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8x8 CEO Has a Tiger by the Tail

Vik Verma became CEO of UCaaS pioneer 8x8 in 2013, having been recruited into the company a year earlier by founder and CTO Bryan Martin, likely due to a unique set of qualifications that include expertise in business transformation, collaboration, and cloud.

Since that time, 8x8 has consistently experienced double-digit quarterly growth. Late last month, the company announced third-quarter fiscal 2016 results with record revenue of $53.2 million, up 29% year over year. Verma also has overseen the acquisition of several companies (Voicenet, Quality Software, and DXI), and he has expanded 8x8 from a regional into a global service provider.

Verma's management style is hands-on and interactive, and he deeply believes in transparency. He practices management by walking around the office, including patrolling the campus two to three times a day. He regularly initiates conversation with staff of all levels, soliciting input on what the company needs to do better. He works out twice a day, and tends to vacation in places where being online isn't an option. His vacation picks have included African safaris and remote cruises.

The Harvard Business Review recently reported a link between eating and team collaboration. This wasn't news for Verma -- for years he's been championing "Eat Together Wednesdays" where management serves lunch to employees. Vik considers this to be an important means of collaborative feedback within an organization.

Vik Verma, CEO, 8x8

Verma joined 8x8 from Lockheed Martin, where he joined in 2006 with the acquisition of Savi Technology, an early provider of cloud-based managed services of which he was CEO. From 2008 till his departure in 2013, Verma served as president of strategic venture development at the company. In that position, he monetized existing programs through collaborative technology incubators and strategic partnerships. Verma also has worked at Texas Instruments and Raytheon.

Verma earned graduate degrees in engineering from the University of Michigan and Stanford University. He holds eight patents.

I checked in with Verma at his office in San Jose, Calif., and he shared his insights on a variety of topics, from industry shifts to acquisitions. The conversation went something like this:

8x8 was a pioneer in hosted telephony. How do you think the industry and 8x8 have changed over the past decade?
When we helped pioneer this industry, we were essentially the outlier where on-premises solutions and landlines dominated. Then cloud and mobile hit the scene. Cloud made a lot of sense because, ultimately, cloud is turnkey by another name. 8x8 then made its name as a one-stop shop for all global business communications needs. Our approach was always more of a suite play -- a fully integrated portfolio for voice, conferencing, collaboration, and analytics.

Business communications is not just dial tone. It includes your entire directory, presence, video conferencing, as well as chat or text, and the ability to share content and manage your contact center. Having an entire suite of products became critical. Five years ago we bought a contact center company called Contactual. In 2015, we bought an analytics/quality management company, as well as an outbound call center company in the U.K. So these allowed us to have a complete suite of products and broaden our European footprint.

We focused deploying this all on a global basis. It's a different way of doing business at the core. It requires innovation, presence, and understanding of the local regulatory environments. We also saw early on how analytics were becoming critical for business. So the 8x8 evolution looked like this: becoming a one-stop shop with a suite of cloud communications and collaboration solutions that we had the ability to deploy and support globally, and integrating powerful business analytics.

8x8 has gotten some large enterprise wins. What do you think is causing this to happen?
People are becoming increasingly comfortable that cloud, even for mission-critical applications, can drive their businesses. You are going to see an even stronger accelerating shift because cloud now represents increased business productivity. To put it in perspective, for the last quarter, which was our Q3 ending Dec. 31, 2015, we indicated that our mid market represented 50% of our service revenue. So already we are at the point where mid market is half of our service revenue.

Channel programs are an area where a lot of channel providers struggle. Can you explain your channel strategy?
We are strong proponents of the channel because the channel has a trusted agent relationship with your customer, and you want to leverage that relationship. Channel partners also have an understanding of your customers' business processes so that you are not just going out there and trying to offer one-size-fits-all. We prefer working with fewer channel partners that sell more, rather than having a massive amount of channel partners. Today, we have a handful of key channel partners.

Our channel has been growing from admittedly a small base, but with a renewed strategic focus and commitment over the last 18 months, it's now growing at more than 100% every year. It's becoming a larger part of our go-to-market strategy. In the last quarter, we closed three of our largest deals -- one of which was from the channel. The top five out of our top 10 deals came from the channel last quarter.

I remember the days when the enterprise phone bill came in multiple boxes containing call detail reports. One of the nice things about modern cloud services is they tend to be flat rate. Can you clarify why 8x8 has had a recent push into analytics?
Business phone systems today are not your business phone systems of yore. They have become the core communications platform for the company, which means any time you chat, text, call, or video conference, there is an unprecedented level of visibility into who is making a call and to whom. You can tie it into your back-office CRM, as well as your ERP system, so you know which customers are being contacted or calling in.

By having access to those operational insights and data, and then putting it in a pre-packaged form so that people have dashboards to make business decisions in real time, that's now a game changer. This is where we can take enterprise communications to the next level so that it's no longer a vanilla phone system or simply a utility, but becomes an intelligent business productivity tool.

