses Out of Becoming Gartner’s Outright Leader
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2023 Insider Reports
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