3 Paths to Success with Cloud Communications

Traveling to industry events comes with the territory of being a UC analyst, and last month I had the opportunity for first-hand learning at conferences put on by RingCentral, Talkdesk, and Vonage. In this post, I’ll share three distinct takeaways from them.

 

Each of these companies is taking its own path to success with cloud communications, so stepping back, the main message is that there are many ways to win in this space. Nobody really knows what’s going to work, and to stay ahead of the curve, providers need to be prepared to try different things. I could easily write multiple posts about each event, but will instead make life easy by summing it all up for No Jitter readers here, with one big idea coming out of each.

 

 

Several strong storylines emerged during RingCentral’s analyst event, but none bigger than that surrounding the strategic partnership announcement with Avaya. That move has been extensively covered — including here and here — so I won’t go until details. Even without Avaya, RingCentral has been a great success story, and that alone is worth noting. It’s on track for $1 billion in revenue — for sure by Q1 2020 — margins are close to 80%, channel investments are paying off, it’s actually profitable, the portfolio is pretty complete now, and reflecting all this, it’s a total stock market darling.

 

Clearly, RingCentral is doing many things right, and the Avaya move could be a game-changer for both companies. I have a post coming that will examine the pros and cons, and there’s plenty of risk as well, so this could also end badly. But RingCentral CEO Vlad Shmunis is a shrewd and savvy CEO, and I’m sure he’s done his homework here. Given RingCentral’s growth trajectory, I wouldn’t be inclined to bet against him, and this move personifies my “be bold” takeaway for RingCentral.

 

The company has been bold in other ways, such as moving upmarket and winning its share of new enterprise deals, or building out its global data center footprint to support larger customers. You could even say its high-profile branding with the new home of the NBA’s swaggering Golden State Warriors is a sign that RingCentral has arrived. That said, who knew the end would come so quickly for that team, and that’s the risk you take by attaching your brand to the stars — I digress.

 

Moving on, nothing talks louder than money, and during the Avaya partnership announcement, Shmunis made a passing, but telling, comment that I haven’t seen covered elsewhere. Being side by side on stage with Avaya CEO Jim Chirico, the talk had to be bold, as Shmunis needed to position this as a move among equals that would benefit both companies. Growth is where RingCentral really shines, and he was pretty blunt in saying “the fact is, we’re just outspending everyone.”

 

RingCentral certainly has been aggressively spending on marketing to drive top-line growth, which the stock market loves, and this really is the best way for a company to put distance between it and the competition. With the UCaaS market being so crowded and hard to differentiate, this is a bold strategy to build up the customer base and make keeping pace harder for smaller players.

 

By maintaining this spending pace, both with channels to push sales and with marketing efforts to pull sales — all of which requires keeping the offerings rock-solid to minimize churn — RingCentral will win by attrition as others drop out or get acquired. In this environment, I think the strategy of outspending everyone can be a good game plan, and being bold here will pay off so long as it doesn’t hit a wall with revenue growth before the playing field consolidates. Conversely, the longer the competition hangs around, the riskier this strategy becomes.

 

Talkdesk gathered a solid cohort of the BCStrategies group, along with others, for a recent analyst briefing, but you haven’t heard much about the event because much of what the company shared fell under a nondisclosure agreement. As with RingCentral, there’s a strong growth story here, but I can’t get into the details.

 

Talkdesk is certainly showing well in the industry reporting, most notably the latest Gartner CCaaS Magic Quadrant update, where it’s made the upper-right corner Leaders Quadrant rating, pretty much on par with Genesys. Akin to RingCentral’s branding efforts, this is great validation that it has arrived. Everyone loves an underdog story, and Talkdesk has practically come out of nowhere quickly. It’s definitely gaining mindshare that reflects its business success, and I would put Talkdesk in the “one to watch” category for this space.

 

In terms of what I can say here, “be digital” is the main message. Being so new, Talkdesk is cloud-native, so CCaaS is all it knows. While this pedigree helps drive overall growth, it serves the company very well with a particular set of customers. I can only speak at a high level, but it’s having success with companies that are very good at delivering digital customer experience (CX).

 

This would be the cloud-centric disruptors, so think about companies like Netflix and Uber. These are young digital companies that have entered traditional markets with a clean slate for both CX and UX. Everything they do is digital, and many are “killing it” simply because they know how to deliver the kind of CX and UX that today’s digital customers expect — and if they can’t get it from you, they’ll find others that can deliver.

 

Talkdesk is winning a lot of customers like this, with two pieces of the digital puzzle driving its success. One is the simple fact that these companies are growing really fast — not because their served market is growing, but because they know how to deliver a superior CX and UX — and that’s driving more business their way than they can handle. Businesses are quickly coming around to the notion that CX is now strategic, and this capability is becoming the best, and even only, way to create sustainable differentiation. We’re still early days into the digital revolution with CX, but those with first-mover advantage are winning big as Millennials and Gen Z come of age, and are quite particular about buying from relatable companies.

