How To Win at UCaaS

Wainhouse research says that the UCaaS industry will grow at a rate of 24% year over year. 8×8 is doing that with their revenue. “Total revenue of $53.2 million increased 29% year-over-year; service revenue of $48.9 million increased 29% year-over-year,” despite still losing money.

Seeking Alpha wrote, “RingCentral’s move upmarket is substantially increasing their revenue per seat and allowing them to drive the top line.” Well, same thing at 8×8, which raised its ARPU to $369 from $305 last year. Yet it only took a couple of really big sales (one being Netsuite’s 2400 seats) to move that needle. Like I have said before one big sale is the same as 10 or 20 smaller sales, which is why everyone looks up-market.

Seeking Alpha continues with RC, “The added revenue per seat is generating more cash flow that is being reinvested into their sales and marketing effort which will continue at 40% to 45% of revenue. The return on those marketing dollars spent is not accurately reflected in the share price given the lifetime profit and revenue generated.” That means that RC – and its other UCaaS brethren – are pouring 40-45% of revenue into the cost of acquiring customers! That includes commissions, SPIFFs, free phones, ads, pay-per-click campaigns, websites, etc.

SA also notes, RC “Shares continue to trade at a significant discount to the high-growth SaaS peer group due to overblown competitive fears.” It is hyper-competitive, but the market for UCaaS is set to explode according to every single analyst. We are at less than 15% penetration and the IP Transition has only just begun.

Unfortunately, there are some factors that will get in the way. One is most people are going all mobile, all the time. So they won’t need a UC seat. Also, other folks will just be swapping a PRI for a SIP Trunk. No UCaaS seats there either.

The other big factor is the technology and engineering mindset that most of the ITSPs have. Founded and run by engineers who are enamored with the tech. Like they are going to out-tech the next guy.

Let’s look at some things. One, most users utilize less than 7 features!!! So who are you building all these widgets for? Call Quality is still an issue — THAT is what you should work on.

Two, it becomes too complex. Too many features, not enough user design, so people don’t use it. No one reads the manual. No one asks for directions. So Simply it!! The Genius can simplify stuff; anyone can make it complicated.

Look at the apps that are popular – Kik, WhatsApp, Skype, Snapchat. Why are they popular? Simple to use. Told a story users wanted to believe. Network Effect. Many features, but one main function.

If you think you have the killer function – the next Kik – then your story should be a lot like Slack – 2 million daily users in just 2 years.

Box.net came before Dropbox. Similar stories, functions, etc. Dropbox hacked growth with a network effect of users getting users for them with a simple referral plan and s stupid simple interface (like Google’s home page versus Yahoo’s home page).

Three, RC and 8×8 are the big names because they Market! They spend on Branding and PR and marketing. And the rest of you really do not. It isn’t even about out-spending them; it IS about smart spending.

Lastly, stop being a tech company. Your customers want you to provide technology, take it out of their hands. To do that well, you have to be in Show Business (see last post). I have said it before, when 8×8 changed out the C-Suite they transitioned from a tech company to a Sales & Marketing machine — and that is when they took off with 20%+ growth every year.

So if you are hobbled for growth, stop playing with the tech and start marketing to get sales, before some other company takes over your market.

Tags: 8×8, branding, marketing, sales, technology, UC, UX
Related tags: revenue million, network effect, million increased, sales marketing, seeking alpha, revenue