Continue to the next page for Verma's take on the UCaaS competitive market five years out, and more

Continued for Page 1

In five years, do you envision having more UCaaS competitors or fewer?
I think it will be less. Companies will naturally start to drop by the wayside. This is an enterprise communications play. You have to commit to a high level of capability, innovation, and reliability, as well as have a core suite of products. I think what you are going to see is consolidation in the industry, but it's a truly massive market. It's a $50 billion-plus market, with approximately 10% penetrated by cloud. We like to think 8x8 is very well-positioned in the market to be a consolidator, and perhaps even have some of the ancillary players become part of us. But I think over time we will start to see four or five key players emerge. I would like to think 8x8 will be one of them.

We have focused on offering world-class voice and all of the other ancillary capabilities that anchor your communication systems. We think that positions us to win in this market.

What, if anything, is holding back growth in UCaaS?
I think the number one thing I am seeing is how wedded people are to their phone systems. Part of the education is that we are not just replacing legacy PBX, which is relatively easy to do, but we are delivering enhanced functionality that can dramatically change business productivity. I think it is a process. People are wedded to desk phones or doing business the same old way. In essence, your iPhone or Android phone essentially serves the same function as your desk phone. In fact, it is an enhanced version. So you can be sitting in your home or your house in the Hamptons and making a phone call, and nobody knows that you are not in the office. You can have access to the entire presence directory. You can text, chat, and communicate via any media. And automatically with one touch, you can start a video conference.

So, people are starting to get used to all of these enhanced capabilities, and are making them part of their day to stay connected across all facets of their lives.

Where do you expect to realize the most growth at 8x8?
Global enterprise. Think of it as mid market and global and where they intersect -- that is where we will see the most growth.

What goals can you share for yourself and 8x8 for 2016?
The number one goal for us is to be a global technology company. We grew around 26% the last year. Last quarter, we saw about a 29 to 30% growth rate. We are now getting to the point as a company where we want to continue to invest in our infrastructure and invest in our people, and become more global. The market opportunities are so massive that I think that will pay huge dividends for us.

Is an over-the-top (OTT) broadband connection suitable for business-grade telephony?
It is, but actually, it has not necessarily been the primary factor. You want to give people both options. We are giving companies the option to have their own MPLS connectivity. We ride on top of that. Or we can do completely over the top on a public Internet. What is increasingly interesting is more and more customers are going down the public Internet route. To my knowledge, we are the only company today that can offer SLAs over the top. Because we have analytics, we can tell you the health of your overall underlying Internet. As long as you meet minimum criteria on the overall latency, packet loss and jitter for your Internet, 8x8 will guarantee high call quality and a certain MOS [mean opinion score].

You have made several investments and acquisitions related to the contact center recently. Why is that such an important area for you?
We see the contact center tightly integrated with our suite of Virtual Office and Virtual Meeting offerings. The traditional contact centers have these rows and rows of agents answering calls. But non-traditional contact centers could be a hairdresser. We are trying to make contact center functionality available to everyone -- as an addition to your virtual office. You can start to do a whole series of features that are part of traditional call centers, but now you make them available to the masses. We see business communications, the contact center market, as well as video conferencing, all converging to essentially become a single enterprise communications system.

Do you expect to make more acquisitions in the next two years? And if so, what types?
Absolutely, acquisition or inorganic growth is a key element of our business strategy. If you think about it, we are truly a unique company in the sense we are a profitable SaaS company, which I think is more scarce than golden unicorns right now. What we see is the full enterprise communications suite of products being critical.

There are two types of acquisitions we are looking for. One is geographic footprint and global reach. We are looking at both Europe as well as Asia to continue building a local presence. The second element we are looking for is innovation and hard-core technology that we can plug into our platform and continue to add rich functionality to accommodate our customers' unique enterprise communication needs. We have a consistent cash flow, and on top of that, we are sitting on $150 million of cash in the bank. So that gives us a tremendous amount of ability (and flexibility) to pick the right kind of partners that can help drive our long-term success.

What about 8x8 gives you the most confidence regarding your long-term viability?
The number one thing that gives me confidence about our company is that we are rooted in technology and engineering. I am not ashamed to say that a big part of the company is nerds and geeks. We have 114 patents and counting, which I take great pride in for a company of our size. We have a world-class engineering team. We have built up our fundamentals. We believe that our technology can take on anyone's.

We also have a really amazing team of nearly 900 employees. I think those are the two things that give me the confidence and the viability of our success long term.

Of course, on top of that, we have a market whose time has come. Enterprise cloud communications makes sense for everyone since it delivers such significant cost savings and productivity improvements. You combine these three, and yes, I feel great about our future.

Dave Michels is a contributing editor and analyst at TalkingPointz.

For more of Dave's industry interviews, see:

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