This Industry Viewpoint was contributed by Q Advisors' Gerry DeHaven, Jordan Rupar and Jack Quinn
Today’s market mentality: If you can’t beat them, join them.
The business cloud communication market is becoming increasingly integrated and application-centric. To keep pace, traditional cloud communications providers such as Vonage as well as US and global carriers such as AT&T and British Telecom (“BT”) are rapidly integrating their solutions with best of breed offerings from large technology players such as Microsoft, Google, and Salesforce, often through the use of application program interfaces (“APIs”). Vonage’s acquisition of gUnify last year, a cloud middleware provider specializing in integrating Google Apps, Salesforce, and ZenDesk, allowed the Company to jumpstart their platform integration strategy. Vonage’s more recent acquisition of Nexmo will significantly extend its API integration capabilities with other platforms.
Growing enterprise demand for centralized, turn-key cloud solutions is driving integration across voice, collaboration, and business productivity applications. Instead of providing competitive solutions, cloud service providers are opting to provide complementary solutions with established offerings from large technology vendors through seamless integration. This platform integration strategy enables cloud service providers to avoid competing head-on with market technology behemoths such as Google, while addressing product gaps to create a single-source, turn-key cloud solution.
Microsoft is quickly emerging as a dominant cloud unified communication (“UC”) and collaboration player.
Microsoft’s Skype for Business (“Skype4B”) platform is changing the cloud communications environment as it has the capability to surpass 100 million enterprise seats by 2018.1 Microsoft is rapidly marching towards a turn-key, ubiquitous cloud UC offering through continued enhancement of features for its Skype4B solution. This solution comprises instant messaging, presence, collaboration, file sharing, storage, conferencing, and now, cloud voice through its recently launched cloud PSTN capabilities. As a result, Skype4B is increasingly encroaching on the core revenue streams of several traditional cloud providers, many of whom package Microsoft offerings such as Office365 and Skype4B with their core solutions.
On the surface, Skype4B appears to be a major competitive threat for any cloud voice, UC or collaboration vendor. Microsoft is leveraging its large existing enterprise customer base using its ancillary business applications (i.e. Exchange, Office365 and SharePoint) to introduce Skype4B as a natural product extension. This strategy appears to be gaining significant traction as surveys indicate 77% of North American businesses have or plan to trial, Skype4B, while 90% of these businesses are open to trial Microsoft’s recently launched cloud voice solution.2
While Skype4B is gaining momentum and may soon be a dominant force within the cloud market, the reality is that this solution is not yet a standalone UC offering. As one delves into the offerings of Skype4B, there are several product gaps that would be best addressed by integration with primary cloud voice and UC vendors. Enterprises demand network QoS and application-rich environments consisting of cloud contact center, mobile applications, and various ancillary cloud applications that are not currently addressed by Skype4B as a standalone offering. Additionally, several user reports label the quality of the Skype4B cloud PSTN offering as subpar to other established cloud communications providers such as 8x8, Star2Star or large Broadsoft-based providers like TelePacific.
Significant opportunity to create a powerful, integrated solution with Skype4B.
Enterprises are turning to their historical cloud service providers for Skype4B capabilities. Rather than consult with Microsoft directly, enterprises currently view Skype4B as an add-on to their existing cloud solution. In response, historical cloud service providers are building features and capabilities to integrate with Skype4B for an enhanced product offering and user experience. These features include: cloud contact center solutions, managed security, and integration with various CRM / ERP and business productivity suites. Packaging these services with Skype4B creates a powerful, differentiated solution which can ultimately be upsold into an existing customer base and leveraged to win new customers seeking Skype4B solutions. As an example, BT recently worked with its primary cloud voice and UC vendor, Broadsoft, to incorporate Skype4B into its core cloud offering in order to meet customer demand and leverage the solution when competing for new business.
By deeply integrating our powerful HD voice and UC capabilities with cloud-based Skype for Business and Office, our wholesalers will be able to address Microsoft’s large UK customer base with an exciting new productivity solution.
