Vonage’s cloudy strategy is now clear

Vonage’s acquisitions make the company uniquely positioned to address the communications needs of consumers, SMBs, enterprises and developers

Vonage’s cloudy strategy is now clear

Alan Masarek has been CEO of Vonage since November 2014. Since then, the company has undergone a transformation, building on its roots as a home phone replacement company to become a leading provider of cloud communications for business. 

Vonage jump-started its leadership position as a business communications provider through acquisitions and has been very active acquiring companies to complement the core consumer VoIP offering and early SMB offering the company had when Masarek assumed the role. Masarek’s vision is for Vonage to be the global leader in cloud communications by transforming the way people connect and businesses operate through integrated and contextual communications whenever and however people choose to communicate.

The vision is simple: to deliver cloud communications that help businesses communicate more effectively and efficiently by providing greater flexibility, mobility and productivity in how they connect their employees and communicate with their customers. However, the implementation of this requires different tools for different segments. That has been the driving force behind Vonage’s aggressive merger and acquisition strategy.

Prior to Masarek’s arrival, Vonage had a single service optimized for consumers and very small businesses. Since then, the company has been on a shopping spree akin to what one might see from the likes of Cisco. Every acquisition had a strategic purpose and filled a need that let the company address a new market segment.

Vonage’s acquisitions and what they mean

The purchase of Vocalocity gave rise to Vonage Essentials, a product focused on the needs of the SMB segment. Essentials is built on proprietary technology, and the company can quickly tweak and tune it for the needs of SMBs.

Vonage chose a different route for its offering for the mid-market to large enterprise customer, Vonage Premier. The company rolled up three Broadsoft-based Unified Communication as a Service (UCaaS) providers— Telesphere, Simple Signal and iCore—to build Premier.

Premier is as good or better than any other UCaaS offering aimed at large companies. Many UCaaS providers run over the top of the internet, but Vonage Premier rides the company’s MPLS network or Vonage’s SD-WAN-based SmartWAN service to provide quality of service (QoS) guarantees and higher-quality service-level agreements (SLAs), giving the company a global reach with a consistent experience.

Vonage bolstered its enterprise portfolio with the purchase of gUnify, which acts as “middleware” to tie communications to business applications. How it works: for example, if a law firm were a Vonage customer, all desk phone, soft phone and mobile phone calls could be automatically integrated into Clio, a software CRM solution tailored for law firms for recording and billing purposes. This can save a significant amount of time and be more accurate than logging things manually. An easy way to think about gUnify is that it provides integration into worker-facing productivity tools such as Google for Work, Zendesk, Salesforce, Bull Horn, the previously mentioned Clio and many other vertical applications. 

Vonage’s most recent acquisition, Nexmo, creates communications integration with customer-facing applications. Nexmo is one of a few Communications Platform as a Service (CPaaS) cloud providers. The most well-known vendor in the market is Twilio, which recently IPOed. Last year, Cisco acquired a private company called Tropo to move into the space, and earlier this year, privately held Avaya launched Zang.IO to add CPaaS to its portfolio. 

Communication via the cloud

UCaaS offers full PBX functionality from the cloud. CPaaS can be thought of as delivering modules of communications from the cloud via APIs. Historically, if a company wanted to build an application with “click to call” or “click to SMS” capabilities, it would need to buy racks of hardware, deploy it and have developers that are telephony savvy. Now any developer can make a call to the cloud. CPaaS services have usage-based pricing, so there’s little to no risk for an organization because the cost escalates as more customers use it.

The low-hanging fruit for this market has been digital-native companies such as Uber and AirBnb, but recently more mainstream companies have started to make CPaaS a key part of their digital transformation plans. For example, KLM Royal Dutch Airlines incorporates Nexmo APIs to offer customer service through Facebook Messenger.

The thesis behind CPaaS is that end users would prefer to communicate with companies without having to leave the application they are in. It’s easier for the customer and allows the business to offer true omni-channel communications. 

I fully expect CPaaS to be a “rising tide” that lifts all of the boats in the market. In fact, IDC has forecast this market to grow from $123 million in 2013 to $7.5 billion in 2018. Even if it’s a portion of that, Vonage will be one of the main suppliers in this space and will benefit from the shift to digital. Also, as the Internet of Things becomes more commonplace and we start to see machines talking to people and vice versa, CPaaS will be a key enabler of this trend as well.

There is a “1+1 = 3” scenario for Vonage with Nexmo. Vonage can use its global MPLS network to send messages, calls or video with greater quality of service than pure over the top solutions. Also,being able to traverse the Vonage network creates some cost advantages. For example, a call made from Singapore to the U.S. can ride the Vonage network and terminate in the U.S., saving the customer long-distance rates.

Vonage has well over 70,000 business customers today and can leverage this installed base to grow the Nexmo business. Twilio has focused on digital companies and the “long tail” of small software vendors. Vonage’s best strategy is to mine its massive install base. 

The rollup of all of these acquisitions creates a uniquely positioned Vonage that can address the communications needs of consumers, SMBs, enterprises and developers. Communications is becoming an embedded part of every application we use, and it’s important that it can be consumed in many different ways and that Vonage can address each of them. I believe Vonage will grow ahead of market growth based on its ability to leverage the broadest cloud communications portfolio in the industry.

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