Peter Radizeski is Founder and President of RAD-INFO INC. He is an accomplished blogalyst, speaker, author and consultant. He has helped many service providers with sales training, marketing, channel development and business strategy. He is a trusted source of knowledge about the telecom sector. His honest and direct approach make him a refreshing speaker.

Look for his innovative ideas and analysis of current technology on his blogs.

Meet him at one of the many conferences he attends and speaks at.

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Full Circle

Starting in 2003, VoIP companies started offering the precursor to UCaaS – Hosted PBX. The providers were offering retail, wholesale, white-label, even switch partitions – literally anything for revenue on their million dollar switch investment.

Twenty-one years later, providers are offering a plethora of ways to get dial-tone: Operator Connect, Direct Routing, SIP Trunking, HPBX, UCaaS, UC+CC, CPaaS, and POTS replacement. Again anything for revenue in a market that has shrinking ARPU.

It didn’t work then; it probably won’t work now.

Leaning heavily into the transactional products – OC, DR, SIP, POTS-R – means more commodity play, but it is aimed at quick revenue. More importantly, it plays to the strength of the sales channels, who lean towards quick transactions.

Most partners don’t have the sales acumen and/or desire to sell a complex product, when a simple one will be effective short term. Even sales reps are motivated – nay, compensated – better for a complex deal, since most compensation plans are tied to either revenue or margin.

Most sales reps are not in a position to walk every Prospect through the various options. “Oh, Mr. Prospect, you have Teams? Okay, let’s discuss the ways we can add value to that.” More like, “Do you want dial-tone with that?”

It is back to the Integrated T1 battle days. What size bucket of SMS are you offering?

There is an opportunity to add functions like omni-channel and AI, but the outcomes aren’t in a simple story to be re-told. Truthfully, when you sell a UC+CC deal in January and it takes until May to be implemented and, as a partner, it is July and still waiting to get paid, the emphasis is on quick hits for compensation, simplicity and satisfaction.

The industry brought this on to themselves. Everyone wanted to sell potato chips. No one wanted to get out of the chip aisle into a vertical or niche. Providers have NO idea who their Target Customer is — who best benefits from your service offering? And now with 7 voice offerings, there should be 7 Targets.

Providers don’t have a valid Value Proposition. Why YOU over the other 2000 providers?

Some of you need to read the Weave Investor prezo then compare it to either 8×8 or RNG – vastly different. Weave has 31K profitable customers. They have a great bundle and you can’t find a single telecom acronym in their presentation!

Providers don’t understand that 5,000 satisfied and profitable customers in a region/vertical/ niche is better than trying to get 7,000 barely profitable ones, who churn at renewal because they were still stung by the delivery or lack of care.

This all starts with the lie called market size: a $58B market opportunity for all of the Cloud Business Communications [UC+CC+CPaaS], which 8×8 “realistically” shrinks to a “$10B Opportunity with our Target Customers [50-20,000 employee enterprises in our markets]”.  If you go to Wall Street saying it is a $10B market, how much do you think you can capture? And HOW is 50 employees an ENTERPRISE?

And in the same presentation that you talk about UC+CC, AI and more, the big slide next says: “390 million seats in orgs that have M365 but no Teams telephony solution.” Another monster of a market (actually a sub-set of that $58B except that $58B shrinks every year and includes high margin POTS, PRI and UCaaS seats at $29 that are being cheaply replaced!)

The providers are going to replace on-premise PBX seats that required a $300 phone with a $15 dial-tone bundle ($5 for MS license and $9.95 for Direct Routing).  No wonder the PBX partners can’t/won’t sell cloud comms!

If there are 390M seats waiting for dial-tone, why are providers spending on WFM/WFO, AI, etc.? If you are chasing Microsoft, how do you even think that Co-Pilot isn’t going to beat whatever GPT notion you have?

