UCaaS, CCaaS & CPaaS: An interview with Alan Masarek, Vonage CEO

21/06/2018

An interview with Alan Masarek, CEO of Vonage.

Doing these video interviews is fun, so when the opportunity arose to be at the Vonage headquarters in Holmdel, New Jersey, it made sense to ask for a video interview with Alan Masarek, the CEO of Vonage.

In this interview, I wanted to get Alan’s viewpoint about the space he is operating in, especially now, some two years after the acquisition of Nexmo. It is quite common to find UCaaS vendors then are heading towards the contact center. Many will even add APIs on top. Vonage is the only one who decided to acquire a dominant CPaaS vendor (Nexmo).

As usual, you’ll find the transcript right below the video.

I enjoyed the interview and the hospitality. I’d like to thank Alan and the team at Vonage for setting this one up.

Transcript

Tsahi: Hi. So I have got here today, Alan Masarek, CEO of Vonage at the Holmdel, Vonage Technology Center.

Alan: That’s correct. We’re thrilled to be here at our Vonage Technology Center. It’s a pleasure to be with you, Tsahi. Thank you.

Tsahi: Thank you for having me here. I have a question before we start and this really bugged me a bit during the time that I’ve learnt about you and about the company: You came from Google to Vonage.

Alan: Yup.

Tsahi: Why?

Alan: Well, first of all, if that’s the only thing that’s bugged you, that would be exceptional. But in all seriousness, what excited me when I was presented this opportunity when I was at Google … And I’d gotten to Google from selling my earlier company to them back in 2012. So I was a director in the Chrome and apps group and I was very involved in the whole rollout of what is now today, G Suite. We used to call it Google for Enterprise.

What intrigued me about coming here was the opportunity to take this almost iconic consumer brand company that built this amazing level of awareness around providing residential phone service and how you could take the brand and the network asset as well as the cash flow from consumer candidly, and use that to pivot into business. I always look at markets the same way. You sort of sit back and you say, “Is that market worth winning and do you have the assets to give you an ability to win it?”

So when you look at the broader business communications market, it’s a massive TAM growing very quickly. And then even when you look at the competitive set, I found the big companies in this set were pretty unfocused. Most of the competitors were smaller companies, had less brand awareness, less sort of national scope, less profitability. So you have this huge TAM, a surmountable competitive set, then you have these assets from consumer that we felt we could bring to bear to win and that’s exactly what we’ve been executing on, that’s what we saw when I was at Google, that’s what I came here to do.

Tsahi: So you’re actually staying in this area between consumer and enterprise. You did that at Google with acquisition and now here at Vonage, moving from consumer to businesses.

Alan: That’s correct. So the company that I sold to Google focused really in the prosumer and enterprise segment. So we were a productivity solution that individuals would use and corporations would use. Here, we obviously have moved very specifically from our roots in consumer, in residential, focused in business. When we began that pivot, we started with small companies because that’s where the action was and the move to cloud, but now we’ve moved very purposefully upmarket to larger and larger corporate customers.

Last year, we signed what I think is the largest deal ever done in cloud communications with the largest residential real estate company in the United States. 21,000 corporate seats moving from prem to cloud and another 125,000 franchise seats.

Tsahi: Interesting. And what gets you up in the morning?

Alan: Well, this morning at 5 o’clock, my alarm clock but … What I’m excited about and I’ve continued … The reason I came here to begin with is I want to build a remarkable company here. It’s not just the transformation from moving from a residential-focused company to a business-focused company. We’re clearly executing on all those elements, whether it’s the technology platform itself, sales execution, the post-sales experience we provide our customers, all those things that we’re doing. But as important and in some respects if not more important, it’s the cultural transformation as well.

What I find that is really sort of stimulating to me is to create that switched-on Silicon Valley mindset culture. I like to think that we’re a billion dollar startup is what we talk about it. Last year, we finally crossed the billion dollar in revenue threshold. But I want to have the agility, the speed, the openness, the transparency, the honesty, all that, in order for Vonage to be … The way I describe it is I want Vonage to be that destination place to work the way Google was and everybody celebrates when they get a Google. I want them to feel the same way getting a job here.

