Jason Alley on Interactive Intelligence Q3 Results and Cloud-based Contact Centers

In this Executive Insights podcast, Jim Burton of UCStrategies is joined by Jason Alley of Interactive Intelligence. They discuss the company's Q3 financial results, and the impetus behind companies moving contact centers to the cloud.

Jim Burton: Welcome to UCStrategies Executive Insights, this is Jim Burton, and I am joined today, and once again, by Jason Alley from Interactive Intelligence. I enjoy my podcasts with Jason because Jason lives in the area and we get to do these face-to-face. You might notice the audio quality a little bit better, but of course, the other part that is nice about this is, we go out to lunch afterwards and have a good time. So Jason, welcome.

Jason Alley: Thank you, Jim, and I appreciate you having me.

Jim: We had a conversation last time talking a little bit about Interactive Intelligence's cloud business. And I know that that is a fast moving business. Can you give us an update on what is happening there?

Jason: Absolutely, in fact it's timely. We recently announced our third quarter financial results. I thought there were two key themes that would be worth highlighting today. First is our continued movement upmarket, and secondly our continued success capitalizing on this market shift to the cloud. In terms of moving up market, we continue to win business from some of the world's largest global companies, which is exciting. And if you look at the first nine months of 2012, we signed 90 contracts over $250,000, including 23 over a million dollars. Now this is up from 76 and 11, respectively. So we see a lot of really good movement upmarket, which is exciting. What's interesting is that definitely this topic is related to our cloud business as well; we have been moving upmarket in the cloud, and that brings me to the second main theme I wanted to highlight today, which was being able to capitalize on this shift to the cloud.

Our cloud business continues to significantly outpace the market as a whole. In the third quarter of 2012, we had the highest number of new cloud-based customers in the company's history which was really exciting. And for the first nine months of 2012, our cloud orders were up 50 percent over the same period last year and cloud-based revenues increased 58 percent year-over-year. Given our strong pipeline and the opportunities we see worldwide for the fourth quarter, we actually expect our cloud-based orders to represent more than 35 percent of our total orders in 2012. And that is certainly significant.

Jim: That is significant, and it's a very interesting thing because we are hearing so much about the cloud and like so many other people, I keep wondering, well, why? What are the drivers that are shifting and driving people to move to the cloud?

Jason: That is a great question, and I believe right now, contact centers are really being faced with a major dilemma. They must deliver advanced capabilities to remain competitive. But on the other hand, internal teams supporting contact center infrastructure, have their hands tied by things such as budget and resource constraints. And these teams are further challenged if you consider the limitations associated with an already complex web of aging systems that are really costly to extend. And for many, it seems like really a never-ending storm leading to continual frustration and disappointment. So increasingly, we are seeing companies turn to the cloud-based contact center for relief. Drivers include things such as increased flexibility, faster deployment time, lower initial capital investment, and reduced IT requirements. And this is supported by a recent CIO market study that was published, and if folks are interested in diving deeper, they can download a copy of the industry research paper on our website, at ININ.com/resources.

Jim: Well you know, it is an interesting thing. You brought up a lot of good points, but why has Interactive been able to capitalize on this shift to the cloud? What have you done that has been so special, so to speak?

Jason: Well, customers tell us there are three primary reasons. First, they trust in our solution, secondly they really like the breadth of functionality that's offered, and third, they really appreciate the flexibility that we provide to meet their specific business needs.

Jim: The first one you mentioned was that they trust your solution. What do you mean by that?

Jason: Customers tell us there are really four primary elements of trust as they look for a cloud-based contact center solution: security, reliability, stability, and experience. The first two speak to the level of trust they have in the service, the second two speak to the level of trust they have in the provider of the service. So why do they trust our service? They tell us first and foremost, because it's secure. In fact, the Interactive Intelligence cloud solution, CaaS, is quickly becoming the solution of choice, we believe, in the large-mission critical space, where operations demand the highest level of security. The ability to keep applications and data separate from others is a major consideration, as is the ability to keep the voice path, recordings, and other sensitive customer data within the company's own firewall, if they choose. And if you combine this with rock solid data centers, certified best practices, and the like, you have a really highly secure environment.

Second, related to the service is reliability. Mission critical operations, as you know, demand the highest level of reliability. And customers like the fact that our technology is proven and time tested, powering over 4,500 customers across 90 countries. Secondly, each customer runs their own business on a separate instance of the application, providing a more controlled environment, and also eliminating the risk that other subscribers are going to impact their performance. Geo-redundancy and local failover provide an added level of assurance, and if there is ever an issue, our advanced monitoring capabilities ensure we know about it immediately, so we can proactively be involved in resolving the issue.

