In recent months, Avaya’s bankruptcy has become the talk of the CX town.
Yet, it’s far from the only vendor in the space to experience financial woes.
Last month, that reality shifted further into sight, with Lifesize following Avaya into Chapter 11.
Reacting to the news, Dave Michaels, Lead Analyst at TalkingPointz.com, told CX Today:
Quite simply, it’s too many companies and too little growth… Microsoft is sucking the air out of the ecosystem, and companies like Lifesize don’t stand a chance.
In the UCaaS space, this is most evident, with Microsoft reaching 300MN monthly active users on Teams earlier this year.
Yet, consider the other realms of CX. Microsoft only occupies 5.8 percent of the CRM market – according to 2022 research from the IDC.
Meanwhile, some analysts have placed doubt on its ability to compete in the CCaaS market, in the short-term at least.
Sensing this, many UC players have switched the focus to CCaaS in recent months, anticipating additional room for growth in that space.
8×8 has made this strategy crystal clear. Meanwhile, the like of Cisco, Dialpad, and Zoom are placing a lot more emphasis on the contact center.
Yet, as these vendors have made this shift, the CCaaS space – like the UCaaS market – has become highly saturated.
Moreover, new entrants like Salesforce and Google have only suffocated the space further.
“A Lot of Companies Around Us That Are Struggling” – NICE CEO
Given the current macro-environment, in which deal cycles are expanding, increased suffocation in the comms space is especially concerning.
Indeed, Barak Eilam, CEO of NICE, highlighted the financial strains of rival CCaaS vendors during a recent earnings call – despite NICE posting solid revenue growth itself. He stated:
We see a lot of companies around us that are struggling, have never been profitable, and have poor unit economics.
Taking note of this trend, Dom Black, Head of Research, Cavell Group, expressed his concern that many vendors – across the entirety of the enterprise comms space – may follow a similar path to Avaya and Lifesize.
“I think comms space is – to some extent – oversaturated with vendors and there’s a number that won’t be surviving this over the next few years” he told UC Today.
However, Black adds a caveat, highlighting how these difficulties may lead to some much-needed consolidation across the space – led by the likes of Microsoft and its fellow industry giants.
Time for Mergers & Aquisitions (M&A)
“We’re seeing continued acquisitions and consolidation, particularly in the MSP and channel space in North America and Europe,” said Black. “Now, this is catching up to the vendor space too.”
“There are a few viable options out there, with interesting assets coming up on the market over the next few years.”
Indeed, earlier this week, talk of a RingCentral-8×8 merger resurfaced after a new investor took a sizeable share in the companies, urging both to reconsider their M&A plans.
Meanwhile, some also see Avaya as a viable target for many comms giants due to its large install base and significantly reduced debts.
One of those giants could again be RingCentral. As Irwin Lazar, President and Principal Analyst at Metrigy, said:
If you think about a company that’s already a partner and investor there, RingCentral could look at Avaya’s balance sheet, see that they are a lot more attractive now, and recognize that they can get us into larger enterprises. It’s going to be interesting to watch.
Indeed, acquiring customers is especially tricky in spaces like CCaaS and UCaaS. With install bases hard to move, rolling up competitors is the one way to do that quickly.
As such, it seems that these spaces are ripe for M&A.
Nevertheless, with many of the few industry giants capable of making such moves – including Salesforce and Twilio – cutting back on expenditure and focusing in on profitability, further bankruptcies become more likely.
