Seems weekly we have PE money buying either a partner (Agency or MSP) or a provider. PE money is deep in ILECs now that Lumen sold off half its assets to Apollo. Even before that several IOCs had been acquired by PE.

Where the M&A has not happened as much as expected: cloud comms! All the analysts say there are too many providers, but no one is buying them up. Probably because the UCaaS sector is less than hot — the stocks of these companies rationalized in my opinion. Growth during a pandemic was huge but unsustainable.

And we go right back to the problem from 2018: What real pain does UCaaS solve?

Because they can’t answer that, we have the Platform talking points. We have the CX slicks. We have the app marketplace that will make the UCaaS component the center of the apps. How? Why? Almost every app has some function for messaging and calling.

So Cloud Contact Center married up CPaaS for minutes, messaging and notifications – you know, omni-channel. UCaaS is marrying up cloud contact center. And there are a host of providers with the full stack: UC+CC+CP-aaSes. Will that be enough?

Microsoft is entrenched in business with 290 of the 400M desktops. The opportunity is to integrate with MS Teams or provide dial-tone like 1999.

The providers who are inching along have to decide what business they want to be in — if they want to grow. AI and machine learning are growing. I mean, Chat GPT. There are capabilities in the meeting apps to add notes and more like Vowel has. I know the UCaaS providers tout it, but I don’t see it. Missing an opportunity.

Plus as we add functions like CCaaS, Meetings, chatbots, etc. selling it gets harder because now the salespeople have to know the product well enough to ask a bunch of questions to find need – from phone to meetings to whatever else. This goes beyond PBX replacement – and this industry was built on selling replacement services for less money.

Finding actual salespeople or selling partners is very difficult.

Irwin says that: “By 2030, more than 75% of companies will use UCaaS for their calling, meeting, and messaging needs.” That’s 7 more years. Who knows what happens by then.

Irwain also wrote about trends HERE.  I agree that “UC leaders must think beyond UC.
UC apps are rapidly becoming platforms that not only provide a wide range of features but also feature open APIs to enable customization and embedding of components into other apps (and vice versa). Even beyond UC, work management apps such as Asana, Monday, Smartsheets, and Wrike, as well as asynchronous collaboration apps like Notion and TeamFlowHQ, are quickly becoming a part of the enterprise collaboration landscape. UC leaders must evolve to become collaboration leaders, looking at all the ways employees communicate and collaborate, internally and externally, with an eye toward enabling convergence wherever possible.”  Well, there is a whole world of business outside Enterprise. In fact, there are 25M other businesses.  Those businesses won’t be running numerous apps. In fact, SMB runs less than 50 apps. Large business runs over 100 apps.

For small business, think about the apps: Office365/Google workspace, Quickbooks/Freshbooks, ADP/payroll, Hosted PBX, social media, SugarSync/backup, anti-virus, anti-malware, PSA (software that runs the business), POS, credit card payment and the like. Weave is doing a good job of combining some of this into platform for vets, dentists and doctors. Will any other company come along and do that for other verticals? That’s where the money is.

We had a plumber come out on Christmas Eve to my parents house. He had a mobile app for pricing, invoicing, scheduling, and credit card payment. That’s the kind of platform most small businesses want, especially field services businesses like electricians, landscapers, roofers, handy man, dog walkers, etc.

We are slowly seeing a drift in cloud comms. Enterprise platform and everything else. It will be interesting to see, since most providers want enterprise, but they are butting up against Avaya, Microsoft and Cisco. The  SMB space is almost being ignored unless they want to buy the enterprise bundle. That’s a lot like a small biz using Salesforce Professional – it is overkill and over-priced for what a business with under 500 employees needs. We will see though.

 

[I love GapingVoid!]

The last 3 years (2019-2022) have involved a lot of turmoil: pandemic, M&A, economic headwinds, and global turmoil (Iran, Ukraine, China, Russia, UK and more).

