The $22-billion call center market — dominated by legacy solutions from Avaya, Cisco Systems and Genesys — is ripe for disruption. Of the estimated 14.5 million call center agents worldwide, 95 percent of them still sign into on-premise offerings.
However, thanks to Software-as-a-Service (SaaS) total cost of ownership (TCO) savings of as much as 40 percent and relatively easy implementations, the transition to the cloud has already begun: It’s estimated that within two years the cloud penetration rate in call centers will reach 13 percent.
At this month’s JP Morgan Global Technology, Media and Telecom Conference, Mike Burkland, CEO of Five9, an emerging provider of on-demand software for contact centers, explained that the migration to the cloud is tied to the refresh cycle for on-premise solutions. Instead of spending big bucks to upgrade to the latest legacy offerings, the refresh often acts as a trigger opportunity to bring call centers to the cloud.
Another Trigger Point
The adoption of Customer relationship management (CRM) software in the cloud is another trigger point, providing “real pull” for the call center transition, according to Burkland. Since CRM software is a data repository for customer information, call centers are tightly integrated into these back-office solutions.
For example, when a service call comes in, Five9 solutions do a data search across the CRM system, then route the call to the most qualified agent based on the background information and historical interactions associated with the specific customer. When companies move their CRM software to the cloud, they often consider moving the call center there as well.
With many large organizations using different legacy call center solutions across various divisions, the transition to the cloud is often a decentralized decision made by each department, with the enterprise-wide move taking place over an extended period of time.
A large company with 10 or more call centers might initially move a few of them to the cloud, see how it goes and then decide to fully transition. This is actually good for smaller vendors of cloud-based call center solutions in terms of their land-and-expand strategy: win over a division or two at a customer, and then build the business from there.
Who is Leading the Charge?
According to Paul Jarman, CEO of inContact, another provider of cloud-based solutions, 90 percent of call centers today have less than 100 seats, with this group representing 50 percent of industry revenue. These midsize contact centers (even if part of a larger organization) are often the most likely to lead the charge to the cloud.
Today, voice interaction is still the core communications vehicle for most contact centers, with only 20 percent offering multi-channel interactions. But customers increasingly want to communicate with organizations via other means—including email, live chat, instant message and social media. This creates yet another trigger point for turning to the cloud, as many of the SaaS providers offer multi-channel engagement solutions that are easy to get up and running.
A Look at the Numbers
In about half of inContact’s new call center deals, the customer deploys at least one additional channel solution outside of voice interaction, said Jarman. In the March quarter, inContact’s revenue rose 17 percent to $37 million, driven by 24 percent growth in software revenue. The company closed 82 deals, including 50 contracts with new customers and 32 expansion transactions with existing clients. First-quarter bookings were a record thanks to strong demand from the healthcare, finance and government verticals.
For 2014, inContact is expected to come in with revenue of $168 million to $171 million (growth of 30 percent at the midpoint), boosted in part by the recent $45.8-million purchase of CallCopy, a provider of workforce optimization (WFO) solutions marketed under the Uptivity brand. In 2013, Uptivity’s revenue rose 20 percent to nearly $20 million.
Uptivity brings with it a network of more than 50 resellers and an installed base of roughly 700 customers, including 36 Fortune 500 accounts. About 90 percent of Uptivity WFO solutions — used for analytics, agent coaching and quality control — are connected to on-premise call centers, so the combination with inContact will drive more business to the cloud, building out the recurring revenue stream.
Shares of inContact recently traded at $8.30, down from the 52-week high of $10.54. The market cap of $469 million is 2.7 times the high end of the 2014 revenue guidance range.
In April, Five9 went public at $7 a share. At the recent price of $6.64, the market cap of $320 million is three times the 2014 consensus revenue estimate of $104 million (growth of nearly 24%). In the March quarter, the company’s revenue advanced 27 percent to $24.3 million, with strong enterprise wins in the healthcare, tech and retail verticals.
Zendesk, a fast-growing provider of a cloud-based customer service platform, just went public in the middle of this month at $9 a share and opened for trading at $11.40. Zendesk stock recently traded at $16.10, sporting a market cap of $1.13 billion, 15.7 times last year’s revenue of $72 million. In 2013, Zendesk saw top-line growth of 88%; for the first quarter of 2014, revenue was up 80 percent to $25.1 million.
Title image from U-Haul.