Putting a premises-based UC solution in a data center and selling services per user per month appears to be a viable business model - at least for now.
That, along with few barriers to entry, are reasons why so many UCaaS providers are popping-up in the marketplace.
For the past several years, application developers began switching to a mobile-first philosophy. Mobile-first meant designing and building applications for mobile devices first instead of adapting them from desktop versions. It proved to be a good bet. By most metrics, mobile and tablet devices are now responsible for most Internet and application usage.
Looking forward, the next shift now emerging is cloud-first. Implementing premises-based applications as hosted services is not enough. Cloud-first services are designed from the ground up to leverage the unique characteristics the delivery model offers. In broader computing, product-first leaders such as SAP and Microsoft are transitioning to cloud-first strategies in an effort to close the gap with cloud-born competitors such as Salesforce and Google.
UC and collaboration are not immune. SaaS, mobile-first, and now cloud-first will define key industry developments over the next several years. Cloud-first requires reassessment of many well established industry practices and assumptions. Here are some example considerations:
Version Numbers: Cloud services do not have public facing version numbers. The version, revision or year number refers to a product, not a service. Services continuously adapt (often). Software products are typically sold with a perpetual license. If you bought WIndows 98 you are still entitled to run it. Most don't, and instead opt to purchase upgrades as subsequent iterations add new features. Cloud-first models downplay major upgrades, and instead focus on micro updates - small and frequent instead of leaps. Cloud-first providers don't support the past three releases either, cloud-first providers adopt an always current, single version model. .
Self Service: A key element of cloud services is a strong self-service capability. This includes acquisition, administration, and user portals. All product-based solutions are, by their very nature, self-service as well. The difference lies in the skills necessary and involved complexity. Cloud-first solutions are intuitive. Cloud services thrive on simplicity, and don't expect or require customers to complete specialized training. This is achieved in part by limiting control which is directly at odds with a product-first philosophy.
Multi-Tenant: Thanks to virtualization, single-tenant solutions are thriving in the marketplace. However, no cloud-first solution is developed from the ground-up as a single tenant solution. Multi-tenant design is not in lieu of virtualization.
Virtualization: One of the consistent promises of the cloud is improved scalability. There's a financial element, being able to expand or contract user counts, but of equal or greater importance is the technical element. One reason a cloud provider can expand its services is virtualization. Systems can't be shut down to upgrade hardware, instead resources need to be added or subtracted dynamically. VIrtualization and UC were impossibly incompatible a few years ago. Today virtualization is broadly supported, but still complex.
Connected Features: The cloud enables different capabilities that cloud-first solutions leverage. For example, Google Sheets offers a Lookup function that queries the web for the result such as a current stock price. For vendors that offer both premises-based and cloud-based solutions, there should be differences between them. Consider the differences between Microsoft Word and Word Online - there are many including the ability to create and send a sharing link in the Online version. Cloud-first features leverage connectivity and simplify integrations. In the premises-based world, there's often a curated menu of partners. Cloud-first integrations view the Internet as the ecosystem and facilitate cloud mashups.
Analytics: Pandora is more likely to play a good song than a radio station because Pandora has a sense of what each user considers to be good. Product oriented vendors attempt to understand their customers with traditional tools such as focus groups and surveys. Cloud-first providers assess their customers real consumption patterns. Ironically, cloud-based services such as hadoop/hive and kafka/storm make this achievable in a way that a premises-based implementation can't. Cloud-first providers prioritize development projects based on what customers are actually using or seeking (searching for in online help).
Business Metrics: We are all comfortable with revenue and profit as key measures of business health, but they are misleading with cloud services. Income statements show recognized revenue with a rear-view perspective. Cloud providers are more about the future - this makes annuities and turnover critically important, and these metrics are not apparent on income statements. Cloud-first organizations keep a close eye on billings (revenue + deferred revenue) and churn (customer and revenue turnover).
Upsell: As described in a previous post, the true profits for cloud providers reside in long term customer relationships. Cloud-first providers spend as much or more on retention and upsell as they do on net new sales. This means key initiatives on customer base marketing, new features, and training. Product-first providers are mostly focused on initial, net new sales.
New Technologies: The cloud represents a new frontier and there's tremendous new capabilities and innovation to be had. The traditional IT infrastructure vendors can't innovate fast enough, so cloud-first providers are forced to invent their own infrastructure and approaches. These new technologies will likely change how UC services are delivered and consumed. Cloud-first providers are on the leading edge in many of the following areas: virtualization, SDN, NFV, AWS, Openscape, HTML5, and WebRTC - to name a few.
Unified Communications as a Service is a novel concept in itself. The innovations with UC won't be slowing soon, but are on course to intersect with the innovations of cloud computing. It will be the cloud-first providers that will lead and benefit from the transitions ahead..
Dave Michels is a Contributing Editor at Analyst at TalkingPointz.