The Channel will change in 2023. It is shrinking. Each segment of the overall channel has seen changes. MSP M&A has been heavy for the last four years. Agencies have been invested or acquired. This is affecting sales growth with vendors. VARs and Inter-Connects – people pushing boxes of one flavor or another – have had to re-tool their business model. The generous SPIFFs by XaaS providers is a reflection on this aspect. Will it continue in 2023? Probably.

SPIFFs will be high in Q1 because 4Q sales have sucked due to “Macro economic headwinds” – according to many vendors in their financial reporting. Layoffs have been crazy – due to re-adjusting the P&L and the fact that sales have stalled.

I don’t know where the sales bump will come from. During economically challenging times, agents usually get involved with cost savings. That will be good for activity but not for any bottom lines.

If I hear ECOSYSTEM one more time, it will be too many. The only ecosystems that will prevail will be built around a software hub like Salesforce or Microsoft. ISVs are a channel that many SaaS and software vendors have been chasing with SDKs and APIs. Here’s the thing: you have to be able to make money on your development. In a market with 1M users if only 1% buy your add-on or app, that’s 10K buyers. The smaller the user base – or the absence of any real add-on value – means less buyers.

Programming isn’t a one size fits all situation. APIs aren’t easy. You have to know the coding language and how to extract/import the data in usable forms. Everyone thinks it is boom-boom done and the app starts making money. That never happens.

Salesforce officially launched its API on February 7, 2000. In 22 years they have built a large business around an ecosystem or marketplace or whatever you want to call it. 22 years around a widely used software that is central to a business organization. Developers can make a living from that. Can they do that with all of them? No.

Pax8 hit $1B in ARR but isn’t profitable. Will the Marketplace ever be profitable? Unlikely. There isn’t enough margin for the Marketplace, SaaS vendor and partner to make a living AND support the customer.

They say a Influencers and Brand Ambassadors are also channels that will boom. Does that work with Telecom? More likely that works for consumer products, so it might work with SMB on the small side of SMB. But is there enough money in that sale for everyone and support?

Will 2023 be the year of the Contact Center / Customer Experience software? Nope. There are not nearly enough sales reps and partners who can intelligently discuss Cloud Contact Center. And many vendors are pushing a CCC product that isn’t ready for prime time – or is not as advertised. Once again, the vendors don’t know who their product is a good fit for, so they want to sell it to everyone. In the midst of 100 vendors also selling something similar to everyone. Once again, No Differentiation. Nothing going vertical. This will also be an unprofitable segment. When no one understands the difference, it sells on price.

To me it is potato chips. There are several dozen chips in a grocery aisle, but really their are a dozen or more sub-markets. Not everyone likes vinegar and salt chips or BBQ. Do you get the point?

Conferences will see a decline in attendance in 2023. Why? M&A has shrunk the number of partners. Plus in an economic downturn, partners will choose carefully their travel dollars. They will tend to go where the ROI is high. Boot camps, Workshops, and Peer Groups will win in 2023.

TSB/TSD (fka master agencies) – at least one will pivot or be in trouble. Why? In all the M&A and Synergies, they forgot that the customer is the partner. And while you try to get partners to sell your Platinum vendors to maximize your EBITDA, what customers want/need/ask for is too hard to procure from you. I know I tried to upgrade a pipe in 2022 and just could NOT get help from the TSB that acquired 2 of my master agencies. It was a Disaster. You can tell that they do not want to be in the telecom broker space.

The Super-Agency isn’t built to take order except from “Managing Partners” (internal orders). These agencies also cannot collect or pay commissions in a timely fashion. I tried to move my accounts to a different broker and that was not successful. You don’t want to pay me but you won’t let me move the account either. It’s a bunch of bull shit that tells you that the PE money isn’t going to destroy itself.

