U.S. Software: The Future of Communications as a Service

We are launching on the broader communications space, covering Unified Communications as a Service, Contact Center as a Service (UCaaS), Communications Platform as a Service. We offer this industry-related piece to address the key themes impacting vendors and provide our first comprehensive view of rival communications offerings. We share and incorporate feedback from 25+ customer and partner conversations on competitive dynamics between the players, discussing how each solution compares and is evolving.

Prior to the pandemic, the communications industry lacked a catalyst meaningful enough to push companies and organizations to the cloud. We estimate that public cloud adoption within the Unified Communications and Contact Center markets is in the single-digits, demonstrating the ample opportunity ahead that is just beginning to materialize. Companies have moved beyond their initial need for triage and band-aid solutions and are now focused on in-depth evaluations of technologies and vendors to determine which to implement in the long-run. This inflection in the demand environment is evidenced by the fact that the aggregate average revenue growth for those in the communications space accelerated in CY20 and then growth has stabilized at a higher level this past two quarters. Yet, with the recent pull-back across the software space, some of the communications companies were hit the hardest. Now the peer group forward looking revenue multiple sits within one standard deviation of its three-year average. This de-rating creates a favorable set-up in light of inflecting and durable demand trends in a post-COVID world.

End user spend on communications software and infrastructure was $67 billion in CY20 and hence serves as a target addressable market expanding opportunity for the public cloud giants outside of the infrastructure and application software markets. We sensed that rivaling offerings from the large software players is having the biggest impact on the UCaaS market.