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CPaaS market maturing but rocky times ahead for Twilio May 3, 2017

Posted by Dominic Black in Uncategorized.
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Two interesting news stories have emerged in the last week showing how the CPaaS market is maturing, and how providers need to move beyond transactional services in the future.

The first story relates to the acquisition of TeleSign by BICS, driven by the desire for BICS to transform from a traditional Wholesale model to a CPaaS one, through the acquisition of TeleSign’s authentication and mobile identity services. Worth $230m, the transaction is equal to what Vonage paid for Nexmo in 2016. This highlights the value that Service Providers and Wholesale providers see in CPaaS, evidenced by such investments.

Cavell Perspective:

  • The first iteration of CPaaS has mainly followed a Wholesale model, with tight margins based on services like authentication, messaging and minutes. This means that significant scale is required to drive large revenues.
  • During this first iteration of the market, global wholesale traffic has declined, and as end users look for different ways to communicate, CPaaS platforms began to gain traction as a way to integrate communications within applications. However, CPaaS providers were only able to generate marginal revenues per transaction.

The second story concerns Twilio, generally considered the “poster boy” of CPaaS. Having made a lot of noise in the last few years and grown an impressive client list, the company is experiencing problems as its reliance on transactional services starts to bite. On the latest earnings call, Twilio’s CEO announced that Uber, representing 12% of revenue, will be reducing its use of Twilio’s services over the next year. In after-hours trading, its share price fell by around 30%, wiping close to $1b off their market cap. Twilio is constantly acquiring new accounts (4,000 added in the last quarter), but this has only accounted for quarterly revenue growth of $2m. It will be difficult for the company to find new customers with the user base of Uber.

Cavell Perspective:

  • This will become a growing concern for CPaaS providers, and highlights the need for them to move beyond basic authentication, minute or message services, to stickier solutions that drive customer retention.
  • The BICS acquisition solves the first part of this by enabling them to offer new services, but will this be enough to secure long-term customer relationships and repeat revenues?
  • Companies like Genband, RingCentral, Cisco and Vonage have started to move beyond simple transactional services, and begin to integrate CPaaS services into their cloud voice or contact centre solutions.
  • Service Providers need to understand what is happening in this market: the role of the Service Provider is coming into question, and key vendors are making significant investments in building or buying their own CPaaS platforms.
  • The ability to offer integrated services into applications is likely to be the best way to differentiate in an increasingly competitive landscape.

Cavell’s report “CPaaS: Market Opportunities for Service Providers” studies the dynamics of the industry, profiles key players and offers insights into the threats, and the opportunities, facing Service Providers. If you would like to purchase the report, or speak with one of analysts about the impact of CPaaS on your business, please get in touch with Dominic Black at dominic.black@cavellgroup.com

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