Transcript for Clark Peterson of Vonage Business on UCaaS
Jim Burton: Welcome to UCStrategies' Executive Insights. This is Jim Burton and I am joined today by Clark Peterson, President of Business Solutions Group at Vonage. Welcome, Clark.
Clark Peterson: Thanks, Jim. It’s great to be here.
Jim Burton: So, Clark, one of the important things, and this is to help educate myself a little bit and, certainly, the people who will be listening in, about UCaaS. What is it all about and how has it evolved over the last few years?
Clark Peterson: Traditionally, UCaaS, or for those that are newer to it, Unified Communications-as-a-Service, has been described as all those unified communications features and services, like instant messaging, presence, IP telephony, audio-video web conferencing, email and mobility—that are now delivered as a service, versus being delivered traditionally by an on-prem server or a device of some sort. Now all provided as a service and hosted in the cloud, now becomes what people know as UCaaS—Unified Communications-as-a-Service. I think going forward, that’s what UCaaS is. It is continuing to evolve, though, as we look at traditional UCaaS definition versus what we are seeing now.
The thing I would add to UCaaS is another “C,” in that going forward, “Collaboration” becomes a bigger and bigger part of UCaaS, and as important as those services being delivered to the customers and those end-users, becomes the collaboration of how all those services actually talk together. And, do they talk to your existing CRMs if you are using something for your Salesforce automation tool, or you are using something for your own proprietary CRM, or something that as an industry is used. People want all those UCaaS-type services to integrate with their world, and don’t want to change their world. I will add an extra C, in that, Collaboration—both between those traditional UCaaS services, as well as those UCaaS services with the customer's own VSS, OSS, CRM tools—is becoming the new UCaaS going forward.
Jim Burton: I think you are right. One of the things that anybody that has been following Unified Communications saw very, very early on, people said it’s Unified Communications and Collaboration. Cisco made a big push that direction. IBM, very early on, called theirs UC&C. So, it’s not surprising that when you are looking at it as a service, it is the same way.
Moving on, this market is getting a lot of attention, there is clearly a lot of growth, and some people are comparing it to Centrix, which only got to be 10% of the market. So, the question for you is, how do you see this market growing? What is that trend and do you see it continuing on? Most of us agree it’s not Centrix, it’s not going to grow to only 10%. But, we are still pretty early on even though it is getting a lot of attention.
Clark Peterson: It is a great question. I have actually heard that comparison before. But, it is much more than a feature set hosted in the cloud, this is really all of your communications. And like we just talked about on the collaboration side, it is tying all of those services together, whether they be voice, video, data, mobility, everything comes together in this UCaaS service. But, it is nascent. Just the technology advances, just the service providers understanding it, and creating their platforms, and creating their networks and their back office systems to provide these services in a high quality manner—has taken some time. As the industry develops—right now, it is only a $3 billion industry—it is hard to find an analyst that will not project that this is where the majority of the growth is going to be in the coming years. In fact, most have it at about a 28% compounded annual growth rate over the next five years, expected to be about a $10 billion market at that point. Yet, current penetration is only around 12% right now. It is not a whole lot of industries out there that are projected to grow at 28% and they are only at 12 right now. Essentially, most see as, that is going to be the future.
It is a really unique time and place both for customers, service providers, consultants to see, hey, there is a long runway here of something that pretty much everybody sees going this direction. It really becomes, what are the services that really are the most appealing to customers, and vetting through all of the opportunities, as service providers try to match up the offerings that would best suit those customers. For any customers, consultants, analysts in the businesses, who is going to be the clear leader in this space? Right now, it is undefined. Everyone is looking for someone to provide leadership in the space, make that investment, and provide the quality and the breadth of services there to become a clear leader in the UCaaS market going forward.
Jim Burton: There are certainly a lot of opportunities out there. People are, as you say, looking for who is going to be leading this market. There are a lot of players who you say, "They could be, they could be.” We will just have to wait and see. One of the big questions, though, is what is driving the growth of this market? What are the factors?
Clark Peterson: Trust is growing a lot of this now. Most people saw cloud as something that made sense—that is, more efficient to deliver content from a centralized standpoint. But, there has been lots of questions in the past, such as, is it secure, is the quality going to be there? . I think both the technology now coming to fruition to where you can have cloud communications across the board—whether it be voice or other services—in a highly secure manner, as well as a highly redundant manner. And in most cases, more disaster recovery options built into services from the cloud than from our traditional TDM world we are familiar with.
