8×8 has missed its Q1 revenue targets, with the vendor’s total revenue dropping two percent year-over-year.
In total, the vendor raked in $183.3 million, an increase on the previous quarter but a figure that lagged its previous guidance of $186-188 million.
Explaining why on an earnings call, Kevin Kraus, CFO at 8×8, laid the blame squarely at the feet of its Fuze CPaaS business. He stated:
Our revenue performance was impacted by continued challenges in our CPaaS business in the Asia Pacific region and higher-than-expected churn in our Fuze customer base.
“Other revenue for the quarter was $8 million, slightly above the prior quarter and in line with expectations,” Kraus concluded.
Some may suggest its CPaaS challenges result from the market becoming increasingly commoditized, with opportunities harder to come by.
Nonetheless, Samuel Wilson, CEO of 8×8, does not see it that way. Instead, he pinpoints two critical reasons for the provider’s CPaaS struggles:
- The pressing need to downsize Fuze contracts.
- Carriers raising their SMS pricing.
The first point aligns with Kraus’s thoughts, and Wilson expands on this by stating:
Smaller customers [are] actually moving off the platform, but a significant portion of lost ARR (annual recurring revenue) was due to right-sizing the customer subscriptions as they came up for renewal for upgrades.
Wilson continued by suggesting that it could take “a few quarters” to right-size all customers.
In doing so, the CEO – appointed to the full-time role in May – hints that many Fuze customers had previously signed contracts that exceeded their requirements.
Nonetheless, Wilson described the acquisition, completed in 2021, as a “major success” regardless.
“We doubled the resources focused on innovation, expanded our enterprise customer base, and increased our operating margins and cash flow,” he said defiantly.
Alongside these downsizing efforts, Wilson accused carriers of raising prices “very aggressively”. The CEO complained:
We were forced to choose between passing along price increases to customers or accepting negative margins.
“We made the sound decision to forego negative margin business, and higher prices caused some traffic to move to other channels.”
As a result, usage declined, hurting 8×8’s CPaaS business, despite an uptick in enterprise customers leveraging the solution,
Wilson on the Future of 8×8’s CPaaS Business & RingCentral
While Q1 proved tricky for 8×8’s CPaaS business, Wilson believes the disruption of customers moving away from SMS is only a short-term trend.
In the long run, the vendor believes more traffic will move through its other digital channels, like WhatsApp.
Meanwhile, 8×8 will continue to evolve the SMS channel to ensure value-add for end-users and to make it more attractive to the business.
“We walked away from low margin or negative margin SMS direct business because it just didn’t make financial sense, and we’ve been investing in add-on capabilities,2 confirmed Wilson.
As an example, Wilson introduced Fraud Shield, a product currently in beta, in which 8×8 protects the customer from SMS fraud as part of the contract.
In those trials, “We’re seeing a tremendous uptick in traffic, and that makes the product itself stickier,” confirms the CEO.
Such innovation is likely key to differentiating CPaaS offerings, a trend many prominent CPaaS players seemingly recognize. As Wilson argued:
I think Sinch, Twilio, us, Vonage, etc., all the players in CPaaS are looking at adding more value-added services on top of our CPaaS business to make it a better, more sticky business.
Elsewhere, 8×8 recently updated its XCaaS model to lead with CCaaS and pull through its UCaaS solution.
Since, the vendor has released a glut of contact center innovations, including enhancements to the 8×8 Supervisor Workspace, embedded agent analytics, and new IVR capabilities.
Now, it has a new competitor in RingCentral after the UCaaS stalwart released a CCaaS platform earlier this week.
Discussing the move, Wilson smirked and stated:
We’ve been in the market since 2011. It’s nice that they’re showing up in 2023. I think, by 2034, they’ll be right about where we are today.
Interestingly, RingCentral’s move into CCaaS may finally put murmurs of the business acquiring 8×8 to rest, which emerged late last year.
