8x8 and RingCentral presented at the Needham conference last week. 8x8 has its investor prezo available for a look see (HERE). I wish RC and others did. Not just so I could examine the numbers in order to rank the Hosted VoIP/UC players but to get a detailed view of the industry after ten years of slogging VoIP. (That's right 2003 was the year Vonage got its B series and BSFT's second customer rolled out a Hosted PBX offering in Tampa Bay. Ten years later, it still hasn't really lit the world on fire.)
8x8 and RC are both re-sold by AT&T. I guess that is the replacement for CallVantage. An industry exec told me that these two are on a collision course. I can see why. They are such similar companies, except that 8x8 owns the patents for its tech.
I think they are both going to jump the shark. When RC was pitching its hosted platform to BSFT customers as a replacement and as freedom from the licensing shackles, I thought that they had gone a little too far.
I just peeked and RC has a billion dollar market cap (NYSE: RNG) !!! Huh? With about $155 million in revenue on 300K customers!! [300,000 customers on $155,000,000 is $43 per month per customer. Not user, since RC "We define a "customer" as one individual billing relationship for the subscription to our services, which generally correlates to one company account per customer." [SEC filing] Apparently, much of that customer base just buys toll-free, auto-attendant in the cloud (Google Voice type service) or are very small businesses (single lines). RC isn't the only VoIP provider in that space. The virtual attendant and toll-free numbers still bring in revenue and profit.
Meanwhile, 8x8 is at $825 million market cap with about $110 million in revenue on 35,000 customer and an ARPU of $268. Just for comparison, Vonage is at $650 mill in revenue with a market cap of $777 mill and 2.3 million subs (monthly ARPU of $23.55). 8x8 is really ahead of this game (based on ARPU).
Both carriers - RC and 8x8 - are looking globally, which is funny because that means heavy CAPEX and other spending. I have to ask why go global when you haven't really farmed North America yet. 8x8's deal with Softbank and its acquisition of Voicenet Solutions have them in two new countries. I understand globalization and opportunities, but when you have 35K customers are you really ready to divide your focus just to chase growth? I won't even ask about culture, because when companies start doing the investor conference dance, the ball game is very different. You start as a tech company and all your focus is on the product. Then you pivot a little to become a marketing company, focusing on the brand and sales. I guess next you pivot to watch the stock and making all decisions based on the ticker and the bankers. Global expansion costs money. Bankers have to like you to give you favorable terms.
Three other pieces to the VoIP puzzle: mobile, mid-market and LVC.
RC and Vonage are ahead of the curve on mobile. As landlines disappear and cellphones take over, mobility will be key, even in the business space. When you chase very small business and residential, having a well-defined mobile strategy (read: mobile app on many platforms) is essential.
8x8 chasing after the mid-market and Enterprise space will be interesting to watch. It is one place that separates them from RC and Vonage. 8x8 doesn't allow salespeople to travel; I don't know how that will impact sales into mid-market. Maybe they can lean on the indirect channel in that space.
One last interesting stat is the Lifetime Value of the Customer ($14,569). 8x8 calculates LVC based on 54 months of revenue, but the footnote says 84 months, which would make that number $22,512. The acquisition cost is about $1149, which means they see income in the first year of a customer. Now that they have churn down to 1.2% the income can flow because they aren't replacing as many customers in the revenue funnel.
If the cablecos weren't so distracted by content wars, I wonder who would buy these guys. You would think AT&T would buy RC IF the product that they co-market was moving and throwing off dollars. I had thought that TWC would buy 8x8 but instead TWC is being fought over by Charter and others. It looks like the VoIP guys are like Cbeyond, grooms at the wedding milling around at the bar. Maybe a bridesmaid will get drunk and take one of them home.
As an ASIDE: the best fit for Cbeyond would have been Windstream, especially before they tried to eat PAETEC and get indigestion. Frontier is too distracted buying up assets of the RBOCs to look beyond landlines. TDS, however, could find a could use for Cbeyond to get out of region customers; put some more horsepower in its cloud strategy vis a vis a sales organization; plus that US Cellular / CBEY combo could be very interesting.