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The Man Behind the Cloud

Michael Tessler is the co-founder and CEO of BroadSoft Inc, a market-leading provider of hosted Unified Communications software and services that powers solutions for over 500 service providers in 65 countries. The BroadSoft brand isn't particularly well known among end users, but that's by design. BroadSoft wants its service provider customers to determine their own offers, set their own prices, and promote their own brands.

It's a model that seems to work. Customers include AT&T, Verizon, and Comcast here in the US and 20 of the top 25 service providers worldwide. BroadSoft operates in the Americas, Europe, the Middle East, Africa, and Asia Pacific.

BroadSoft offers three main product portfolios. BroadWorks is its core hosted softswitch product that service providers license in order to host SIP Trunking and UC services. BroadCloud is a family of hosted services and applications that service providers can rebrand. BroadTouch includes advanced rebrandable applications such as mobile clients.

Prior to founding BroadSoft, Mr. Tessler served as Vice President of Engineering at Celcore, a wireless equipment company eventually acquired by Alcatel. He also held several senior positions at Nortel Networks, where he built and deployed advanced services on local carrier networks. He has two patents in the area of local switching, Advanced Intelligent Network (AIN), and advanced call management services. Mr. Tessler holds Bachelor of Science and Master of Science degrees in Electrical Engineering from McGill University in Montreal.

Last November, BroadSoft announced its Q3 FY12 results that included quarterly revenue of $40.2 million, up 13% from the prior year along with non-GAAP gross profit of 84% of revenue, and income from operations of $10.5 million. Q4 results will be announced on February 27.

Last October, at its annual BroadSoft Connections event, BroadSoft announced its UC-One platform offering an improved user experience, rich mobility tools, video conferencing, and simplified go-to-market packages for its service provider customers.

As a hosted VoIP pioneer, BroadSoft has outlived many competitive services including Level-3 (3Tone) and AT&T (Callvantage). It has also made a number of acquisitions over the years including Adaption (2012), iLinc (2011), Sylantro (2008), and GENBAND's M6 Communication Applications (2008). The firm trades on NASDAQ (BSFT), and is headquartered in Gaithersburg, MD--the approximate halfway location between its two founders.

DM: BroadSoft started in 1998 as a pure VoIP play geared toward providers--pre cloud, pre SIP, limited broadband availability. What were you thinking?
MT: When Scott Hoffpauir, my co-founder, and I decided to take the leap and start a company, we found that the world of VoIP had just started and was focused around using VoIP as a technology to bypass long distance charges. Many companies were creating these LD bypass gateways, and the industry in general was focused on hardware and on the transport layer. With our experience at Nortel in both fixed and mobile networks, and our experience building a next generation mobile switching system at Celcore [company bought by DSC and then DSC bought by Alcatel], we realized that the game would switch to the application layer. We also wanted to make this a software business, using standard hardware. We had both seen the complexity of delivering on proprietary hardware and felt that a pure-play focused on a software model would be the right strategy.

What were we thinking? Well, I think the reality was that we were not really thinking. We had no idea how hard some things would be, but that's the great thing of a start up. You can have blind belief.

This was definitely pre-SIP. In fact, a funny story was that I was just about to sign a very large purchase order to buy a H.323 protocol stack, and Scott asked me to stop. He said he had a hunch that this new protocol that was gaining some interest would be the future. That was SIP. There were no products that spoke SIP at the time, so this was a very large gamble.

Our two biggest innovations early on were the use of SIP for enhanced, end user services and making SIP a protocol that could be used to separate the application layer from the infrastructure. Betting on SIP as the preferred protocol, Scott and I evangelized its benefits and convinced some very early companies to build interfaces from our application to the infrastructure. We also worked with a number of device vendors, helping them implement SIP on their devices. These two innovations really kicked-off the application server category.

Key Pivots

DM: Can you share some key pivots in BroadSoft's development?
MT: I can think of two critical pivot points. Early on in the development of the company, we faced a tough situation. The CLEC market in the US imploded in 2001 and we found that the typical early adopter customers were just not interested in anything new, they were all focused on survival. We needed to get some real-life customer experience and feedback, so we made the decision to open some small sales activity in Southeast Asia and Australia, where we found customers that were much more receptive to trying new things. This led to a few sales, but more importantly, we had a number of very engaged customers extensively testing our product. They provided us excellent feedback on both the features they could sell and the operational aspects of the product. Detailed feedback on these critical areas allowed us to continue to focus our development teams through a very tough economic time in the US.

The second pivot point came in 2008, when the economy was once again struggling. Thanks to our significant market position and strong financials, we were able to acquire two of our main competitors; Sylantro, and the M6 application server when GENBAND decided to spin it off from its product line. This allowed us to grow market share, improve scale and grow the top line.

DM: Suddenly your industry is maturing. Your competition isn't just other softswitch makers, but larger companies with well known end-user branding and larger, more mature organizations. How is this changing your business?
MT: Yes, you are correct the industry is maturing. Enterprises from very small to the Fortune 500 have accepted and embraced the move to the cloud, substantially growing our total addressable market. If you consider the last generation of enterprise voice, the battle was between PBX (premise) and Centrex (cloud). The premise solutions you could argue won the battle, gaining 85% market share. In this cycle, I think it could be the other way around. Why would anyone want to own a PBX, a voice mail platform, IVR ports, media storage and playback? In addition, with the increased complexity beyond voice, today's premise-based unified communications systems are complex and expensive to install, run and maintain. For me, the questions is the same as, why would anyone buy and install a premise-based CRM system? Why not choose from a well respected player like Salesforce.com?

