It’s Go Time for Vonage
Last week, Vonage held its first-ever user event, dubbed “Campus,” in San Francisco. The event was used to announce several new products, as well as an edgy new logo that sheds the orange V for something a little sleeker and business-focused. The new logo was accompanied by a fresh marketing campaign, with imagery that Vonage CMO, Rishi Dave described as more futuristic. In many ways, the future is now for Vonage.
In this No Jitter post, Beth Schultz talked about the solidification of Vonage’s platform story and described many of the new products. As she describes, the platform is the culmination of all the work that the company has done since CEO Alan Masarek joined the company, back in 2014. The foundation for its unified back end, aka “Vonage Business Cloud” (VBC), was Nexmo, the API platform that was complimented by TokBox and New Voice Media.
At the event, Vonage showed off its video first Vonage Meetings, which is a unified meeting, video, and calling product with messaging coming soon. Additionally, Vonage had its contact center product on display at the event. While these products are packaged applications companies will buy today, the real product is its back-end platform. Vonage meetings are an example of what one can build on top of VBC. This puts Vonage in a unique position of being the only cloud communications vendor to offer meetings, calling, APIs, and contact centers from a single back end. This becomes a differentiator and should enable Vonage to innovate features across its products faster.
Juxtapose this with the approach RingCentral has taken – its contact center is a resell of InContact and perhaps Avaya in the future. If there was a demand to integrate a new social media tool, Vonage could do that work once, and then it becomes available as an API, in Vonage Meetings, in the contact center, and any custom-built customer product. Ring could do that with UCaaS, but they would need to work with, and then wait for, InContact to prioritize it. Also, the look and feel would be different across platform where the Vonage user interface should be consistent.
This raises the question: When will VBC become a big enough differentiator for Vonage where it can break away from the competition? Looking at Wall Street valuation, both RingCentral and 8x8 have higher valuation with respect to multiple of revenue. For example, Ring’s revenue for 2019 is estimated to be $875M, and the company has a market cap of just over $13B. Vonage has a 2019 estimated revenue of $1.19B, and its market cap is only $2.4B. Now, this isn’t exactly apples-to-apples, as all of Ring’s revenue is business and about one-third of Vonage revenue comes from its consumer business but even if that’s backed out, it’s clear Wall Street isn’t putting Vonage on the same rising tide as it is RingCentral and, to a lesser extent, 8x8.
During the analyst session, I asked Masarek about when we would see a step function in growth for the company, and he explained two things had to occur. The first is a technology unlock followed by a customer unlock; he admitted that Vonage is a bit of complex story to understand. He was very “matter of fact” regarding the point that Vonage isn’t getting the same valuation of enterprise SaaS vendors because they don’t “look like” one. It has a consumer business that’s declining about 15% a year, and a business segment that is growing north of 20% - the proportion of consumer to business has been very high. He described this problem as “self-healing,” as the revenue mix is rapidly shifting to business. When he joined, it was almost all consumer, today that segment only comprises about 1/3 of the revenue and is expected to be less than a quarter. As this shift happens, Vonage will look more like an enterprise SaaS vendor.
Concerning the technology unlock, Masarek’s bets that long-term value creation will come from platform vendors. Historically, it’s been the enterprise platforms that had the most sustainability and long-term customer value. Salesforce, Microsoft, and Oracle are just a few examples. He went on to say that in Vonage’s peer group of RingCentral, 8x8, Zoom, Five9, Twilio, and others, it’s the platform vendor Twilio that will be most valuable over time. This isn’t to say that one of the others couldn’t become a platform, but right now, Twilio is the biggest communications platform vendor in the industry, and Vonage plans are to use its API platform to deliver finished applications or to enable its customers to program communications into everything.
While the plan may be sound, there is still some work for Vonage leadership. Within the “business” revenue bucket, the company has been over-indexed on micro and small businesses. These customers typically have smaller ARPUs and lower margins. This is where the work Dave is doing becomes so important as Vonage needs to shed its image of being consumer and small business first and become a legitimate option for enterprise-class organizations. As this shift happens, so will the customer unlock as those larger businesses will likely buy more products from them.
I’m expecting the 2019 Campus event to be somewhat of a watershed event for Vonage, where the focus shifts from planning to executing. The platform is built, the new image is rolled out, and the consumer business is now becoming a small enough percentage of the business that it’s no longer holding the company back. In other words, it’s time to stop talking about the future – it’s here now, and it’s time to execute.