8×8, RNG and Dialpad have put out packages for verticals – for sales, healthcare, retail, hospitality – hedging every bet they can make, like they were AT&T and everyone has to buy from them.

How do you train a sales team with even 20% turnover on all of these products?

How do you cultivate stories on outcomes for all of these products?

How do you let customers know about the new functions available? How do you train them on it?

Cisco rolled out over 400 features to Webex since the pandemic. No one that sells Webex can name even 5. Lots of features that no one knows about or worse, no one uses, is the same as burning your R&D dollars.

I think it all swings back to dial-tone. The industry is focused on fiber broadband, which begets selling cheap, digital voice for residential and very small business. Hence, why the MVNO option for even regional cablecos. Since most everyone mentions that Microsoft is the giant in UCaaS, UCaaS will get less attention.

 

Thee Channel

One point about The Channel: There is no “The Channel.”  There are a variety of business types and models that partner with various vendors to bring their product and services to market.

ISV, VAR, MSP, Inter-Connect, Influencer, Referral, Affiliate, Super-Agency, Agent and VAD/Distro are the most common in Telecom/Tech. They are not inter-changeable.

A VAR buying from a VAD (Distributor) like Scansource, TD Synnex or Ingram Micro has a different expectation and experience interfacing with that Distro than an Agent selling network through a brokerage, even if that brokerage is inside a VAD!

The VAR gets billed directly from the VAD. The VAR gets a credit line from the VAD. Sometimes the VAR has to have permission to purchase certain SKUs from the VAD. The VAR then installs the gear for the customer and bills the customer.

The Agent sells WAN connectivity to a business and collects a commission on the sale if/when the customer pays the bill, which is sent directly from the vendor (say, AT&T) to the customer. The vendor collects from the customer and then pays a commission to the brokerage (Intelisys/Scansource, Telarus, AppDirect, whatever). The brokerage (TSB) then pays the commission to the partner per the agreed split (80/20).

See the difference? And that is just one single example.

Another vast difference: when the VAR is ordering from the VAD through the portal, the VAR is checking inventory. Does this VAD have that SKU available to ship now — and is it close to the customer (since shipping is not free!)? That is why many VARs have a line of credit with more than one VAD. That way they can find inventory close by – and know when the gear will be delivered to the customer. NO floating FOC dates. No surprise LNPs. UPS brown shirting that gear to the customer on the day they say.

When an Agent orders a circuit it is a different path. The TSB portal has an app like ConnectBase that allows the Agent to see who has fiber in the building that the customer office resides in or nearby.  Then there is a quote request – maybe through the portal; maybe via email. Then there is an info spreadsheet, LOA and MSA to be signed and returned. No portal to order through. Just a flurry of emails. The agent then waits anywhere from 30 days to 9 months for the vendor to deliver the circuit due to permitting and other hurdles. Then the Agent coordinates the test and turn up before the telco/vendor bills the customer.

Again stark differences.  In experiences. In ordering. In delivery. In billing. In install. In how the partner gets paid and by whom.

These differences affect YOUR partner program. Know the differences. (This is why having a Partner Profile is vital.)

This is also why someone who has worked on the hardware side of the business for years will have a disconnect with how the Telecom side of the business works. A disconnect that costs everyone business.

 

The Race for Sales

As companies add UC+CC or UC to CCaaS or other bundles, the success of sales will be limited and take a lot of time to come. Why?

Because most salespeople do not have the training, acumen and coaching to sell beyond transactions.

POTS Replacement, cell phones, broadband, fiber, SD-WAN are all selling because they are transactional. UC+CC, Cyber-Sec, CX, Private 5G, IoT, AI and so many other technologies are a complex sale. They have many decision makers, longer sales cycles, and complicated service delivery. That doesn’t match up with the sales skills of most people.

It also doesn’t match up with most sales management. They don’t know how to coach. They don’t train-up. They watch KPIs and yell.

To get ARPU up, sales training is going to have to get better. Co-selling may become the norm.

