About ten years ago I was waiting to be seated at a restaurant when a man came to the area in which I was waiting and started to open the vending machines. He had a few empty sacks with him and after about five minutes had filled the sacks with money. It was at this point I realized the value of making small amounts of money in massive volume. I figured if it can be done with gumballs you can do it with anything.
After a recent meeting with David Cork the CEO at Natural Convergence I think telecom holds another vending machine opportunity service providers are wise to pay attention to. In this case the hosted key system market.
David cites the fact that there is an installed base of about 32 million key systems out there and they are about 12 years old. The replacement market for key systems will be a massive opportunity according to Cork who tells me his company counts on a 7-9% churn replacement per year. Furthermore they hope to sell to 30% of this market which is obviously ambitious.
Natural Convergence is a Canadian company and is now part of the Terry Matthews family of companies. In a recent article on Sir Terry Matthews, I mention how the companies Terry invests in work together. Here is an excerpt:
Still the companies function loosely in the style of a Japanese keiretsu where a central bank supplies a group of companies across industries. These companies work well together and rely on the central bank for support. In this case, Terry is the bank and certainly understands the industry as well as any of the people in his massive group of companies. This understanding of the industry is what differentiates Terry from a run of the mill bank making investments.
It is for this reason you may not be surprised to hear Natural Convergence products work with Mitel (another Matthews company) phones. But David can tell you with a straight face the Mitel decision is also best for them and for customers as the Canadian phone company is spending money on developing better phones and this is not the case for all PBX vendors in the market. It also helps that the companies are geographically close to one another.
Now if you think the IP Centrex market is the same as the hosted key system market you would be incorrect. The key system market is not leading edge and they generally focus on TCO instead of whiz-bang must have flashy features. In addition, key systems typically have keys (big surprise) representing different lines and park functions.
The company’s product is the Silhouette 3.0 and it is SIP-based except for the phones. Yes the world is moving towards SIP but here is an exception to the rule. The reason for this divergence from SIP is that Natural Convergence phones do not require configuration like most SIP devices. The user settings do not reside in the device but instead in the network so no changes are lost if a phone dies. Obviously there is a huge focus on simplicity here. It should be noted however the system will talk with SIP devices if needed.
Another area the company prides itself on is getting service providers operational rapidly. A few months is what they tell me. In addition many of their customers are growing rapidly — between 35%-50% quarter over quarter in fact.
As you might imagine you can configure phones from a web browser – this of course means less trips to see customers on premise and this translates into lower support costs.
One last point worth noting is the solution is complimentary to a BroadSoft or Sylantro hosted IP Centrex solution. How could this be? Well the Silhouette solution is optimized for the key system market and the other systems are not. So a service provider may consider dual solutions to enable the best ROI for each market segment.
Natural Convergence is certainly focusing on what seems to be the fastest growing area of business communications systems and although I think the 30% market share number is highly aggressive, the opportunity certainly exists to convert the CPE-based small business into a user of hosted solutions. So if you are a service provider looking for a new revenue stream perhaps you should consider selling hosted key system services to small business and in the end collecting all the gumball profits for yourself. Just remember to have lots of empty sacks lying around.
