So, when you hear the term "cloud," all kinds of "diverse" things come to mind. Cloud computing, saving music in iCloud, and cloudy skies that can bring you down.
A term that isn't as ubliquitous, however, is the term cloud communications. By cloud communications, we mean an environment where traditional telecom systems (on-premise servers and PBX telephony boxes for example) are migrated to the cloud. To the end user, or layman, this is represented in the migration to VOIP (voice over internet protocol) as a phone system, cloud-hosted mailboxes and instant messaging over multiple mobile devices and video conferencing for starters. Of course, I am oversimplifying what is currently considered the space of "unified communications," but that's the challenge this industry faces.
But that's where the opportunity resides.
One of our clients, the Cloud Communication Alliance (CCA), is an association whose members are service providers and the vendors who provide the technology, who help companies move their on-premise communications systems to cloud-based communications.
The CCA held its quarterly meeting a couple of weeks ago, and one of the speakers, Michael Quinn, really caught the attention of all attending members: he is from Q Advisors, a leading investment bank specializing in technology, communications and business services. They have represented several CCA members in successful transactions, and he provided an overview of the M&A and private equity opportunity this swiftly growing market will experience in the next few years.
The title of his talk was "Diversify or Perish," which spoke to the importance of not remaining just a cloud communications service provider but the importance of diversifying your service offering to include cloud computing and other infrastructure services in order to see higher company valuations. This mirrors the trend of how enterprises are buying today.
Several points stuck out to me, as many of our clients seek counsel on what will get them the higher valuations for the strategic growth/capitalization they crave: (please note, if I misconstrued any of Mr. Quinn's commentary, the mistake is all mine! I was typing his remarks as fast as I could...)
- The deals he used to see used to be primarily for cloud communication services companies alone, but now as customers want service providers to deliver both computing and communications services, the opportunity for those companies that provide both has increased exponentially.
- CTOs are increasingly getting compensated on how well they conserve costs; hence, the desire to go to one managed provider rather than several. And by the way, CTOs are the primary customer now, telecom and IT purchases tend to be consolidated under the CTO.
- UCaaS is one of the fastest growing segments, hence, why the valuations will be so high for that class of company delivery those services.
- Vertical expertise matters! The companies focused on vertical industries, that can boast expertise, get 2 to 2/5 times revenue. If you are specialized in a regulated industry, typically even more.
- Private equity firms have so much money to invest: this could be a blow out year! "We can barely keep track of how much money is being pumped into this market..."
- This is one of the most bullish markets out there today: if you are in this market, plan for it wisely. This may be the best opportunity to seek the capital you need at record valuations. His discussion on the macroeconomic indicators:
In the end, this was his conclusion: if you provide IT or communications services to the enterprise: as an entrepreneur or CEO of a cloud communications company, make the move to diversity or "die." Think about what the CTO wants, what the enterprise needs, and what it means to deliver ROI to your customers. The opportunity is ripe for you...take it...it's one of the most highly valued industries to be in today.
Here's to 2014, and a chance to see some great activity in the investment community in this space; if you have further questions, be sure to look up Q Advisors and Michael Quinn, who led a spirited and honest-in-your-face-discussion about what it will take to be successful this next year and beyond.
-- Elizabeth Shea, @eliz2shea, or follow @cloudnewsportal for the CCA
I recently was a part of the Cloud Communications Alliance's (CCA) Quarterly Member Meeting in beautiful Napa Valley, hosted at the Andaz Napa hotel, and one of the featured speakers, Ron Tarro, was a veteran in selling to the hospitality industry. He spoke to the group about the pros and cons for cloud communications service providers selling into the hospitality industry.
Ron Tarro, President of SDD, a software company that enables owners of enterprise and property-based networks to sell, provision, and optimize services provided over that network, spoke to CCA members on how they can approach this critical vertical market. He has specialized in this market for many years, and his products are the market leader in integrating systems.
According to Tarro, "the market is ripe for disruption" when it comes to telecommunications infrastructure, and yet it is not always an easy market to approach. There are several facts he shared about what to consider when approaching the hospitality industry.
- How big is this market? According to Tarro, there are approximately 50,000 hotels in the US, of which about 25,000 are corporate brands (the ones you'd recognize). Think about 1 hotel per a 6,000 population base. The average hotel boasts 125 rooms with 150 phone exensions, so it's not a huge opportunity per hotel, but to specialize in this industry, it can be very lucrative if you can dominate a region.
- Most of the large brands franchise out their hotels to individual owners/managers who can often make their own technology decisions, so it's a tricky decision for a cloud communications provider to determine whether to target a corporate brand office or individual properties. The corporate brand has the ability to "certify" technology solutions, but they might tread lightly since they want to continue the owner's brand loyalty. A owner/manager can always switch brands (say, from a Starwood to a Marriott or visa-versa) so there is a delicate balance in what is dictated.