Tsahi: Okay. And you’re a cloud communication company at the end of the day and cloud communication in the last few years have got a lot of attention, especially this last year. How come most of the businesses today are still on-premise when it comes to their communication needs?

Alan: On the communication side, the move to cloud has happened more slowly than CRM and ERP and HRM software, things like that. I think because the nature of dial tone has been about as reliable as the sun coming up tomorrow and there’s a great degree of risk that’s associated with it. Companies sit back and they say, “My goodness. It works. I don’t necessarily want to change it.” Now, the reality is when you move from the traditional prem-based solutions and the old PSTN network and such to IP-based, cloud-based solutions, you have infinite scalability, much, much more functionality, the whole notion of unified communications and communications platform as a service all stems from that. But I just think there’s been a fear factor that has caused it to migrate to the cloud more slowly than some of these other verticals.

But you see this amazing tipping point as recently as five years ago, only small companies for the most part were moving to the cloud. Now it has moved all the way up to major enterprises. And there are just example after example of other huge companies, global multinationals moving to cloud. It’s sort of no longer in dispute that cloud will supplant prem. It’s just like anything takes time.

Tsahi: What triggers them to do that shift, that migration from on-prem to cloud?

Alan: There are several trigger points. A couple of them are the comfort of moving to cloud. The cloud was scary just a few years ago and so it was to be avoided by bigger companies. But beyond that, it’s the productivity that they can get. Every company out there is going through their own digital transformation of one form or the other. Everybody is looking over their shoulder, scared to death of the more digitally transformed competitor has a bullseye on their back, is coming after their business. Obviously, we can always cite the example of physical retail stores versus Amazon eCommerce. That notion of digital transformation everyone has to go through and I think what’s happened is up until very recently, communications has been sort of the underappreciated element of digital transformation.

I always have this sort of visual metaphor in my mind that you can picture somebody on the old black rotary dial phone talking to a colleague saying, “We got to get that eCommerce site up.” Not realizing that the problem itself or a major piece of the problem itself is their communications infrastructure, how people work differently with one another, how they collaborate, et cetera, et cetera. All those elements of what we’re providing with these cloud communications solutions are fueling their digital transformations. I think that’s now being seen. Folks are more aware of that all the time and that’s why you’re seeing kind of everything change and move to cloud so quickly.

Tsahi: When you look at the communication market, for me, it’s like a Venn diagram with different parts of it. There’re unified communication and then contact centers and recently, we see APIs, these CPaaS communication platform as a service. When I look at what competitors do in this space, your competitors and unified communications, they end up going and doing something or adding stuff in the contact center. And then when they look at the APIs, usually go and say, “Well, we just put an API”; obviously they do because 2018, everybody uses an API on top of what they do. But you did something differently. You went and acquired the company called Nexmo and then their APIs, haven’t even touched it in a way and you left that to be a separate part of the business or a business all its own, with and without relationship to what you’re doing in unified communications.

Alan: The reason that we bought Nexmo is we have a view of what business communications is and will be that’s different than most. Most in the example have hosted PBX which has really been the principal use case of UCaaS or hosted contact center which has been the principal use case of CCaaS. In our view, those are just applications. Hosted PBX, moving your prem-based PBX to the cloud is a big TAM onto itself but it’s not necessarily an industry. The same applies to contact center. It’s not an industry. It’s simply an application or a use case which is really large and really important. But at the same token, the whole now new acronym of CPaaS, Communications Platform as a Service, says, “Well, there are other elements of communications that I want to simply program into my workflow, my mobile app, my business process, my website.” What have you. But have nothing to do with the contact center or the PBX.

Our view has been that we’re building a communications platform company. The whole notion of it is it’s a microservices architected platform. So we’re taking the Nexmo platform and our own Vonage Business Cloud platform and bringing those together. We refer to that internally as 1V, One Vonage. From that microservices architecture, you’re just going to serve customers in those big use cases. So whether you bundle several hundred of those microservices together in a use case called PBX or in a use case called contact center, or sell them one at a time that just get embedded into something else via the software APIs, it doesn’t matter. It’s the same platform. You’re just feeding where the needs are the greatest.