Companies barely want to invest in their own employees; I don’t see them spending annually to train up partners in sales skills and product.

The problem with the current crop of technologies like Cyber-Sec, AI and UC+CC is that they do not replace anything. They are additive. Selling a replacement is a transaction. Selling something additive is a different sale.

The channel is based in small business. Most Partner programs didn’t even allow partners to sell to mid-market, government, education or enterprise. Now pundits and channel execs alike are saying how the channel will get them more enterprise deals

A Tale of Private Equity

The MSP software industry has been dominated by private equity. ConnectWise, Datto, Kaseya, N-Able, Pax8 and so many more software companies that serve the MSP space have been acquired by private equity in the last 5 or 6 years. This is also the case in cyber-security. “Thoma Bravo has one of the largest cybersecurity portfolios in private equity, representing approximately $47 billion in total enterprise value.”

Regarding ConnectWise, it has been 5 years since Arnie sold his company, which is a long time for a PE firm to hold an investment in a portfolio company. This from Channele2e:

“ConnectWise is also at a different crossroads. Five years has passed since Thoma Bravo acquired the company (for $1.5 billion, according to ChannelE2E’s estimates at the time. Here’s where we got that number.), putting it in the time horizon for the PE firm to be looking to sell the company now and looking for a price of at least $4.5 billion. But the market right now hasn’t been favorable to PE firms looking to exit. It’s unlikely Thoma Bravo could get the multiple it wants on its purchase price by selling ConnectWise right now. The PE firm could combine ConnectWise with another company to increase the value, or it could invest and wait for the market to improve, or it could take ConnectWise public in an initial public offering. Right now the trajectory is unknown.”

Recently on a channel round table there was mention of a PE-owned “super-agency” that was up for sale. This company announced its PE investment in 2021, so the 3-year cycle is about up. Most PE investments are 3 years, but some can go 5. Other investor types are in for a longer time frame, but PE is about quick turns in technology.

Let’s look at Red Lobster, Golden Gate Capital acquired the restaurant chain in 2014 for $2.1B. Golden gate sold the real estate that the restaurants were on for $1.5B and the restaurants were saddled with high rent payments as well as the debt from the buyout. Add in that the changing habits of the restaurant customer and you can see why Red Lobster collapsed.

Per NBC, “Asset-stripping occurs when an owner or investor in a company sells off some of its assets, taking the benefits for itself and hobbling the company. This practice is favored among some private-equity firms that buy companies, load them with debt to finance the purchases and hope to sell them at a profit in a few years to someone else.”

In the late 1980s, KKR bought RJR Nabisco in the largest deal ever at the time. It was an LBO – a leveraged buyout. A whole book was written about this deal and it became a MBA case study across business schools in America.

I know that I harp on PE in our industry often, but it has more to do with a warning than a dislike. Look, a telecom agency whether it is a TSB/brokerage or a “super-agency” mainly selling directly to customers have just 3 possible revenue streams:  commissions from sales; marketing funds from vendors; and events, which is an extension of the marketing funds.

A TSB can make a healthy profit at an event. Conferences are a healthy business. Informa, TMC, The Channel Co., ASCII, Robin, ConnectWise and many more businesses in our space, make bank putting on events/conferences. But even if the TSB only ekes out a tiny profit, at least they don’t lose money on their event program.

The MDF game is big because when you have 200-500 vendors vying for attention and access to the selling partners, you can make some bank. In fact, at least 2 in our space pay a 1% override to marketing on MDF funds collected. MDF is the only income stream that can go up exponentially without more bodies. A TSB can add an unlimited number of vendors to their portfolio. If a TSB started with 150 vendors and added 50 more at just $500 per year, that is $25K. Take in at least $500 in MDF in from 400 vendors and $100K in from 4. BINGO!

