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Vonage Marches to Top of Cloud Communications Heap

When Alan Masarek joined Vonage as CEO four years ago, industry watchers expected big things.

Masarek had been CEO of Quickoffice, a mobile productivity software maker acquired by Google, and then head of the Chrome and Apps group at Google. He brought a strong background in cloud to Vonage at a time when the company was considered to be on the outside looking in with respect to the cloud communications market. Despite being a VoIP pioneer, Vonage had become a niche residential and small business provider with brands like RingCentral, Five9, and 8x8 carrying the flag for UC and contact center as a service.

Making Vonage a UC market leader certainly wouldn't be an easy task, but Masarek had a vision. He wanted to make Vonage the biggest supplier of cloud-based programmable communications solutions, as this would let the company drive better business outcomes for its customers -- a key to success in the digital transformation era.

The fundamental tenet of my research has always been that share shifts happen when markets transition. This means Vonage wouldn't be able to catch and pass established UCaaS vendors by trying to do what they do better or cheaper. Instead, Vonage would need to look down the road, and Masarek bet big that customers would want to buy UC not only as a turnkey service but also as programmable APIs to create differentiated applications. His bet finally seems to be paying dividends.

Masarek started his tenure by acquiring and rolling up a few smaller providers to create a UCaaS platform that could meet the needs of enterprises. But the first acquisition to help fulfill his vision of a programmable communications future was the May 2016 purchase of Nexmo, a communications platform-as-a-service provider (CPaaS). Another came just last month, when Vonage purchased TokBox, a leader in programmable video. Along the way, Vonage announced the Vonage Business Cloud (VBC), a completely redesigned, modern platform built on the latest and greatest cloud technology that gives it a highly agile platform on which it can rapidly innovate.

This week Vonage announced the acquisition of privately held, U.K.-based NewVoiceMedia, one of the leaders in cloud contact center. Contact center analyst Sheila McGee-Smith covered the purchase in her No Jitter news post, so I won't rehash those details. But I'll add that the reported $350 million cash purchase price represents 3.8 times NewVoiceMedia's projected 2019 revenue -- and this should be considered an absolute steal for a cloud company. The last stated value for NewVoiceMedia was well over $300 million, and that was two years ago. More recently, some VCs I had talked to told me they felt the company's valuation might have been as high as $500 million.

NewVoiceMedia has a global presence and more than 700 customers, most of which are mid-market and enterprise. According to numbers presented on an investor call, the company had been growing revenue at 25% or more annually, with gross margins higher than 60%. The addition of the NewVoiceMedia revenue now makes Vonage the largest pure-play cloud communication vendor, as defined by UCaaS + CPaaS + CCaaS. The chart below reflects Vonage Business revenue only, so in actuality, with consumer revenue added in, the gap is much bigger.

Source: Vonage

More importantly, with the addition of NewVoiceMedia Vonage can now address the entire cloud communications market, which IT research firm IDC said it expects to grow from $50 billion in 2018 to $79 billion in 2022. Within this broader market, programmable communications is expected to be the fastest-growing segment, going from $3 billion to $18 billion in 2022, according to IDC. (Vonage had previously addressed contact center by reselling NICE InContact's solution, as McGee-Smith noted in her post. While Vonage has stated it will maintain this partnership, I suspect over time it will shift all of the business to its own platform. However, this will be over a long period to minimize disruption for customers.)

One of the appealing aspects of NewVoiceMedia is that it's built on cloud-native technology, making it lean and agile, similar to VBC. Evidence of this is in its ability to update its software twice a week. Vonage will have an easier time integrating this modernized platform with VBC and Nexmo than it would with an older, vertically integrated software stack.

Source: Vonage

Looking ahead, several areas of synergies are worth noting:

  • UC and contact center integration -- This is the most obvious area of integration. Historically, Vonage has met market demand here through partnerships. Owning the two software stacks creates opportunity for deeper, more differentiated offerings. Also, the economics are better for Vonage by owning versus reselling the platform.
  • Expansion of sales footprint -- More than 80% of NewVoiceMedia's revenue is from mid-market and enterprise customers, and this creates great cross-sell opportunities. Vonage can leverage the combined sales and distribution channels to sell "One Vonage," and capture larger deals.
  • Increasing Nexmo offerings -- Vonage will shift the NewVoiceMedia technology stack to a programmable microservices architecture to expand the number of Nexmo solutions. New API possibilities include AI and speech intelligence, speech analytics, queuing, buyer insights, and more.
  • Partner integration -- NewVoiceMedia has deep integration into many CRM platforms, including Salesforce, for which it is one of only 50 AppExchange premium partners. Almost all the contact center vendors partner with Salesforce, so the AppExchange status can help Vonage differentiate.

Vonage and NewVoiceMedia are excellent complementary companies that as one bring together UCaaS, CPaaS, and CCaaS. The addition of NewVoiceMedia accelerates Vonage's strategy to create One Vonage, a platform that provides solutions ranging from turnkey applications like PBX, team collaboration, and contact center to programmable APIs. Vonage is now ready for the next wave of communications as it shifts from product to communications platform.

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