I know that this all comes down in a flaming ball of fire. When vendors like cyber-sec are laying off in the tens of thousands and UCaaS vendors are eliminating sales teams, do you think that the sales numbers are up or down??? AT&T and Verizon are struggling with debt and new avenues of revenue. Selling network, voice and replacement services are the core of the channel — but also it is the core of most sales people in this business. Selling data center, cloud services, cyber-sec, customer experience and other emerging tech like AI require a different skill set, mindset and motivation. If you are motivated by ink, transactional sales is how you keep going. How do you go from closing weekly to closing monthly or quarterly? Even if those are bigger sales, the triumph of the sale happens less often — and other skills like effective follow up are now a requirement whereas in transactions follow up isn’t nearly as important. Mindset is just as important as skill set. It is like if the partner doesn’t think cloud is for everyone. How do you get them to sell cloud to everyone then? You don’t.

This is already a problem, but it will only get bigger.

You know who else is in trouble: Channel Chiefs. Why? As the selling partner numbers decline and sales slow, who do you think gets blamed?

Many vendors ask where the next avenue of sales will come from. They look at the number of Microsoft partners and Ingram VAR numbers and think that the gold lies there! No it doesn’t. Those numbers are as inflated as any partner number you see. No one has any idea how many active partners they have.

Think about this: Microsoft and Ingram have entirely different reasons for having large partners. Microsoft has 290M users of Off365/Teams. They need hundreds of thousands of partners to maintain that. And those partners have a business model revolving around Microsoft, their MS certifications and their Gold status. Most vendors can’t say any of those things.

Ingram and Tech Data have 200k partner globally. That is like saying they have 200K customers, because the relationship between Ingram and the partner is shopping/distribution. Who has it in stock closest to my client – TD or Ingram? That is kind of like the relationship between telecom resellers and partners: who has the cheapest Internet pipe for my customer. But then the service delivery has to be performed well and the sales friction has to be removed. In my experience of 20+ years selling telecom, sales friction and service delivery failures are the common ingredients in telecom. Where is the docusign? Where is the simple order-to-quote-to-cash process? Is there a written process for service delivery that can be tracked online? It’s 2023 next week and the vendors still have the same process as 1999 when I entered telecom.

The key to success: maximize the partners you currently work with and duplicate them! Period. Take the friction out of all of your processes. Make it easy and desirable to do business with you!

The key to winning in 2023 is to make your partners successful. Stop looking for new ones. Milk your own cows. You have other services to sell to the partners’ customers. You have MDF money that you can use to do Lead Gen for the partner. There are a ton of ways to grow sales through partners who have already sold your stuff. Focus on them!

Final thought: There will be a lot of M&A around PE owned firms – that includes software vendors, MSP software vendors and FTTH providers. In 4Q next year, we will have fewer fiber providers, because the key there is scale and geography – oh and government funding. A bunch of broadband funding winners already accepted PE investment — and that will be happen some more in 2023.

A few PE firms own a bunch of software, especially in the MSP realm – like ConnectWise, backup, automation, etc. There will be off-loading of assets in 2023. Just my feeling, but these companies won’t see the growth they expect in 2023.

I just see a lot of disappointed PE firms in 2023. It turns out having money doesn’t make you smart – it means that you have a primary tool that businesses need but the PE firms still have to spread the risk across industries or they will replay the early 2000s. And money isn’t free now – the interest rates are up. That changes the landscape as well.

Happy New Year from RAD-INFO INC.

Other predictions from CF and from the Coffee Break group.

 

Cellcos are spending billions per year (the top 3 spend about $30B on CAPEX for their network). 5G has been hyped to the max. But when will it pay off for the top 3?  Article in FT talks about it. It seems IoT and anything connected will be the payoff,  but when?

Will DISH get its act together and steal some of the thunder by the time 5G is paying off?

The FCC finally got some teeth as they cut off one VoIP provider. One.

Zoom says that online sales are slowing down and enterprise sales are taking much longer.  AT&T has been saying for two quarters that “macro conditions” and late payers (people 60-90 days late) will affect quarterly financials.

RingCentral is thinking about buying 8×8… investors and Wall Street want consolidation in UCaaS as growth has slowed too much to their liking – and stock values have deeply declined. ZK has a take on the deal HERE.