The commission piece is hard. Chasing commissions is a grind. And when the splits have gone from 70/30 to 90/10 as the average sales size has also declined, it becomes a grind for pennies. The telcos will tell you that wireline revenues have been declining for years. Verizon Business just wrote off $5.8 Billion. “The write-down is primarily linked to Verizon’s legacy wireline operations, which provide fixed-line communications services to businesses.”  Lumen, AT&T and every other ILEC have seen MPLS, T1, POTS, DSL and other legacy circuits disappear. In the process, customers usually buy from a different vendor for broadband, SD-WAN, cell phone service and fiber.

Dedicated Internet rates are also in decline. Renewals are almost always at a higher speed for the same rate or at a lower rate.

UCaaS has recently come under the same price compression. Zoom and now NICE are helping that price free fall with sub-$10 UCaaS seats. BTW, even Contact Center seat pricing is shrinking!

So if UCaaS, CCaaS and wireline are declining,  partners need to sell more and more every year in order to maintain or grow its revenues. That is a lot of transactions!

<This is all FYI.> The only public TSB reporting 3rd Quarter earnings: “Net billings for Intelisys increased to approximately $2.68 billion annualized, and Intelisys net sales for the third quarter increased 4.0%.” Do growing at the GDP speed.  The investor prezo says that recurring revenue is at $108M for fiscal year 2023. I think that is the part  of the commissions that they keep. Means the commissions are about $500M+.

Four percent growth isn’t what investors were looking for. But then stock holders of 8×8, RNG, Lumen and the like aren’t exactly happy either.

If the average investment is a $36M loan (a number I am spit-balling) at 12% APR (as per SEC filings from AB), the interest alone is $4.3 Million per year. I’d take a 12% credit card right now, but not a 12% home equity loan!

Upstack has 188 “employees” per LinkedIn. Telarus as 493. Avant has 260. That is a lot of payroll!

Sales Engineers, Partner Managers, Channel Managers, tech & dev people for the portal, vendor relations, marketing, events, Commissions, ordering, Cable and M&A – that is a lot of folks that need to get paid.

Upstack acquired about 30 agencies since 2021. Bluewave has done fewer deals. Bridgepointe has done about as many. These deals put selling partners under the umbrella of the super-agency. They share some back office support to save a few dollars. They get a lottery ticket on the eventual exit event, much like TNCI in 2011. TNCI had an equity play but was mismanaged and the business plan smelled bad to me from the start. Did any partner remember when TNCI tried to recoup commissions from partners as part of its bankruptcy?

No one is really certain how all this plays out. I am certain based on 24 years of being a telecom agent, consultant and startup mentor that the partners will end up wondering WTF happened?

If one PE-backed firm is struggling to re-package that business for resale, then other similar businesses in that same niche will also struggle to exit.

On the round table, Adam from Telarus did mention that there would be more TSB consolidation. I assume that means Columbia Capital, who invested in both Bluewave and Telarus, is in talks to scoop up any troubled assets in our world.

Hedge your bets folks.

 

BTW, I use TSB for Technology Services Brokerage because like insurance the former master agencies broker services, they do not distribute anything but commission checks to the selling partners, so TSD is a misnomer.

FYI..

Intelisys is owned by a publicly traded company, Scansource. Sandler Partners is privately held and Alan Sandler tells me he has no reason to sell — and I believe him! AppSmart is now AppDirect owned by a handful of investors who plunked down over $450 Million in investment. Avant and Amplix have PE money. Clarus/TDM is private.

 

 

What Does a Five Buck Seat Mean?

NICE just announced a UCaaS offering at $5 per seat. TalkDesk launched a phone in 2021. It was rumored to be $10, like Zoom Phone. What does all this mean for the average UCaaS provider?

NICE has decided to get more channel friendly now that they are all in on CX1, their cloud offering that grew out of InContact. When they NICE acquired InContact for $940M in 2016, they got a channel friendly org. However, like most channel orgs, the primary customer was SMB.  NICE was selling to enterprise.