 

Aside from being able to help these companies deliver great CX, Talkdesk is getting the contact center business from them also because its cloud-based platform can natively scale to keep pace with rapid growth. These types of companies will be more inclined to go with a partner like Talkdesk than a more traditional contact center provider that’s still rooted in premises-based platforms that are much harder to scale quickly.

 

There’s a second digital angle to consider as well, and it has to do with artificial intelligence (AI). During the analyst event, Talkdesk made it clear that AI is a strong suit. It’s handling most of the AI work in-house, and so it has a lot of control over development. This is just as important as scalability, in that success for these types of companies is very much based on leveraging the data coming from all the digital interactions with customers. Capturing this data is one thing, but the real business value comes from analytics to gain a deep understanding of what drives UX and CX. Talkdesk has connected those dots really well, and the combination of AI and cloud scalability makes for a strong value proposition for the emerging leaders in today’s digital economy.

 

As there had been at the RingCentral event, many compelling storylines surfaced at Vonage’s recent analyst event. Vonage is following a different path to success in this market, and for this event, it would have been enough just to focus on the branding update — Vonage is the singular name across the portfolio, replacing brands such as Nexmo and NewVoiceMedia. I would say the same for how well it has tied UCaaS, CPaaS, and CCaaS together into a singular offering.

 

To settle on one takeaway, though, I would focus on “be smart”; not just for how it’s doing these particular things, but also for how it has managed an ongoing transformation of the company itself. As an organization, Vonage has been on a journey of fundamental change, much like what its customers are doing. Just like a smart hockey player goes to where the puck is going, Vonage leadership has evolved the company to where the growth is happening.

 

While Vonage’s roots in residential VoIP are well-known, it may be less apparent just how effectively it has pivoted to the business market. Vonage knows how much these markets are diverging, and as recently as 2017, the revenue mix was 50/50. In 2013, revenues were virtually all residential, and now it’s just one third. As CEO Alan Masarek noted, the consumer business is in the 11th year of decline, and he aptly likened it to “a melting cube of ice.” With the residential business withering away, in due time the focus will be all-business — hence the new branding. He also explained that this transition is critical for the company’s long-term goal to succeed in the enterprise market. So long as the market — both businesses and investors — see Vonage as a consumer VoIP play viewing the company through its desired lens, namely as an enterprise SaaS provider, will be difficult.

 

Masarek also talked about how Vonage has invested $2 billion over the years building its noisy, orange woo-hoo-woo-hoo-hoo brand, so there’s a lot of brand equity it’s walking away from. To do this right, a company needs to be smart, and from we saw, Vonage has done a great job of understanding customers and what the new brand needs to be. I can’t think of any company in our space that has transitioned so effectively from consumer to business, and that doesn’t happen on the fly. You need smart management and a smart vision, and Vonage seems to have these in spades. It’s not quite there yet, but the foundation is in place, and now let’s see how the execution unfolds.

 

I don’t say this lightly, because bigger companies with far richer resources have been in a similar position but have essentially failed. I’m thinking of Skype in particular, and its perpetual state of orphanage, which may soon be coming to an end. It came to market at a similar time as Vonage, but as a more disruptive threat. Skype certainly made the voice pie bigger, and that will ultimately be its legacy. Despite being the hottest property in communications back then, nobody — not even Microsoft — could spin Skype’s native advantages into an enterprise-class platform that could make the kind of money Vonage is generating from its transition. Woo-hoo indeed!

 

The collaboration space is only going to get more competitive and more complicated as vendors try to be all things to their customers. As long as everyone believes there’s a rich cloud opportunity to address, this will be the new normal. These three companies — RingCentral, Talkdesk and Vonage — represent distinct ways of approaching the market, and there’s certainly more to explore for each of them beyond this post.

 

For now, though, my core message is that cloud communications providers really must understand their markets, and really have to know what kind of companies they want to be. A provider just can’t barge in being a price leader, and it’s not enough to have good technology — everyone has that.

 

Leadership and culture play a big role for sure, and the good news is that any company can succeed, but really must be something. This means knowing its strengths and playing to them. When that aligns with what’s important to end customers, and as the three companies in this post show, the results will follow.

 

This piece is written on behalf of BCStrategies, an industry resource for enterprises, vendors, system integrators, and anyone interested in the growing business communications arena. A supplier of objective information on business communications, BCStrategies is supported by an alliance of leading communication industry advisors, analysts, and consultants who have worked in the various segments of the dynamic business communications market.