Is UCaaS Growing?

Peter : On Rad's Radar?
| Peter Radizeski of RAD-INFO, Inc. talking telecom, Cloud, VoIP, CLEC, and The Channel.

Is UCaaS Growing?

The latest financials came out in the last week. Let's examine if UCaaS is growing.

RingCentral Office annualized exit recurring software subscriptions (ARR) grew 39% year-over-year to $316.8 million. RC says they are growing margins and revenue, while also increasing their losses. Is buying market share working?

8x8 reports that Total revenue grew 24% year-over-year to $63.2 million; service revenue grew 23% year-over-year to $57.7 million.

8x8's New monthly recurring revenue (MRR) sold to mid-market and enterprise customers and by channel sales teams increased 30% year-over-year and accounted for 65% of total MRR booked in the quarter. Average monthly service revenue per business customer was $409, compared with $360 in the same year ago period.

Per the PR: Ending seats at Vonage Business were 616,000, up from 514,000 seats in the year ago quarter, a 20% increase. Vonage Business revenue churn was 1.4%, compared to 1.3% in the year ago quarter. (About double what 8x8 reports.)

This is such a spun statement: "Vonage Business revenue, which includes $24 million of Nexmo revenue, was $106 million, an 86% year-over-year increase on a GAAP basis."

Broadsoft buys VoIP Logic to increase its white-label business, which now pits them directly against wholesalers like CoreDial and Bluip - and other BSFT clients who wholesale like Comcast and Momentum. If UcaaS was growing for the 420+ providers that utilize a BroadWorks platform, would BSFT need to ramp up its white-label and direct to Enterprise sales?

Interesting to note that of the noisy 3 in UCaaS, only Vonage has a BSFT.

Windstream announced yet another UCaaS product This one is called "Windstream Hosted Communications (WHC) for Small Business, a cloud-based phone solution offering enterprise-level capabilities to small and medium-sized businesses. Powered by Broadsoft. WIND also offers Avaya, Mitel and Allworx. Quite the mixture. It might explain why they have 1 million SIP trunks on their Broadsoft.

A couple of bright spots are the cable clan are almost all running Broadsoft. XO is powered by BSFT. (Coming to a Verizon store near you in 2Q2017!)

Both Bells - Verizon and AT&T - run Broadsoft for SIP trunking and UCaaS. In fact, we will see how the Broadsoft powered One Talk drives sales for both VZW and BSFT soon.

Recall that went ANPI was sold to Onvoy, they had just 20K seats on Broadsoft, so not everyone is killing it in the UCaaS space. In fact, if you take a sample from the INC5000, most VoIP providers in the US are doing LESS than $5M in business ($2-$4 million seems to be the median.).

"For 2016, BroadSoft expects the acquisition [of VoIP Logic] to contribute approximately $800,000 in revenue," that means that VoIP Logic was doing about $3.2M in revenue. BSFT's 3Q 2016 earnings call was this morning.

There are certainly VoIP Providers with more than $50 Million in revenue. I would argue it is more a pyramid than a bell curve.

Companies are ramping up the SPIFF war to grab market share in the UCaaS space. It is likely easier and cheaper to buy deals from channel partners that acquire a whole provider - and the resulting synergy/culture mess that will ensue with integration after a buy.

Bullseye, Fusion, Star2Star, TelePacific, AireSpring and net2phone are just six of the companies posting SPIFFs for deals to Channel Vision magazine's email list and other places. And the SPIFFs are designed to skew for larger deals (more than 8x8's ARPU of $409). Some are specific to a preferred master agency.

At an agent event last week, I was talking to an Avaya partner who is still selling strong. Sure there has been some dip in on-premise PBX but not as much as you would think. Windstream is still selling mid-market deals of Mitel and Avaya boxes.

Do you know where the weak spot is? SERVICE DELIVERY, according to someone whose opinion I value greatly. Barely anyone has that figured out yet! And that is where the Customer Experience starts (and stops). Size doesn't matter. What matters is deployment, implementation, design, training and UX (user experience).

I keep hearing from folks who say the SAAS model is about OPEX over CAPEX. Well, that is the story but for most businesses, the spend over 4 years for a cloud comms solution is more than buying one. So there is a premium to be had for Hosted UC.

I have said it before: UCaaS is selling Change. You have to change the buyer's mind from "It is a phone system" to it is a new way to communicate and run your business with employees, contractors, customers and vendors. And then the buyer has to want that too.

I think much of the OTT VoIP is really about cheap dial-tone and one or two features (like conferencing or voicemail to email) as a bonus.

The other factor: CPaaS. Instead of using a desk phone or softphone, people are using Apps to talk to one another - like on Xbox, in Uber's app, Facebook Messenger, WhatsApp and Slack. This is taking away from some UCaaS sales as well.

The Skype4B noise has finally quieted down. But Greg Plum at PlumUC is running a Skype4B Bootcamp because users still can't figure out how to get the most out of S4B. All UCaaS providers should be training users constantly to teach/coach them how to improve collaboration and productivity, the two reasons the execs spent the money on UC&C to begin with!!!

FairPoint has entered the fray with Telax software. "Although FairPoint foresees the new service being applicable to all of its customer segments, the company expects the immediate sweet spot customer profile will be those that have 20-100 employees," per source. I guess in their territory that is mid-market!

Last piece of UC news comes from Broadvoice, who has been approved as a cloud services vendor for all states that participate in the public sector Cloud Service marketplace, created by NASPO ValuePoint in conjunction with the state of Utah.

Broadvoice CEO says that they are one of the only UCaaS providers in that marketplace.

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