And the notion of this is that there’s not different industries, UCaaS, CCaaS, CPaaS. It’s simply communication elements, how they get deployed. The way I like to think about it is I go back to the music industry. We grew up, here’s songs and we can buy it only one way. Packaged, pre-published on an album. Apple came along and the cloud and said, “I’m going to unbundle the model and you can buy a song one at a time.” And then streaming services and subscription services have come along and the ability to mash up your music. They’re just different delivery models of the same song. It’s the way I think about cloud communications. There are communication elements, audio, video, messaging. Whether you package them in big applications like PBX or unbundle them as microservices, which is the CPaaS model, it doesn’t really matter. It’s just where the needs are the greatest.

Because at the end of the day, communication only serves a purpose. Does it make the company more productive? Does it connect my customers in a more personalized way with me as a company? And does it drive better business outcomes for my business? If it doesn’t do that, it doesn’t really matter whether you call it UCaaS or CCaaS or CPaaS. It simply has to drive those better business outcomes and that’s the approach that we’re taking.

Tsahi: Talking about Nexmo, they are now 12, 18 months part of Vonage now.

Alan: Almost two years. June 5th will be two years.

Tsahi: What synergies have you seen since the acquisition, up until today?

Alan: There’s been a great deal of synergies. You mentioned before about the Venn diagrams where much of the industry has developed as if the segments, UCaaS, CCaaS, CPaaS have been separate. We reject that. If they were all Venn diagrams, they all will be separate. Our view is they’re coming together all the time. So increasingly, the purchaser at a company, Acme  company, is the line of business manager. The conventional wisdom used to be that if I’m buying UCaaS, I’m the CIO or the head of IT and if I’m buying CCaaS contact center, I’m the help center. And if I’m buying communications platform as a service, I’m an individual developer, perhaps even the CMO. What you’re finding now is it’s coming together as lines of business. Given that trend from a synergy point of view, we’ve organized since the acquisition, completely functionally so that the entire engineering team, Vonage traditional or Nexmo reports up to the same CTO. The product organization up to the same chief product officer. Sales under the same chief revenue officer, same with marketing.

And they’re already doing tremendous amounts of lead sharing within the groups, operational sharing, sales enablement, sales training and things like that. Because what we’re finding is that in the cloud PBX world, your salespeople don’t want to go out there and go to a customer and say, “Buy me because my hunt group or my auto attendant is better than the other guys.” Because this very sort of baseline functionality. What you want to do is go into your customer and have a conversation about better business outcomes. So they’re just naturally carrying Nexmo into the discussion with every prospect out there. You can look at every one of our large company wins. It began with a Nexmo conversation interestingly, more than just the feature set of the PBX or the contact center. So you’re seeing very, very natural synergies happen. Now, it’s not a cost synergy issue for us in terms of people. When we bought Nexmo, it was about 175 people. I think it’s above 300 today and as I recall last time when I was in our London office, there was 140 open jobs for Nexmo this calendar year, so we’re growing in a big hurry.

Tsahi: We’ve talked about the cloud, we’ve talked about API. There is another big buzzword these days around communications and that’s “Teams”. The notion of what Slack started in a way. Messaging inside groups, smaller groups which is more ad hoc than the usual grounded structured way of communications. And you see today Microsoft going there, Cisco going there. All the big companies are headed there and then next to you, you got Google and Amazon joining this specific space. How is Vonage preparing towards that future of team collaboration, enterprise messaging, whatever you want to call it?

Alan: So not to sort of disclose all the goodies that are coming but within our roadmap, we have some very, very interesting developments around the collaboration and work stream messaging space that will be coming out later this year. And that’s tightly integrated as a single app whether you’re mobile, desktop or browser, with the experience in the communications system. Now, it also will integrate well with the major players that you just talked about. Slack, Stride, Teams, et cetera. Or it’s going to be WebEx, et cetera. Because it has to.

In our view, we can’t play king maker and say, “Oh. Mr. Customer, Mrs. Customer, you cannot use these other collaboration tools.” That’s ultimately going to the decision of the customer. So we have to have our own solution that is built-in in a fully integrated way but then the ability to integrate in with the others and that’s the approach that we’re taking.