And then I would add a third component of this growth is just our workforce changing. 45% of the workforce right now is made up millennials. That’s going to go to 75% by year 2021. So, you think about those millennials who really—I know, having three millennials myself in my children—are those that are not used to having content on devices. A PBX in the closet would seem very foreign to them, compared to having all of their content in the cloud like they have been used to with their video in the cloud and their music on a cloud service. They are used to that and they will look for that as they become that majority of the workforce, having offerings be unified communications in the cloud, delivery will be very natural. And anything different than that would seem very strange and foreign to them. So, that user is changing. The technology is changing to be able to deliver that growth.
And then I think you also see a development from the marketplace, where the early adoption was really the real small businesses. And that is where most of the adoption is happening. A lot of times, disruption happens from the bottom up. Now, most analysts are projecting, the growth going forward starts to open up that entire mid to large enterprise side. And, have the projections on the mid-size over the next five years about 21% and for the large enterprise about 35%. As the smaller business continue to grow, it actually is even accelerated on the larger. So, that market universe becomes much more broad. That also is accelerating that growth.
Jim Burton: Clark, I know that one of the big issues that has been a challenge in this market has been the trust of the networks themselves, the quality of service and all of that. Clearly, we are getting beyond that, so where do you see that headed? What kind of growth? What are some of the issues you see moving forward?
Clark Peterson: It is a big part of why the growth is happening in such a broad part of this market. Now, delivery is being able to be part of that trust factor that grows. It is changing that. Right now, 65% of UCaaS customers are delivered over a managed access service—like an MPLS network—something that is more trusted for these larger customers. 35% is still bring-your-own-broadband, but they are both changing. More and more, MPLS is becoming the standard, the T1s are going away. there are EDGE devices that allow for best packet routing, where it is seen packets coming in from two cable modems or cable modem and DSL connection—and looking at those packets simultaneously and picking the best packet on the other end. So, providing almost a quasi-QoS over a public internet connection.
Both bring-your-own-broadband on the public internet becomes more powerful. Bring-your-own-broadband even on the MPLS becomes more powerful, because network-to-network interfaces between national networks like Vonage Business has—with 20 PoPs nationwide that is already interconnected to most of the large other carriers—enables us to ride over the top of an existing MPLS, ride over the top of an existing DSL or cable. Or, provide our own MPLS from end to end to the customers over our own network. But, in all those scenarios, you have the ability to provide high-quality voice, video, data, and other UC service, regardless of the delivery mechanism, anywhere in the country.
Jim Burton: This leads into another question. You talked about where we are today, and some of those issues have been overcome, but what are some of the new barriers to growth?
Clark Peterson: Recently, there was a report out by the one of the analysts that had some feedback. When they surveyed customers and said, "What would keep you from moving to the cloud?" there were really four key areas. One was control. They are used to having a lot of these things in the form of a PBX or a server in their closet, and they felt like they could go there and do whatever they needed to do through their portal or interface. So, control is one, and it dictates that service providers have to make sure they have very powerful customer portals, to feel like even though that box and flashing green lights are not in your closet anymore, you still have just as much if not more control through those portals to do that.
The second one was security that we have touched on. But, it is a big one, both on the delivery side as well as the redundancy. And, as a customer thinks about it, they should feel more secure about the intelligence of their network on the voice side—or on the other aspects, being in a data hotel with generator backup and security—than they feel about it being in their closet. In theory it should feel more secure all over a data network versus a traditional TDM network. In the past, somebody could hook up a buttset into the phone lines down in the basement of a building and listen on any call they want. Now, things like that become more secure than they were in the past, but it is something that people really have to get their head around. Why is it more secure? The more they think about it, the more that security understanding comes to them.
Third was cost of ownership, which I think was one of the biggest barriers still. As customers look at, "I have some equipment in my closet. It is already paid for." It is a sunken cost. How do I feed that—for example on the voice side—with just trunks and my trunk costs versus fully hosted seats? If they compare that in an apple to oranges way like that, it is a tough TCO to show. But, at some point that equipment has to be replaced, has to be upgraded. They pay maintenance agreements. And that full TCO, compared apples to apples, starts to paint a truer picture of the true cost of ownership of those two. But, you have to go through that exercise.
