Interactions 2015 - Big Bets, Smart Bets, Great Music, and a Silver Lining for UC

14 Jun 2015

Last week, several UC Experts attended the Interactions 2015 event in Indianapolis. This is the annual showcase event for Interactive Intelligence, a vendor that we often feature here at UCStrategies. While known mainly as an innovator in the contact center space, they have strong UC capabilities, making them an important company for us to watch. I say this not so much in terms of them being a UC disruptor, but rather where they are heading with the cloud. They remain a difficult vendor to categorize, and Interactive Intelligence continues marching to their own beat.

UC seems to be on shaky ground these days, and every vendor is struggling to find terra firma and a clear value proposition that resonates with customers. The cloud has a lot to do with this, and the telecom-centric model that created the foundation for first generation UC leadership now seems like a liability. What's clear to me is that no vendor will make it by standing still, and I wanted to share some takeaways from Interactions 2015 that the pure play UC vendors can learn from.

Marketing

New leadership is in effect, as Jeff Platon has replaced Joe Staples as CMO, and this was our first look at his initiatives to make the company better known and understood. A number of things stood out for me on the branding and go-to-market fronts:

The new logo is the most recognizable change for sure. A lot of companies move to a simplified design these days, and this one is certainly easier on the eyes than the original logo. It may be simpler, but it's on the plain side to me, and until the concept was explained to us, I didn't associate it with what the company name stands for at all. To be fair, I only have an MBA in Marketing, and that seems pretty common these days, so maybe kids learn different things now that makes this imagery clear to them. :-)
I thought it was interesting that they used crowdsourcing to generate ideas for the new logo. Again, marching to their own beat, they went digital this time, going with the wisdom of the crowd instead of hiring a design firm. This definitely keeps the cost down but also taps into ideas that resonate with the market today. The look is clean, and I like how they've updated the tagline to Deliberate Innovation - that's exactly what you want from a disruptor, and I think it works really well.
Speaking of that, there actually is a deliberate rationale behind the simplified logo, and it has nothing to do with aesthetics. The big driver is mobile devices, as the original logo was just too hard to display on a small screen. They are hardly alone on this front, and it's another powerful example of how mobility is impacting how we experience the world as well as how companies have to present themselves. If it doesn't show well on a mobile screen, you better come up with a new design.
The colors are warm with a contrasting mix of dark blue and light blue, which I take as an ode to the cloud. That's clearly the direction they're going, so that works for me as well. Is it just me, though, or don't their colors look a lot like Mitel's following their recent branding refresh?
They've come up with a really good tagline for the web and created a vanity URL around that: www.MakeWorkSimple.com. That's exactly the message you want to convey in the UC&C space, and guess what - that URL takes you straight the PureCloud Collaborate website. Kudos for tying this together so well - it's a memorable message and a clever entrée to the story Interactive Intelligence wants everybody to know.
Finally, Jeff spoke about how they are leaning more towards digital channels to broaden their market reach. This is another nod to the Web, Big Data and ultimately the cloud, and a move away from conventional forms of marketing such as print advertising and trade shows. Buying habits are changing, and more importantly, people are relying less on traditional information sources to support their decisions. They're still early on this path, but the direction is clear, and it's a sign of what UC&C vendors need to be doing more of.

Sales and Financials

Marketing efforts are for naught if the results aren't there, and we got plenty of proof points across a series of updates from their executives. The numbers are not spectacular, but they're solid and provide a pretty good picture of what success looks like when you migrate customers to hosted and cloud-based solutions.