Tsahi: Can I ask a question that just occurred to me?

Alan: Sure.

Tsahi: What about contact centers?

Alan: I think contact center is incredibly important as part of the integrated solution. And so today, we have a contact center built into Vonage Business Cloud which is our own proprietary call processing stack. And for our Vonage Enterprise Solution, we use BroadWorks contact center functionality. Then, in those situations where they need an advanced contact center solution, then we are a reseller of inContact. But again, it’s integrated fully in with our solution, so it appears like it’s a single experience. And then we serve it as if it’s a single experience so the contract is on our paper, the support is ours, things like that.

Contact center though becomes very, very important in the CPaaS market because so much of how communications get embedded in through some software API into that website, that mobile app, business process, what have you, is about customer experience. And so think of it as task routing. Somebody is on my website and they’re looking at my product and they have a question. Today, they may pick up the phone and call and have to start over because there was no context to what they were doing on the website, and these CPaaS type tools are all about the contextual. The software identifies the context to what I was doing.
So if was on Delta Airlines site trying to book a flight and I was 10 minutes into booking the itinerary and all of a sudden it had a problem, in the past, I’d pick up the phone and just call and have to start over because no one had any idea of the itinerary I was just trying to book. These new contextual tools that you can embed in, understand the itinerary so that it routes through the appropriate IVR into the contact center. So think of it as a task, an intelligent task. It knows I was trying to book a flight from Tokyo to Shanghai next Thursday and it will route me through the appropriate IVR to the person on the help desk for the international Asia markets.

And so you can envision from a customer personalization or a customer intimacy, rather than me having to start over which is what happens today, which is very frustrating to all of us. You can imagine the agent picking the phone up and saying, “Hi, Mr. Masarek. I see you’re trying to book a flight next Thursday from Tokyo to Shanghai. How can I help?” That’s a direct connection between the customer experience, routing the task into the contact center. We think that’s very important.

Tsahi: Let’s look a little bit into the future.

Alan: Okay.

Tsahi: What do you think is the biggest challenge for the modern businesses moving forward from now on? When it comes to communications of course.

Alan: I’m not sure it’s a challenge. I don’t want to sort of split words between challenge and opportunity, but I actually think communications is going to fundamentally change by virtue of we’re no longer tethered to a physical device. We think about communications, I’m on a call, either a landline or a desk. In our vision for it, communications is in everything. So whether it’s a click-to-call or click-to-communicate functionality in the website or … Pick whatever app you want. You’re on Salesforce, I’m on an Excel spreadsheet, someone else is in G Suite or in Gmail, or in Google Sheets. Doesn’t matter. There will be click-to-communicate functionality everywhere and naturally, these microservices that are going to be created increasingly by these CPaaS type solutions. So you’re going to have I think this explosion in communications the way I think about it because you’re no longer tethered to anything physical. You’re in an app or a website or what have you.

And the way I think about it is your decision of how you communicate is simply going to be a function of the limitations of the physical device that you got onto the internet with. So for instance, if the device doesn’t have a camera, you’re not going to do video. If it doesn’t have a speaker and microphone, you’re only going to do messaging, that’s all you can. But the mode, video, audio or messaging is going to be the limitations of the device and your personal preference, also kind of situational. If you just stepped out of the shower, you’re not going to do video likely. So the point is regardless of how you’re interacting in some sort of app or website, you’re going have communication everywhere. So I think the notion of the challenge to companies is less the challenge and more that I think it’s going to change the way we work because the notion of how we collaborate, how we share, the tightness of the communication, sort of that feedback loop is going to get tighter, and tighter, and tighter is the way I think about it.

I actually think about communication, this renaissance or this explosion in communication a little bit like the internet 10 years ago. 10 years ago, there was no video flying around the internet. It was kind of more flat files and such. There wasn’t full-motion video. There certainly wasn’t virtual reality and things like that, and self-driving cars and all these stuff that is just massive quantities of data that are going around the internet. When that began, look what happened with all the content delivery networks. They just kind of went like this in terms of the volume of capacity they have on the internet. I think communications is going to go through this similar renaissance or explosion in the sense because if communications are everywhere, not just on specific devices, you’re going to be communicating all the time, and so I think you’re going to see this massive uplift in it. If it’s a challenge out there, it’s going to create sort of communication overload, perhaps, but maybe smarter people than use will figure it out on how to make it simpler.