Now, if we talk about why customers are trusting in us, as a company, as a provider, first and foremost it's our experience. We have been in the contact business, as you know, for a very long time, close to 20 years now. And with that brings a broad and deep level of expertise to an existing customer organization, along with proven and refined best practices. Customers also like the idea of hiring the company that develops, maintains, and evolves the software that runs their cloud service. And if you add on top of that the fact that we are a public company that has had sustained financial stability and growth that is well documented, and the fact that our cloud business is growing faster than the market as a whole, you have a stable company. And we are also one of the few recognized as a worldwide leader, and have a proven track record of innovating and executing in the contact center. So if you combine these two elements of trust in our service, and trust in our company, that's why customers say they trust in our overall solution.

Jim: Great. When I ask you about why Interactive is able to capitalize on the shift of the cloud, you had three things you mentioned. You just covered the first one, and I am going to end up asking you about the other two. But the second one was the breadth of functionality. What capabilities are the contact centers - what are they looking for, from a cloud provided service?

Jason: Well, multimedia capabilities are definitely at the top of the list. If I look back at many of the companies that I have spoken to that have moved their contact center of the cloud, they say a key driver and component of the business case, was the ability to add new channels such as email, chat, social media, and SMS to the mix. And the reality is that their existing legacy systems are way too rigid and aren't easily extended to support these new channels without an exorbitant amount of cost and complexity. And so multimedia capabilities are definitely at the forefront; companies - it doesn't stop there, they really want a full suite of capabilities. So if we look at the broad set of capabilities a contact center suite will offer, things such as ACD, IVR, multichannel, outbound recording, quality management, workforce management, I could go down the list. But basically, the point is, they want a full suite of capabilities, and that also is easy to use with common interfaces and controls, so the contact center can really control their own destiny without having to involve IT.

In terms of this full suite topic, we're finding that companies don't want to subscribe to a series of point solutions in the cloud. And they also don't want a single service that is bolting on different technologies on the back end that really make it difficult to realize the ability to empower the contact center to manage their business. And so those are some key areas. And then finally, in terms of breadth to functionality, companies are also just not concerned with today, but the future as well, and want to incorporate new innovative technology in the cloud to help turn customer care into a competitive weapon. So it's important for the provider to be able to demonstrate a history of innovation as well.

Jim: So I am going to go on to the third point that you made and that was that they appreciate the flexibility that you provide. What kind of flexibility are they looking for in these solutions?

Jason: Well, customers want flexibility in a number of different areas. They want the flexibility to choose how they deploy, the flexibility to rapidly scale up or down to meet seasonality and corporate growth needs, the flexibility to customize applications, or pricing and terms, and the flexibility to deploy on a global basis, all to meet their specific needs. And if we take a little bit of a closer look into flexibility in terms of choice of deployment, customers want the ability to determine themselves who owns the carrier relationship, where the voice path, recordings and customer data reside, if their existing PBX stays or is going to be replaced, when to deploy updates and new functionality, and whether or not to stay in the cloud or migrate to premises over time.

And also, if we look at the CIO Market Study that I mentioned prior, there is a great case study. It talks about a company that wanted both flexibility to rapidly scale up or down, and the flexibility to deploy on a global basis. It's a global cellular phone distributor, they have 2,000 unified communication seats, and 26 distribution locations worldwide. This company's business model heavily depends on being able to rapidly enter or exit markets across the globe, depending on the success of their offerings within each of these countries. And by embracing the cloud, the company is able to avoid buying and deploying large numbers of servers and other infrastructure unnecessarily, which significantly reduces their capital costs commonly associated with entering new global markets. And in addition, the organization has enjoyed the flexibility to be able to add and reduce users on the fly as well.

Jim: Well, I know Interactive Intelligence is always pushing the envelope when it comes to new products, and features, and capabilities. So what can we expect from Interactive in the cloud moving forward?

Jason: Well, we are going to continue to add new innovative capabilities, you can be sure of that. We will also continue to expand our business globally. We are going to extend our strategic reseller network, and continue to leverage our strengths and significant wins to gain additional momentum and secure leadership position in the cloud.

Jim: That's great. Well, I have a lot more questions, but I will ask those over lunch. I think we have covered everything we want to here. I really appreciate your time today, Jason.

Jason: Fantastic, thank you Jim; I appreciate the opportunity.