I agree with Zeus on this: “Currently, the UCaaS market has no shortage of providers, and we might have too much supply for the level of demand. In mature markets, share gain is often hard to do without an acquisition.”

Yet RNG has $1.9B in debt already on maybe $2B in revenue (ARR is anticipated revenue based on a full contract– actually revenue is usually less.)  However, RNG  loses money. Having the top telcos in the world – Bell, FTR, AT&T, VZ, Charter, etc. – and you still can’t grow at 35+%? Think about this: How much of the revenue from these sales does RNG keep? How much gets paid to the telco? RNG does all the heavy lifting, implementation, etc. That’s where the costs are.

They could buy 8×8 for about $1.2B including debt. That would put RNG over $3B in debt on $2.5B in revenue. ZK says buy Dialpad and Sangoma too. That would likely cost another $2B for about $500M in revenue. With huge integration issues. Customer migration will result in big churn because if Dialpad and 8×8 customers wanted RNG they would have bought it.  Sangoma has too many companies under the tent for it to make sense to acquire in my opinion.

The biggest competitor is STATUS QUO in UCaaS  (those who have been on a webinar with me this year already know that.)  Premise PBX systems are still selling about 40% of the time. Getting people to go cloud comms is the challenge now that the pandemic has ended.

Order taking is over. From this point forward, selling is required. Value presentation, Discovery, Challenger, great follow up. That is a small percentage of sales people.

 

 

 

I have been busy with a couple of new projects with Turnium and Peace Communications (plus the continuing work for NEC and Intermedia), so I haven’t been blogging.  But here are some updates.

RIFs in the space from RingCentral, Avaya twice and others.

Avaya has a new CEO and some financial troubles. In fact, RingCentral wrote off the money that Avaya owes them. RingCentral is being sold by Verizon, AT&T, Frontier and now Charter. Despite all those top ISPs on-board, growth has slowed.

Zoom launched a bunch of stuff, like email and calendar. They want to be the platform for SMB. They are certainly one of the most prolific feature produces – right up there with Cisco on Webex.

Everyone is trying to be the PLATFORM – doing everything for the business in one pane of glass. All hoping to be the one picked. Except businesses aren’t one size fits all; hence why companies use best of breed offerings and have 40+ apps! It has to be deployed well, trained on, intuitive with a great user design, easy to use. We can’t say that about most software, especially telecom software. Can’t find my camera or my microphone, the Outlook plugin doesn’t work, not logging calls — yeah, people in UCaaS think they are going to be the center of the business universe. Businesses will tell you that you are a utility. They have software to run their business – and THAT is the center of their universe.

Additionally, software like Salesforce, Zendesk, ServiceNow, Workday, Connectwise, Autotask and so many more are platforms with marketplaces that actually do help a business run – and are at the heart of that business.  Easier for SF or ServiceNow to add voice, video and messaging than for Zoom to add ticketing and CRM.

NEC is now paying all agent commissions upfront. Big move. Like JD Wentworth, partners get paid now!

RingCentral and 8×8 are making moves to be more profitable, according to their financial statements. They means layoffs, getting efficient, increasing gross margin by a point or two.

There is a rumor that some entity is trying to buy 8×8. We’ll see. Market cap is $500M and $447M in debt. An easy buy at $1.25B.  With RNG at $1.9B in debt, 8×8 is a deal.

SD-WAN and Cloud Communications are the first two steps for any business on the path to Digital Transformation.

That’s about it for now. I’d complain about the brokers and one PE backed one who is giving me fits and owes me commissions but I’ll rant on that later.

 

Someone messaged me to take a look at a post of mine from 2017.  M&A at the time was mainly on the vendor side – cable mergers, the Birch thing and more.  How did it turn out?

Birch sold to Fusion who then went bankrupt, which is a very Birch thing to do.

Charter/Spectrum got big; is now offering cellular and won a bunch of federal dollars to extend its network in the name of the Digital Divide.

CenturyLink was just merging with Level3 then. They got bigger – but nothing in our space gets better – even with a new name. It became a huge mess and now they are selling off parts  – like the data center business and some of the ILEC and perhaps the European assets. New CEO coming as Storey takes a bow. Oh, and they re-branded as Lumen.