Tsahi: And moving forward, would businesses end up building their communication needs on top of APIs, go pick a UCaaS or a communication solution to do that for them or go for even a very specific niche SaaS product to get what they need?

Alan: I think that increasingly, communications will be built on top of the platform, the PaaS product, not going and buying some monolithic application. Like you said earlier, everybody’s got APIs. The old way we used to write software, we write a big monolithic solution from the UI, the user interface, all the way down to the metal called PBX, in our example. I can open up APIs to the PBX but it’s not programmable. It’s simply an API into that monolithic solution. Where we sit today is a microservices architecture where it’s fully programmable.

And I think what you’ll see, and this is exactly the strategy we’re building to, is whether you want to use that big chunk of microservices in a particular use case that is as a big application like PBX or a big application like contact center, it’s just a function of what’s the best way to deliver it to a customer. Do I think people are going to build their own PBX all the time? No. Because I think to me it’s analogous to the vast majority of people don’t build their own computer. You certainly could. You could be a hobbyist and build your own PC and buy the motherboard and the chassis and the whole bit, but very few people do that when you go out and buy a computer for $400. So I think the PBX distribution model where it’s something you’re going to subscribe to, it’s a SaaS solution, will persist, but I think the microservices are really going to takeover where communications get woven into everything else.

Tsahi: Vonage in 5 to 10 years from now, where do you see the company itself? What are you going to sell to businesses, to consumers? What kind of services are going to be there?

Alan: Vonage in the next five years will be an extraordinarily different company than it is today. Let me go backwards first. Four years ago, we were 100% consumer. Now, this year in 2018, roughly 60% of the revenue is business. Business is growing really quickly. So as of last quarter, 22% growth organically, nothing to do with acquisitions. And consumer has been declining as residential home phone usage is in decline, by 12% roughly. Now that business is the larger of the two segments and growing at twice the rate that consumer’s declining, you can imagine where the line separate in a very big hurry. So the whole focus of the organization is on business. It already is. Consumer is still a meaningful piece, it’s 40% but it’s getting smaller all the time as a percentage of the total.

What’s interesting from a how we’re going to serve customers is precisely the way we do it today. Our whole approach from a platform perspective, the way I described it where irrespective of whether it’s UCaaS, CCaaS or CPaaS, coming out of a common platform, we will continue to execute on that. What’s interesting where I think a value unlock happens for the company is you’re now going to have … We’re already having consolidated revenue growth.

Last year, we did just above a billion dollars in revenue. This year, Wall Street has us close to a billion fifty. Again, as the smaller piece, consumer, get smaller and smaller, it’s mitigating impact and overall growth declines. Therefore, we’re sort of more and more of a consolidated growth company. Again, unrelated to any acquisitions, just purely organically. The notion then of, “Oh my goodness. You’re in the midst of a transformation” goes away because you’ve now transformed.

So where I can see us in pretty short order is serving our approach to our customers in this differentiated way which I think will withstand the test of time, will withstand competitive entrance because, the end of the day, we’re just rooted in how do we provide better business outcomes for our customers. But now you’re going to have this increasingly fast growing consolidated company, well greater than a billion dollars in revenue, highly profitable still and I think that’s going to be a value unlock for the story. When I go back to many transformational stories in the early days, there’s a lot of investor skepticism about transformational stories is most of them don’t work. This one’s worked and that’s why we’ve had sort of a almost quadrupling of our stock price over the last four years.

Tsahi: Okay.

Alan: All right.

Tsahi: Thanks for your time, Alan.

Alan: My pleasure. Thanks so much. I enjoyed it.

Tsahi: Me too.

Alan: Sure. Thank you.

Tsahi: Thank you.

Responses

DAVID PATTEN says:
June 22, 2018

Excellent interview that provides insightful information.

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Danny says:
July 1, 2018

Great turn around story from $17 IPO to .30 low and now to $13, still relatively unknown stock.

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