Specialist
Executive at Avaya Holdings Corp
Agenda
- Operating environments for UCaaS vendors such as Cisco (NASDAQ: CSCO), Microsoft (NASDAQ: MSFT), RingCentral (NYSE: RNG), 8x8 (NYSE: EGHT), Vonage, Zoom (NASDAQ: ZM), Avaya (NYSE: AVYA), Mitel and others
- Adoption trends across market segments, highlighting macro headwind impacts
- Pricing dynamics and UCaaS vendor margin outlook
- Long-term outlook and product evolution – potential product convergence of CCaaS and CPaaS into XCaaS functionalities
Questions
1.
Could you provide an overview of the UCaaS collaboration operating environment, highlighting 2-3 key trends or drivers that the investment community should be attuned to?
2.
You mentioned the market saturation at the SMB level. How might you characterise this market opportunity for UCaaS vendors? There’s an estimated 500 million historical PBX [private branch exchange] on-premise seats at play, with only minimal cloud penetration it seems. In previous Forum Interviews, we’ve heard estimates of that only being 25-30% penetrated [see Avaya – Cloud Business Acceleration & Enterprise Vitality – 28 July 2022].
3.
How should we think about the UCaaS annual replacement cycle? I’ve seen estimates of 11-13% of the market replacing annually. Might current macroeconomic headwinds lead to on-prem customers deciding to sweat out these assets a bit longer, or even potentially considering refreshing their on-prem system with shorter life cycle expectations?
4.
What is your 12-18-month demand outlook? How might you characterise the defensiveness of the UCaaS sector in a recessionary environment? Would you consider players who have access to a larger on-prem install base to be more well-positioned and insulated from weakening demand dynamics?
5.
You brought up price compression. What dynamics are driving that pricing inversion, or evolving themes in the pricing environment for UCaaS over the past 12 months? Where are you seeing those strongest competitive bundlings?
6.
What is the risk of UCaaS becoming commoditised in the near- or medium-to-long-term? Is that a realistic possibility?
7.
What’s the best metric for us to think about pricing? Is that ARPU, or is it that per-user, per-month pricing models?
8.
What do you view as a healthy and sustainable ARPU, or any type of pricing model here? I saw estimates of USD 20-40, and you surprised me there saying we’re seeing a trend go towards sub-USD 10 at the end price level. How might that vary across market competitors, whether that’s UC on-premise provider or a UCaaS vendor?
9.
How would you assess efforts made by legacy on-prem competitors in migrating their seat bases over to UCaaS systems? What have been the pain points in converting that legacy base? Is the fact that UCaaS functionality enlarged, maybe now exceeding that premise-based UC capability set, leading to more clients choosing UCaaS vendors?
10.
We’ve seen some troubles arise for some of those legacy on-prem players. Considering that, might we see that long-term mix between on-prem UC systems and UCaaS vendors shift towards the latter at an accelerated clip? Might on-prem customer bases be more hesitant to migrate into the cloud with their existing UC legacy provider, and rather be incentivised to pivot and partner with a UCaaS vendor?
11.
What are the competitive dynamics across that UCaaS born-in-the-cloud landscape? What vendors are continually being discussed at the forefront and leading that industry charge?
12.
Microsoft had 80 million MAUs [monthly active users] on its Teams Phone System, and nearly 250 million MAUs for Teams itself, according to Gartner. How should we be thinking about that momentum driver as it relates to growth for UCaaS vendors such as 8x8 or RingCentral, from the integration component with Teams, in that workflow? Are there any competitors that come to mind that are utilising that opportunity to drive growth?
13.
How fragmented do you view the UCaaS landscape currently given some of the compressions we’ve seen? How are you thinking about industry consolidation dynamics in the near-to-medium term? What high-profile M&A scenarios could we see unfolding? It seems Mitel is looking to potentially divest some of its assets at some point in the future here. Could we see on-prem providers start thinking about divesting some of their assets to these companies?
14.
You talked about Zoom reaching this maturation point where it’s on every desktop. We also discussed price inversions or compressions. Zoom tried to acquire Five9 in 2021, a transaction that was abandoned in September 2021. The company ultimately released a Zoom Contact Center. 8x8 has its XCaaS offering. This is a company born out of the cloud in UCaaS and now it’s looking to CCaaS and CPaaS. Is it inevitable that we’ll eventually see UCaaS and all of these elements of communications just blend together into single offerings, from a competitor standpoint?
15.
What core capabilities are driving UCaaS adoption? How might we rank order customer preference along telephony, meetings, messaging, integration or just interoperability lines?
16.
Are there any important KPIs or metrics we should be tracking over the next 18-24 months as we think about the UCaaS environment?
17.
What is your 18-24-month outlook for the UCaaS industry? Who do you see as medium- and long-term winners and losers?
Gain access to Premium Content
Submit your details to access up to 5 Forum Transcripts or to request a complimentary one week trial.
The information, material and content contained in this transcript (“Content”) is for information purposes only and does not constitute advice of any type or a trade recommendation and should not form the basis of any investment decision.This transcript has been edited by Third Bridge for ease of reading. Third Bridge Group Limited and its affiliates (together “Third Bridge”) make no representation and accept no liability for the Contentor for any errors, omissions or inaccuracies in respect of it. The views of the specialist expressed in the Content are those of the specialist and they are not endorsed by, nor do they represent the opinion of, Third Bridge. Third Bridge reserves all copyright, intellectual and other property rights in the Content. Any modification, reformatting, copying, displaying, distributing, transmitting, publishing, licensing, creating derivative works from, transferring or selling any Content is strictly prohibited
