Thoughts on the Twilio IPO:
UCaaS Competitive Advantage is Built not Bought
Twilio’s recently announced IPO bid has been accompanied by the release of a variety of disclosure documents that offer a window into the unicorn’s core business and philosophy, as well as its interpretation of the market factors that make this moment in particular ideal for an initial public offering. Of particular interest to telecom Service Providers is the following line (p. 2, 99) from the S-1 Prospectus, filed with the SEC on May 26th:
Differentiation Must Increasingly Be Built, Not Bought
What does this mean? As the prospectus explains, the key to establishing and maintaining competitive advantage for organizations throughout the economy is a differentiated customer experience that “delights” the end user. This has led to an investment in software engineering across the board, since “[p]urchasing widely-available out-of-the-box software does not generally offer the customization that organizations require to deliver these differentiated customer experiences.” In short, in order to provide the services that consumers demand, organizations are increasingly “building” them, since pre-developed software just doesn’t offer the bespoke tailoring to the end user that is necessary for success.
Gartner, in a report referenced in Twilio’s S-1, goes into greater detail, asserting that “organizations already favor a new kind of “build” that does not include out-of-the-box solutions, but instead is a combination of application components that are differentiated, innovative and not standard software”. In other words, companies are beginning to opt for fully- or partially-proprietary software that is developed internally or “sourced from startups, disrupters or specialized local providers.”
Twilio’s IPO Prospectus specifically mentions Bank of America and Starbucks Coffee as two organizations that have benefited from, and invested heavily in, this kind of build-not-buy software in the form of mobile applications. Starbucks, for its part, has reported that mobile payments now account for 20% of all of its US store transactions, while Bank of America’s mobile app has allowed it to aggressively reduce its physical presence in the US.
In the telecom space, and in Hosted VoIP specifically, this trend is reflected in software applications or features of applications (not necessarily mobile apps) that differentiate voice, video or text from the commodity services offered by competitors. Ringcentral, for example, has a safe driving mode for its video conferencing service, that allows travelling professionals to enter vehicles and drive without ending or disrupting their calls. Another software-based innovation is Jive’s Dial Plan Editor, which allows the end-user to easily and intuitively craft dial plans for his or her own phone system. Delightful innovation can extend beyond standard business systems as well, as illustrated by Fuze’s automated speech recognition and text-to-speech software that lets call centers implement intelligent call routing based on voice responses to questions defined by the end-user.
The market conditions that prompted this trend towards proprietary software can pose problems for smaller organizations, however, given that the provisioning of such “built” software-based services require either a) internal capacity to develop such software or b) the resources to outsource the creation of such software to a third-party. Telecom Service Providers exist in the same economy, and in consequence, are in no way exempt from these trends. Indeed, insofar as communications services have a well-established presence in the consumer’s mind (and consequently are subject to very high standards) they feel both greater pressure to differentiate and are held to a higher standard. For smaller and mid-sized Service Providers, many of whom are already pressed by the spread of VoIP services as an alternative to POTS, the challenge of creating software that provides such a differentiated customer experience is practically insurmountable.
However, Service Providers can overcome this challenge, and in fact thrive, by adopting a cloud-based business telephony solution with best-of-breed features and support along with a flexible open API layer. Hosted VoIP on a best-of-breed platform, delivered in such a way that it has capabilities of the Service Provider’s own creation tailored to specific market segments – by size, by industry, by geography, etc. (see our recent White Paper on Hosted VoIP for Industry Verticals) – can substantially increase the excitement level of the team selling the service and the business consuming it. Developing innovative applications and integrations that expand on stable, reliable, feature-rich hosted PBX foundational technology – in both monetary terms and in terms of time and labor resources – is achievable even for smaller Service Providers. This is what Twilio is selling and what we at VoIP Logic believe as well.