Fourth, and lastly, is integration. Can those UCaaS services integrate with my CRM? Can they fully collaborate with the other things that are part of my world as a customer? And so, I think it is important for service providers to also answer that question. A big part of why Vonage Business acquired gUnify is that it is one of the leaders in the space as far as providing full integration with many of the key CRMs out there like Salesforce, like Google for Work, like Clio, Zendesk. We already have that integration, and we see that more and more as key to these customers trusting UCaaS—because it can work in their world versus making them change their world.
Jim Burton: You won’t get any argument from the UCStrategies team, because our definition of unified communications is “communications integrated to optimize business processes.” And that is exactly what we are talking about there. We keep talking about the market and how it grows. How does that affect the growth of products?
Clark Peterson: I think products will continue to change. You look at UCaaS services including hosted email, for example. You see what is changing there with companies like Slack now joining. The beauty of having this all in the cloud—that really it should be more adaptable and quicker to evolve. In our world of Vonage Business, we have our own platforms in the cloud. If we make a change and upgrade to a new service or feature, it is immediately available the next day. We have over 500,000 users nationwide. They can have access to these services and features that we upgrade almost instantaneously. That is something that’s difficult if you are having to do that box-by-box, server-by-server, customer-prem by customer-prem.
The services you will see greatly accelerated as more and more moves to the cloud. It is kind of interesting, the one statistic I heard the other day on evolution, to that point. It took telecom 75 years to reach 100 million users, and it took Candy Crush one year to reach 100 million users. So, just the power of having applications and features and services in the cloud that so many users can have access to—and they can change overnight, every night—is the reason that will be the future.
Jim Burton: I have to agree. This market is somewhat new. And, certainly, Vonage is relatively new at it. But we do have a number of players. So, who do you view as the key players in the UCaaS market today?
Clark Peterson: It is really important for people to understand Vonage Business over the last couple years really has acquired some of the most experienced companies in this space. They acquired under the Vonage Business umbrella, Vocalocity, who had business for about 10 years. Telesphere, who had been in the business about 10 years. SimpleSignal, also about 10 years. iCore, right around the same. All of these companies were the leaders early on in the UCaaS space, and delivering services both over the top as well as over their own networks. And, using proprietary back office systems to provide the onboarding solution. So, even though the Vonage name might be new to many people for the UCaaS space, the companies that have come together under that Vonage umbrella on the business side are probably the most tenured, most experienced and largest set of assets out there in the space.
As you look at these different players in there, you have Vonage Business, who has from the smaller sized customers—through their acquisition of Vocalocity and what we now call our essentials product—to very large enterprises that are more similar to what Telesphere and iCore and SimpleSignal addressed there, over our own MPLS network and over a BroadSoft platform that we use that is carrier grade, very high quality, with QoS all the way from end to end—even down to the phones we provide. There is no point of demarcation anymore. We can see all the way to the phone on the desk. We can troubleshoot at three in the morning.
There is Vonage Business, really addressing that full spectrum of customers, and then I think there is a lot of other players out there who address pieces of that. You will see certain providers who really focus on the SMB, you will see other providers who really focus on the large enterprise and multiple providers out there. Some just focus on doing it over the top because they don’t have their own national network. Others are traditional LECs or CLECs, so they have their network and now they are adding hosted services to their traditional services. So, you have that different focus on market segments. You have the different focus on, am I an access provider adding hosted or am I really a pure play who is just focused on providing these services and that has been my mainstay. I would say Vonage Business is more of that.
Even from the early Vonage history of providing voice over IP and UCaaS, to a sense, on a residential side, the whole pedigree, the whole heritage, the whole legacy this whole time has been services in the cloud—whether it be residential or business. And through the Vonage Business acquisitions—a very experienced group of companies coming under that Vonage business umbrella together to address that whole business market segment.
Jim Burton: You came as one of those acquisitions, and you have got 10 years of experience in this space, as much as anybody, so, what do you see the future of UCaaS looking like?