So, yes clearly we are now competing with more established players that are trying to move into cloud communications. Our solutions need to be more effective than those from players like Cisco and Microsoft. We have done this by embracing two elements. One, we have a solution that is optimized for mobile, and secondly, we are an open platform. We have invested significantly in developing APIs in order to open and extend our capabilities. Our APIs enable a seamless integration with other network equipment, IP-based desk phones, mobile devices and business process applications. We are happy to work with any other UC elements; this is not the behavior we have seen from these competitors, who prefer to lock customers into their architectures. Of course, along with a unique service provider strategy, we feel we have a very strong offer.

Our company strategy from the beginning has been one of "BroadSoft Inside", being a partner to our service providers. We continue to believe that is the right strategy, and one where we hold a unique position. Cisco and Microsoft view the service providers as channels, they want to sell their brand, their vision and their products to their customers. They control the value creation, messaging and of course how much money the carriers can make. Our strategy is very different, we let our customers create a unique offer, with their messaging, their brand, and they have much better control over the economics.

DM: For years, you were simply selling perpetual licenses to service providers--they were responsible for data center operations. With BroadCloud now you are offering services to the providers. Why?
MT: Yes, we started by introducing a set of Unified Communications add-ons like Web Collaboration, Business class text messaging and Instant Messaging and Presence. The initial concept was that our customers would run BroadWorks, the real-time application server in their networks and we would deliver, via our cloud, the UC elements. Some of our customers responded to this approach and asked us to consider delivering the complete solution from the cloud and late last year, we added BroadCloud PBX to our cloud portfolio. I think this gives us a unique set of delivery and deployment options that best suits the needs of our service provider customers.

DM: As younger service providers often discover, running a reliable voice capable data center is not a trivial undertaking. How does BroadSoft, a software company, become a hosting company with BroadCloud?
MT: We have in fact been moving into the cloud now for two-plus years, and this has been through a combination of organic growth and acquisitions. We now have a strong team of professionals that are experienced at designing and running a cloud-based service. The Adaption acquisition, for example, allowed us to pick up a seasoned team and strong leadership around many of the telephony functions, the order flow, and supporting live customers in the field.

Next Page: Why Voice over LTE?

DM: I understand the hosted VoIP and the UCaaS models, but clarify for me how adoption of Voice over LTE benefits BroadSoft?
MT: I think you need to look at LTE and VoLTE as enablers; it provides lots of bandwidth to ensure a superior Quality of Service to mobile devices. The benefit of LTE and VoLTE to BroadSoft is we offer our customers the most extensive, mobile ready set of Unified Communications services, which leverage the abundance of broadband LTE provides to ensure a superior communication experience.

We have architected mobility into all our solutions and products. We have made integrating with existing mobile networks simple and a core competency of our platform. Our focus has been on ensuring users can access the communication service they want to use on their preferred communication device, whether it is a smartphone, tablet or laptop. The richness of experience LTE enables will drive the adoption of mobile UC services thanks to the opportunity for someone to work anywhere. Now I can share desktops, high-definition video and web collaboration wherever I happen to be working; a train station, my living room, a coffee shop, on a customer site, etc. This will be very exciting, as it will make us all productive and effective from anywhere.

From a mobile architecture standpoint, we will benefit from LTE thanks to our market leading position with IMS network deployments. VoLTE is based on an IMS network and our telephony application server is deployed in more than 70 IMS-based networks globally. Our extensive IMS network experiences has made us the telephony application server of choice.

DM. Since your customers are service providers, how do you keep up with the demands and requirements of end-user organizations?
MT: We closely monitor the communication behaviors and challenges of enterprises to set our product development roadmap. We get direct user feedback in several ways. We often collaborate with our service provider customers on their enterprise RFPs, so we hear directly from the enterprise the challenges their communication services need to overcome. We also constantly conduct research. Our most recent study reached over 700 users in 3 countries.

The objective of this research was to hear from users their current communication frustrations and their understanding of UC services. The great news is the awareness of UC services and their benefits is growing and they are keen to have access to UC services. Users are frustrated with today's passive communication options--voicemail and email. They want real-time communication options--through UC-One, we enable our service provider customers to meet the needs of their enterprise users.

DM: Today, the topics in the hosted v. premises debate center around control, security, and cost. Will that be the same in five years? If not, how will the conversation evolve?
MT: You are right, the previous barriers to adopting cloud communication services were concerns around security, performance and control. Today, these services have the highest level of security, which are being managed by specialized experts, so security is no longer a concern. The growth of broadband has improved performance, and higher employee productivity has proven the business case. Confidence in cloud service is well established.

This debate will shift towards the benefits of Unified Communications and how they make enterprises more efficient and individuals more productive. The richness of experience we discussed with LTE will provide the opportunity to work from anywhere, providing a personal freeing effect, making employees more productive.

DM: Thanks Michael.

Dave Michels is a contributing editor and principal analyst at TalkingPointz

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