CaaS is their hosted contact center platform, running from their own data centers. Monthly billing reached 50,000 seats in March, and they expect to approach the 80,000 seat level by year end.
In terms of the sales mix, premise-based solutions are roughly 60% direct and 40% indirect. That mix is closer to 80/20 for cloud-based sales, and that shows why it's so important for the company to become better digital marketers to reach customers directly. The reseller channels are still new to cloud, both in terms of understanding the offerings as well as selling it to their end customers.
As of Q1 2015, 57% of new customers are premise-based and 43% of new customers are cloud-based. Momentum is favoring the cloud, and they expect premise-based orders to decline 5% this year. I would love to see how this mix compares against the competition, and I suspect they are ahead of the curve on this front.
Overall, the company is on track for $400M in revenues this year, up from $341M in 2014. Solid growth for sure, especially since cloud revenues don't impact the top line the same way as premise-based sales.
What do margins look like for the cloud? Not as healthy as conventional lines of business, and that isn't what the investment community likes to hear. However, that will change as cloud matures and the adoption rate increases. For software licensing and hardware, margins are around 75%. They're even higher for support services at 85%, but CaaS margins are currently around 40%.
Land and Expand - that's a good way to describe a proof point that bodes well for cloud's future. The company is generating a healthy mix of new contracts and follow-on orders, and the latter means that they continue growing the business once a new customer is landed. Currently, they have $187M in recurring revenues, and while the data was presented too quickly for us to capture, that's a bit more than 50% of total revenues. I did manage to capture the solid 26% CAGR metric that was cited for the growth rate of recurring revenues since 2011.
Mix of CaaS seats - this is the silver lining referred to in the title for UC. CaaS is not fully cloud-based the way PureCloud is, but it's halfway there, and I'm certain success with one will follow with the other. Specific metrics were not provided - plus they came too quickly - but the growth chart showed a decent mix of seats between contact center agents and business users. I'd say the latter is in the range of 25-30% of total CaaS seats, and it's clear they want to grow that slice of the pie. In my view, a leading edge contact center platform is harder to build these days than UC, and as CaaS becomes further entrenched with their customers, the UC applications will grow among the business users. I wouldn't call this a Trojan horse, as there's probably better money to be made with the contact center pieces than UC. However, it's a pretty compelling growth strategy that I don't see the pure play contact center vendors following - at least just yet.
Taking on good debt - Indianapolis is heartland country, where fiscal prudence is a virtue. That makes you wonder why a conservative company with no debt would take out a $150M convertible note last month. This is the Smart Bet my title refers to, and it's another sign to me of how to build for success in the cloud world. With a low coupon rate of 1.25%, it's hard to pass up, and it gives them a very strong cash position. To me, the rationale is sound. They already saw how unforgiving the stock market can be because the cloud business model creates a short-term hit on the top line. They also know that cloud will take a few years to mature into higher revenues and richer margins, so this is a smart investment - good debt - to provide a financial bridge and ensure the transition doesn't become a drag on the rest of their business. Not to mention how this can help build competitive advantage, as I don't see evidence of Avaya or Genesys doing this. Cisco is heavily committed to the cloud as well, but Interactive Intelligence is further down this path right now with PureCloud.

Don Brown and the Vision

We're all familiar with his story and how he's built the company up. He's got a clear vision and two things stood out for me in terms of how important leadership is for long term success.

First is the fact that despite being a public company, ownership is tightly controlled. With no debt or nervous investment bankers to answer to, Don has made sure the company is not beholden to any external parties. This is so important in technology where change is constant and the future is uncertain. On that level, I can't think of any other vendor in our space that degree of freedom and control over how the company grows. They're in a great position to jump to the next curve as a leader, and that's what PureCloud is all about.

Second is Don's vision for the future and willingness to go all-in where others will only dabble. He talked about how their flagship platforms - CIC and CaaS are performing really well, and how his Board and investors are pleased with the results. However, they also don't want to change what's working, and that's where Don is different. He could easily ride the wave and keep them happy, but shared with us that he also saw how the cloud is changing everything.

That's a wave he believes the company needs to be at the front of, and that meant starting all over and re-tooling. Not many CEOs are willing or able to make those major shifts, and while it appears risky, it's hard to bet against cloud economics and especially AWS, upon which PureCloud is based. That's a big bet, but also a smart bet and this is the kind of leadership that UC vendors are going to need as their opportunity becomes increasingly fragmented and addressed by players that are built entirely around the Web and the cloud.

The SIPtones - Another Smart Bet

Interactions 2015 wasn't just about vision and disruption, but there was plenty to review as per this post. I only touched on the big story in passing - PureCloud - it needs further analysis, and that will come from other UC Experts who were there.

To end off on a fun note, I wanted to say that Interactive Intelligence made another smart bet by bringing the SIPtones back to rock the house at the Slippery Noodle. I joined them on keyboards, and fellow UC Expert Stephen Leaden kept the beat strong on the drums. Plenty of familiar faces in the crowd, a big thanks to Marsha Bailey, and Dave Michels posted some nice shots stage-side, including this one. As was done last year, highlights are being compiled on video, and I'll socialize that as soon as it's ready.

SIPtones