- So does a service provider target the hotel corporate brand, or the individual hotel owners/managers? In Tarro's opinion, most major brands are already locked up with their preferred providers, but hotel owners do have a choice in what they implement, so for a local service provider of cloud communications services, there is an option. That being said, every major hotel brand has an RFP out today to replace their onsite PBX system with a cloud-based system, but they are looking at major manufacturers as opposed to individual service providers.
- When targeting the individual hotel owners, be prepared for potentially a high cost of sales and cost of entry, since you will be selling one hotel at a time. But it might be the best approach. Since there tends to be some hotel owner tension when it comes to being dictated to by the corporate brand, there is an opportunity to get your foot in the door.
- Realize there is a big difference between approaching a hotel property based on whether they are going through a renovation, or are in the process of building out a new property. Most existing properties are in a hurry to get equipment out of the building. He used an example of the hotel where the conference was held - a relatively new property - which checked us in on tablets versus the more traditional front desk orientation.
- Total Cost of Ownership (TCO) remains the biggest selling proposition at this juncture. If selling to a hotel at "build time," sell with a CapEx value proposition. At a time of renovation, demonstrate your OpEx story.
- 80% of the hotel PBX systems today are at end-of-life in the next 48 months, so the opportunity to pursue this market has never been greater. Remember, they want to get the equipment out of the building!
For those of you interested in becoming a part of this powerful Cloud Communications Alliance Association which helps companies build businesses in the cloud communications space, visit the website for more information. The alliance boasts 13 service provider members, and is supported by its best-of-breed sponsors who help bring these powerful solutions to the market.
The next quarterly meeting will be held in San Diego, immediately preceding the annual Broadsoft Connections Conference 2013 in October. Consider joining us!
-- Elizabeth Shea, @eliz2shea
This week I'm attending the ITEXPO Conference in Austin, Texas, and specifically supporting the Cloud Communications Expo and Startup Camp 6 which are both co-located with ITEXPO. The focus of the Cloud Communications Expo is to draw attention to the specifics of migrating from premise-based systems (you know, those phone boxes you see in your LAN room?) to cloud-based systems where your voice/video data and other communications are stored in the cloud. I'm attending on behalf of our client The Cloud Communications Alliance (CCA), the industry’s largest organization specifically dedicated to the advancement of cloud communications technologies for its members.
I'll be recapping several of the sessions this week, contributing as a guest blogger on TelecomReseller and CCA's new blog, The Cloud Communicator.
Tomorrow I'll be covering the StartupCamp, the only entrepreneur pitch event focused exclusively on the communications sector. StartupCamp is produced by EMBRASE, a leading strategy consulting firm to next-generation communications providers.
We'll hear from Michael Tessler, Co-founder and CEO of BroadSoft, in a rare keynote address. If you're anywhere nearby, come join us ;-)
The first two recaps are up:
Building a Strong Case for Unified Communications in the Cloud
Moderator: Peter Bernstein, Senior Editor, TMC
David Scult, CEO, Fonality, @fonality
Dean Parker, President and CEO, Callis Communications @deanparker
Jeff Wissing, UC Senior Product Manager, ADTRAN @jeffwissing
Adam Cole, CEO, Votela, Inc. @votela
Making the Switch: Using the Cloud for Delivery of Rich, Multimedia Communications
Moderator: Larry Lisser, Embrase @larrylisser
Todd Carothers: VP of Sales CounterPath @tcarothers
Charles Studt: VP of Product Management and Marketing, IntelePeer @IntelePeer
Sean Burke: VP of Sales and Marketing: Telovations @telovations
Stay tuned for more!
-Elizabeth Shea, @eliz2shea
Take away the cloud, and most of our modern technology gurus are selling artisan burgers out the side of an NYC food truck.
So I appreciate the chutzpah necessary for technology analyst and Forbes contributor Roger Kay's systematic take-down of "Google's ideal" cloud-based universe.
Who are we kidding, you're not going to click that link. So allow me to summarize his points:
1. The cloud still can't handle big files (>1GB) efficiently.
2. Unless you live in Silicon Valley or South Korea, your network will fail you.
3. The more operations you conduct in the cloud, the greater your "attack surface."
(In the service of that last point, Kay includes an anecdote about traveling to Shanghai, shutting off all of the network functionality on his iPhone, and still getting remotely hacked by a China Mobile subscriber.)
I like this article because it dares to confront a fairly pervasive tech industry bias. Inside the bubble, we sometimes forget that not everyone in the world is entirely sold yet on cloud computing (or in the case of West Virginia, computing).
But by identifying the specific pain points, we can help non-techies better understand the pros and cons of cloud adoption.