Verizon bought Yahoo and AOL — and lost their shirt – and sold them for pennies on the dollar. They started yelling 5G in 2017; they are still yelling and buying spectrum and trying to get a variety of tech and spectrum to work for the promise of 5G.

TPX and Nitel sold to investors and have not been the same since.  Windstream went bankrupt – and is still trying to recover.

Sprint was for sale in 2017. Last month T-Mo sold the Sprint wireline network to Cogent for $1.

In 2017, Mitel bought Shoretel. Today they are solely focused on premise PBX, having sold the cloud assets to RNG.

Avaya was coming out of BK in 2017 and is now heading back in!

Hundreds of vendors have entered the channel.

Most are still struggling to get traction and make sales. Why? The vendors don’t know how to sell-through or have the basics down (Value Prop, Target, Partner Profile). So they throw stuff at the wall and hope something sticks.

In 2017: “We could talk about cloud services and security, but those are NOT a large chunk of what the channel sells. Even The leader in channel sales enablement of next-generation IT technologies mainly sells connectivity.”  A ton of network is still being sold but for not a lot of dollars. Cripes! 1GB pipes in a data center are $500. So yeah network is still selling but partners have to sell a metric ton of it to make a living.

SD-WAN was supposed to be the next big thing in 2017. Now everyone has it – just like UCaaS. It almost commoditized — but it is the basis for a secure network. Again, it is a hamburger. More providers need to spice up that burger.

The MSP vendors are still in a constant state of M&A and re-branding especially on the security sector.

Revenues were declining as were commissions in 2017. That is still happening, but partners are selling other stuff.  I wrote this on LinkedIn in response to TSBs talking about how network isn’t a significant sales make-up.

One point that keeps getting made is that 5-7 years ago, most of the revenue in brokerages was network/Internet, but today that number is smaller because partners now sell other stuff. That isn’t because of the M&A or the new fangled thing-a-ma-jig at the brokers, it is because network prices have dropped. Ask Verizon, AT&T and Lumen about the wireline business’ 7-9% decline per annum. In addition, broadband sales in the channel increased (which is tiny ARPU). whereas before it was T1 based sales.

Moreover, adjust for the pandemic which gave UCaaS a push; ransomware exploding; contact center getting cheaper and the need expanding. All of this factors into why the mix at brokerages isn’t 80/20 networking/other. CyberSec deals are huge ARPU. It takes lots of network sales to offset one of those deals.

During this period, vendors adapted to co-selling to help close business – business no one would have won otherwise. ALL of this happened before and during the current M&A swing. You can take a bow for it, but there were many factors that contributed to where we stand now.

The channel sales numbers are increasing. That still won’t pay back the $700M in investment money that the brokerages took on.”

In 2017, Microsoft hadn’t quite figured it out, but now they control 290M desktops with Teams out of about 400M. Webex is somewhere around 6M. No one saw Zoom coming. And still no one pays attention to Workplace by FB which landed McDonald’s and its 1M employees!

No one went vertical.

GTT went bankrupt.

We have millions of open jobs. Millions who gave up W2 jobs to freelance and Uber/Dash/Cart. The pandemic burned people out — and made people less nice to be around. For real, people got weird during the pandemic and they haven’t figured out how to play nice with the world they exist in.

There wasn’t any big TSB M&A in 2017 but now there are 3 giants and not much else. TBI is said to be ready to go to one of the bidders – Scansource, Avant (unlikely), Telarus and AppSmart. I think Scansource needs the win here more than any other. I think AppSmart has left the master agency building.

The M&A in the channel has disrupted everything. And it will continue to for about 20 more months. Then there will be some big seismic shifts.

Once the TSBs buy up all the selling partners, where does the growth come from?

Vendors ask me all the time where do we go for more sales?  I have no idea because all the avenues are slowing down.

Looking back on 2017, a lot changed. Some stuff I guessed right; some I didn’t.