Clark Peterson: I like Yogi Berra's statement, "The future ain't what it used to be." It is changing as we talk here. I mentioned earlier, the workforce changes with millennials. More and more content will be expected, if not demanded, to be in the cloud because that is just what they are used to seeing. There are a lot of other big, big movers happening in the space. There is a transition of multiple things. I will just name a few of them. The cloud becomes more powerful because data storage continues to drop in price. It is becoming so efficient to put data in the cloud as storage prices continue to drop significantly year over year. That enables the cloud, going forward. Mobility enables the cloud. As you think about 2014, last year was the inflection point where there became more mobile devices in the world than there were humans in the world. Mobility is a huge driver.
For UCaaS and cloud providers it’s an enabler, because as a cloud provider any IP device is a tremendous IP endpoint for us. We are really agnostic to whether we are terminating your traffic on an IP phone on your desk, to your PC, to your tablet, to your smartphone. You download an app and all of those can be an IP device, an extension of your business services, and really create a PBX large enterprise environment on any of those devices or all of those devices. Mobility is a big driver that will really make this happen.
Bandwidth, we talked a little bit about that. Wired line and wireless bandwidth being completely ubiquitous to where you see big pipes everywhere on the landline side. And, you see pipes continue to get bigger and bigger as you look at the LTE side and voice over LTE options—as you look at Wi-Fi and cellular starting to come together and hand off traffic between that. You have both, very robust bandwidth wireless and wire line, thus enabling that delivery mechanism for cloud services to get to the end user.
One of the other things I will mention is Internet of Things—as everything becomes to the point that they have an IP address, whether it be your refrigerator, your car, whatever it might be. As all devices have an IP address, they also have the ability to, at some level, have a web browser as well, which enables things like WebRTC. It enables things to communicate together and voice can become part of that communication. The Internet of Things, the WebRTC, are two big movements that create—back to our original thoughts on collaboration, as important for devices to talk to each other as it is for people to talk to each other, as all of their devices get interconnected. Many of those things that don’t have a voice now can have a voice in the future. Or many of things that do not have video now can have video in the future. That collaboration becomes a key driver going forward.
Jim Burton: Another question for you that I think everybody is always interested in. Vonage, being new to the space—clearly, based on the discussion we have had—Vonage has been built out of people that have been in the business for a while. So, you have grown very quickly and you have done very well, but what do you see how Vonage will maintain that growth moving forward?
Clark Peterson: Right now, we continue to grow faster than almost anyone in the space. I don’t know anyone growing faster at our size in this space. The last analysis we saw from one of the key analysts nationwide, showed Vonage Business—just the business side—as the second largest provider of UCaaS services in the United States. In a short time period, and through these acquisitions of these very experienced companies—of Telesphere, Simple Signal, iCore, and Vocalocity—we have become right there in the number two spot, and growing faster from what we are seeing as the number one. We really look to be that clear leader in the cloud communication space, and as a UCaaS provider, provide the full breadth of services. So no longer do channel partners or consultants or customers have to say, I have this office that is this size and so I better go to this provider. And I have this other office that is this large size and needs a private MPLS connection, I better go to this other provider. There really are services out there, that now, Vonage Business has pulled together to make that an easy choice for customers to know that whether you are a small office, a big office, or like most of our customers that are multi-location, they have both. And, whether it is over the top or whether it is I want MPLS from the same provider to control that quality, they can choose that. And they can choose that at the office level.
Then, to have someone who has the back office systems like we have, with their own proprietary Zeus Back Office System, that control that onboarding process that is so problematic for so many providers. And, continues to give the customer care reps all of the information at their fingertips to be able to provide a high quality service delivery and customer support experience. Those are the things that I think are unique in this industry, and take lots of years and lots of investment to develop, that under the Vonage Business umbrella, will continue to help us drive the leader position in this space.
Jim Burton: Well, Clark, thank you so much for your time today. This was very interesting. I, quite frankly, learned a lot about the marketplace and I am sure others will as well. And, quite frankly, again, to understand where Vonage is going, and what they are doing. And, how they have gained such strong leadership, and their prospects for the future. So, thank you again for your time today.
Clark Peterson: Thanks, Jim. It was great to be part of this, and part of the BCStrategies Summit and all those that are part of group. So, thank you for the opportunity.