Today, it seems like NICE wants back in to the SMB (or at least the mid-market). They also are competing against Five9, which has several UCaaS partners including Net2Phone, Nextiva and Panterra. So NICE decides to go all in with UC-CX1. We will see if they can actually profitably sell to mid-market. It is one thing to sell to Enterprise with Professional Services, but another altogether to go down market with the same process.

At $5 per seat how many seats will they sell? Well, the UC might be cheap but the CCaaS isn’t.

Support and Implementation are unknowns – and for SMB their voice service is vital.

Does the channel want $5 seats? Not really. The average sale size is 13 seats. Who wants to sell and do LNP paperwork for a $60 sale? Let’s say the smallest deal is 50 seats; that is still a $250 deal.

NICE explains that their “sweet spot are contact centers with between 20 and 400 agents” on a TSB website.  That copy maybe prior to acquiring LiveVox for $424M to get $142M in revenue. Overall they have $2.5B in revenue of which $1.7B is cloud revenue. In quarterly reports there was no mention of LiveVox when mentioning the YoY growth of cloud revenues of 27%. Maybe an oversight.

They certainly are on the move. But what does that mean for other UCaaS providers?

First, it means that that UCaaS ARPU is still compressing. Growth year over year will slow because every new contract or renewal will be less than last year. This mainly means that mass market, nay commodity, UCaaS will bottom out at $4 per seat.

Some of this is directly related to how UCaaS is sold. It is POTS and PBX replacement, so it is a commodity. The fact that so many UCaaS providers also have Direct Routing and Operator Connect for MS Teams showcases the inability to demonstrate the value of your cloud communications platform. Period.

To me, chasing MS Teams dial-tone revenue is to just want money. Any money. And it dilutes the brand. Distracts sales.

UCaaS providers should have listened 3 years ago when I was yelling to go vertical and integrate. Not many listened, so now they are the equivalent of a Integrated T1. That’s right, we are back in the jungle, baby! The commodity voice jungle.

Vendors have to go back to the drawing board and decide who they are and who they want their customers to be. The Value Proposition and Target Customer are vital to providing value beyond dial-tone.

When you consider that there are over 2,000 providers** selling/reselling UCaaS of some kind, that is a crowded environment. To do well, you either have to learn to profitably sell, provision and maintain a $5 seat and do it at scale – or tell a story of why your platform is worth what you are charging and that it isn’t for everyone but those that are targets get great leverage from it.

To do that you have to consider that Cbeyond was a large CLEC with less than 53K customers. USLEC died with 26K customers. NICE after 2 acquisitions has 25K customers.

You won’t have 28M subscribers like Spectrum/Charter but then neither does Verizon, AT&T or Altice!

The key is to get to 25K profitable and happy customers.

Cbeyond was the first CLEC to take a 15% share in one Metro. They didn’t come close to that market share in any expansion market. Focus, strategy, and execution are more than words.

  • What is your Focus?
  • What is your Strategy?
  • How well are you executing?
  • Who is your Target Customer?
  • Why should anyone buy from you? What makes you so special?

Need help answering these questions? Call our office at RAD-INFO INC at (813) 963-5884

 

 

**The 2000+:  NCTA has 200 cableco members; NCTC has 700 members; ACA Connects represents 500+ rural providers. USTelecom don’t list the number of members. Broadsoft sold to 450 CSPs – about 350 in the US. Netsapiens (now CXDO) has 150+ customers, quite a few white-label. Skyswitch has 750 MSPs selling off its platform. Momentum Telecom provides voice for many tier 2 and 3 cablecos. 2600Hz white labels Kazoo for a couple of hundred providers. There are 75 other white label providers including WLC, Alianza, and Intermedia. I don’t know how many members are part of Cloud Comm Alliance or the Cloud Voice Alliance. Add all that up and it crosses well over 2K providers pushing UCaaS but only grabbing less than 30% of the US market in 21 years of marketing!