It may seem presumptive to declare the biggest event of 2016 before the year is over, but it just seems impossible that anything will have greater significance this year than Twilio's IPO. This event has validated a new view of communications and a new sector called communications platform as a service (CPaaS).
Twilio's IPO took place on June 23 (see "Twilio Goes Public, Celebrates Developers"), and prior to this date, the 2016 IPO market could gently be described as lukewarm at best. It was clear that Twilio might be different days prior to the IPO, when the company raised its share price to $15 a share, even though it had floated an IPO share price range of $12-$14. TWLO opened for trading even higher at $23.99, and ended its first day at $28.79. That's an increase of almost 92% in one day.
Currently the stock is trading in the upper $60s (and rising). Its market cap is over $5 billion. That puts Twilio's valuation at more than five times the combined value of Mitel and ShoreTel.
For the first time as a public company, Twilio shared quarterly results in August, for the Q2 period ended June 30. Revenues were up 70% year over year for Q2, to $64.5 million, Twilio reported. Base revenues were up 84% from the same period last year, partially attributed to a 45% growth in its active customers (Twilio describes base revenue as "all revenue other than revenue from large Active Customer Accounts that have never entered into 12-month minimum revenue commitment contracts"). The company has not yet recorded a profit, but that doesn't appear to be deterring investors.
Twilio is one of these new-fangled companies that creates value through its interface. It is similar to how Uber provides rides without owning cars, how Facebook provides media without creating content, and how Airbnb provides accommodations without owning properties. Twilio provides global network services without being a carrier.
I've watched Twilio since it started in Seattle less than nine years ago. At first, I'll admit I just didn't get it. The company was neither a carrier nor a manufacturer. It didn't really even offer new technology, it offered APIs to existing voice technologies and then expanded into SMS. Twilio intended to change how businesses communicate by appealing to developers and staff below the budget holders and decision makers.
Founder and CEO Jeff Lawson initially explained his new company to me by sharing how Blockbuster Video used Twilio to easily and quickly solve customer authentication that would have taken much longer by other more traditional means. At that time, I'm sure I would have given Blockbuster longer odds on survivability than Twilio.
In hindsight, my problem with understanding Twilio in its early days was knowing too much about enterprise communications. I knew that one of the key differences between the old PBX and new UC systems were APIs. I knew that vendors and analysts alike were talking-up communications-enabled business processes (CEBP). I knew that the established vendors also had APIs plus channels and the ear of the CIO -- and I could not fathom how Twilio could overcome these advantages of the incumbents and succeed. Twilio was just another new idea, and CIOs already had their hands full with other new ideas such as VoIP, SIP, and open source communications platforms.
What I didn't fully appreciate was that Twilio wasn't targeting its message toward people like me or even CIOs. It wasn't trying to add communications to existing workflows either. Twilio was targeting the developers that were building new business applications. Twilio understood that this group had challenges that it could solve.
IT/telecom (and IT/telecom vendors) simply were not focused on developer needs. Twilio enabled developers with tools, support, and an environment for experimentation. IT departments wanted budget for licenses, circuits, and headcount.
Twilio worked to remove the mystery from communications. This meant presenting telecom in a language developers understood with REST APIs, sample code snippets, developer support, documentation, and forums. The company's timing enabled it to benefit from multiple transitions underway, including the rise of cloud services, the API economy, digitalization, and the smartphone.
Today, Twilio, and companies like it, are now described as CPaaS providers for communications platform as a service. Although there is some overlap, CPaaS is different than UCaaS in several ways. Both provide telecom services, but UCaaS is primarily focused on core communications infrastructure such as voice and conferencing. CPaaS provides tools and services to add communications to business applications.
The distinction is bigger than it sounds. For example, the UC industry largely views mobility as a single application used for business communications. CPaaS providers view mobility as an opportunity to enable every smartphone app with new communications services.
The best successful case studies in CPaaS are largely digital native companies. These firms outsource core technologies, enabling faster growth and commitment to customer experience. These "no-stack startups" are highly agile, scalable, and disruptive to well established industries.
Twilio's customer successes are hard to miss. The list includes the next generation of cloud-based brands including Airbnb, Uber, Zendesk, and WhatsApp. Twilio's customers use communications, not as infrastructure, but as an enabler and differentiator.
Rather than risk being "Blockbustered" or "Uber'd," enterprises are embracing digital transformation so they can also leverage the benefits of software. Corporations across all industries including manufacturing, retailing, and pharmaceuticals are committing to digital transformation. With digital transformation comes increased opportunities to leverage communications for improved workflow and experiences.
The UC industry has responded to Twilio's success in many ways. APIs, hackathons, SDKs, and platforms are now a common part of the UC lexicon. The UC industry would like to grow the area where UCaaS and CPaaS overlap with business applications such as CRM, and contextual communications between a website or mobile app and an organization's contact center.
Several UC vendors have CPaaS services or initiatives. Genband launched Kandy in 2014 (see related post, "Unwrapping Kandy in Real-Time"). Cisco acquired Tropo in 2015 (see "Cisco to CPaaS Providers: Game On!"). Vonage acquired gUnify in 2015 and more recently completed its acquisition of the second largest CPaaS provider Nexmo (see "Vonage Acquires Nexmo, Jumps Into CPaaS"). Avaya launched Zang earlier this year at Enterprise Connect where the "API economy" emerged as a prevalent theme (see " The Yin and Yang of Avaya and Zang"). ShoreTel launched Summit last month.
The overlap between UCaaS and CPaaS will continue to grow, but the differences are greater. For example, the UC/UCaaS industry typically sells on a per user model, whereas CPaaS typically follows usage-based models. Flexible API billing models can be extremely complex to implement. UC is mostly sold as an organizational solution, whereas CPaaS is more frequently sold directly to developers or line of business managers.
Despite this overlap, UCaaS and CPaaS are not usually seen as competitive services. Both benefit from the digitialization of business processes; there's not much opportunity to communications-enable a stack of paper. UC integration to popular business applications provides workflow and productivity improvements. CPaaS services give organizations tools to customize workflows and build entirely new applications.
In addition to UC vendors, the CPaaS opportunity is attracting new providers. The list is long with various degrees of diversification, but the larger solutions include Plivo, Heywire (acquired by Salesforce), and Bandwidth.
Twilio's successful IPO was an extraordinary achievement. Credit is due to Lawson and all of the "Twilions" that work there. The IPO's success also confirms optimism and the widespread belief that communications are on track to become far more pervasive and critical.
It doesn't matter if you count the number of telephones, minutes, or the decreasing prices of connectivity, telecommunications has always adhered to Moore's law. We are now moving into a new era of exponential growth, this time it is the opportunities to communicate that will explode, which will include new types of applications and notifications. It is time to connect workflow and things, not just people.
A strong IPO is more about the future than the past. An always-connected world requires new ways to connect with business processes. CPaaS enables communications when and where they are needed without commitment or infrastructure. Twilio enjoys a first-mover advantage, but the nature of the open model it created invites competition. Twilio is also rapidly expanding its CPaaS equation with IoT, recently announcing the acquisition of Kurento for its WebRTC technologies.
Corporate communications are no longer a single function owned by a single department. It has taken some forty years, but the IT monopoly on communications has fallen, as did the Bell monopoly before it.
Dave Michels is a Contributing Editor and analyst at TalkingPointz.
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