- Steve Best, Managing Director of Products, BT Wholesale
Others are developing proprietary middleware or OSS around Skype4B to create differentiated value propositions for enterprises and channel partners. One example is CallTower, a Utah-based UCaaS provider. CallTower has seen a significant uptick in channel partnerships and revenue growth since launching CallTower: Connect, its proprietary OSS integration and provisioning platform. The platform offers a turn-key, enterprise-ready solution that incorporates Skype4B as the primary UC platform and bundles network services with end-user, admin, and channel partner portals.
Our years of experience and feature enhancements to our Skype for Business Solution have enabled our thousands of customers to manage various channels of communication all under one roof. Mobile apps, soft phone, Office 365 integration, contact center, CRM integration, video, web and audio conferencing, instant messaging, intelligent presence and work collaboration are all part of CallTower Connect, our admin portal.
– William Rubio, Chief Revenue Officer, CallTower
The same if you can’t beat them, join them approach continues to be applied to Skype4B solutions. Either as a defensive or offensive strategy, service providers are recognizing significant value in integrating Skype4B into their existing cloud solutions. Demand for Skype4B is high, especially from existing Office 365 and SharePoint customers, and traditional cloud service providers risk losing market share if they refuse to successfully integrate the solution. Furthermore, Microsoft relies on a robust partner network to tailor and enhance their solutions. Providing seamless integration in the early stages of the Skype4B roll-out will not only strengthen one’s partnership with Microsoft, but will also enhance customer stickiness of the overall solution.
Keep your friends close, but your enemies closer.
Though it may be a long road before Microsoft effectively competes as a full-fledged cloud operator in both the SMB and enterprise market, service providers need to formulate a strategy in response to this shifting dynamic. Cloud service providers should take a two-pronged approach of close integration with Skype4B and continued augmentation of their cloud solutions. The goal of the latter approach should be to both differentiate from Microsoft Skype4B while adding value as a cloud partner by addressing areas of weakness in the solution. While integration and deployment expertise remain critical, the ability to provide independent network services, contact center, mobile applications, collaboration, and analytics has to be part of a near-term roadmap to stay competitive as the Skype4B march continues.
(1) Unify Square. Unify Square Reveals Top Microsoft Skype for Business and Unified Communications Predictions in 2016
(2) T3i Group. InfoTrack for Unified Communications
About Q Advisors
Q Advisors LLC (www.qllc.com) is a world-class global boutique investment bank formed in 2001 serving public and private companies, PE firms, entrepreneurs and large multi-nationals in the telecom, media, and technology (TMT) sectors. The firm has extensive, global reach, while also providing the personalized service of a boutique advisory firm. Thanks to our partners and senior staff, who come from leading investment banks and operating companies, we leverage extensive industry knowledge and analytical insights to help our clients achieve successful M&A and capital markets transactions.
Gerry DeHaven / Partner / email@example.com
Gerry DeHaven has over 25 years of investment banking, operating and consulting experience in the communications and technology markets. Gerry’s investment banking experience includes M&A and debt and equity financings in a variety of communication and technology sectors including traditional telecom, IT services, data center, hosting, managed services, unified communications, wireless, and related technology sectors. His client experience includes Alteva, ANPI, Broadvox, CallTower, Excel, Fidelity, General Telecom, IDT, Net Access, Net2Phone, New Global Telecom, Saturn Telecommunications, Speakeasy, Telepacific, Transcend United, UNSi and VoIP Logic.
Jordan Rupar / Associate / firstname.lastname@example.org
Jordan Rupar joined Q Advisors in 2012. During this time she has executed numerous mergers and acquisitions, equity financings and strategic advisory assignments for clients across the telecom, media, and technology (TMT) industries with a particularly deep focus on cloud communications, software and technology, and other emerging growth sectors. Specific clients on whose transactions she has been engaged include: ANPI, Arkadin, Broadsmart, CallTower, Magnetic North, One Source Networks, Telesphere Networks, UNSi and WennSoft.
Jack Quinn / Summer Investment Banking Intern / email@example.com