Why Vonage's TokBox Buy Is a Big Deal

Vonage's decision to purchase video communications platform provider TokBox, announced earlier this month and covered on No Jitter here and here, probably flew under the radar of many industry watchers. But the transaction caught my attention because it reinforces two concepts that I've discussed previously -- and, in both cases, the trend lines this deal emphasizes are great portents of the industry's future.

To recap, Vonage has acquired TokBox from Telefonica for $35 million and liabilities. TokBox is a leading player in delivering a communications-centric API platform for adding IP-based communications services, including video and voice, into Internet applications. The TokBox technology will complement Nexmo, the communications platform as a service (CPaaS) Vonage acquired two years ago.

CPaaS 2.0 Going Mainstream

In a November 2017 BCStrategies post, I talked about the transition from CPaaS 1.0 to CPaaS 2.0. I defined CPaaS 1.0 as PSTN-based communications capabilities added to applications through APIs. With the PSTN orientation, this can mean only two basic services: SMS text messaging and PSTN-based phone calls. Twilio has emerged as the largest CPaaS 1.0 player; other offerings are available from UCaaS providers like Vonage (via Nexmo), public network carriers like Bandwidth and Tata, and traditional UC companies like Avaya.

CPaaS 2.0, on the other hand, is about using IP-based communications services, including video, voice, text, and shared content (screen shots, etc.) as part of an application experience. TokBox has been a CPaaS 2.0 leader; other players include Agora, Bit6, Frozen Mountain, Kandy (division of Ribbon Communications), and Temasys.

In purchasing TokBox, the Vonage management team is signaling its belief that having a complete cloud-based communications suite is critical. With TokBox, Vonage's cloud communications suite includes telephony, UC and collaboration, team collaboration, contact center, CPaaS 1.0, and CPaaS 2.0, delivering value for those in the market looking for an integrated solution.

For companies like Vonage, another underlying value of including CPaaS 2.0 services is that they can now deliver new services over the network and data center infrastructure they've been using for telephony and UC services – and these new services can impact revenue and business models. This means Vonage, for example, can move from the communications utility relationship typical of selling communications systems to one of engagement, working with business owners and executives on how to integrate communications services into business processes and change their businesses. If Vonage is right, general-purpose cloud communications providers need to be expanding their portfolios with CPaaS 2.0.

By adding TokBox to its CPaaS portfolio, Vonage has the potential to increase revenue and decrease cost. The complete suite should provide a way not only for winning new customers, but also of increasing average revenue per user (ARPU) from the existing subscriber base -- i.e., via the addition of new services that generate additional revenue. With the ability to bundle services together, Vonage also can decrease the competitive threat from providers of point products. From an operational perspective, Vonage will be able to lower overall costs for all its services with the addition of the IP, video traffic, and services into the underlying network.

Based on this perspective, other UCaaS providers will have to evaluate whether having CPaaS 2.0/video capability is critical to their portfolios, and if they decide it is, whether they need to offer the technology in house or through a partner. For example, Mitel partners with Vidyo, and RingCentral with Zoom for the video component of their offers. Vidyo is clearly a CPaaS 2.0 offer, especially for video, while Zoom has less focus on this aspect. Is partnering enough? The number of CPaaS 2.0 players available is limited, so decision timing may be critical.

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