Unified communications vendor 8x8 (EGHT) reported another strong quarter of growth as its UC business made progress in signing up larger customers, while at the same time selling more additional services to existing and new customers. “Adoption by larger customers is the number one factor driving growth, and customers are increasingly buying our analytics and contact center solutions on top of our communications solution,” 8x8 CEO Vik Verma (above) said in an interview with the Daily Cloud.
8x8 reported revenue of $63.2 million for its fiscal Q2 (ended September 30), up 24% from the year-ago quarter. Service revenue from mid-market and enterprise customers (defined as customers producing more than $1,000 in monthly recurring revenue) rose a strong 36% and accounted for 53% of 8x8’s revenue in the quarter, up from 48% a year ago. Two of the larger customers signed in the quarter were the Boyd Group and GNC. Boyd Group (BYD-UN.TO) operates 3,000 auto body shops in the U.S. and Canada, doing business under the trade name Gerber Collision & Glass. GNC (NYSE:GNC) is a franchise chain selling health supplements, vitamins and related products with 9,000 stores worldwide. GNC bought 8x8’s cloud-based contact center services.
“We added 100 new mid-market and enterprise logos in the quarter,” Verma said. As an example of the importance of signing larger customers, he pointed out that 8x8’s average revenue per customer is $409 per customer per month, while its average revenue per customer from the mid-market/enterprise segment is ten times larger, at $4351.
Verma highlighted analytics as an important growth area for 8x8. One data and analytics tool that 8x8 is rolling out allows sales managers to monitor and analyze the performance of their sales teams. For example, they can see how many times they call or get called by specific customers or prospects, how long the calls last, and so on. 8x8’s unified communications service includes an app that goes on an employee’s mobile phone, enabling him or her to use their work telephone number from their mobile. “We take their mobile phone and turn it into a company phone with a company phone number,” Verma explained. “And all the data from that phone is aggregated in the cloud. That is a richness of data that we are uniquely positioned to provide.” In some cases, the per-user charge can triple, from $25 per user per month for basic communications (i.e. voice, chat, conferencing) to $75 per user when the analytics are included.
Access to employee data, and the ability to use analytics on that data, are keenly sought after by larger cloud players. Microsoft has agreed to pay $26 billion for LinkedIn (LNKD), a company with just $2.99 billion in revenue last year, because of the treasure trove of employee data contained inside LinkedIn. “We’re seeing these cloud wars, where Microsoft, Google, Facebook, Amazon, and others are all fighting to get data on every user in the enterprise. That is the way the world is heading because the data lets you do predictive analytics and get to a higher level of capability,” Verma said.
Contact centers are another growth area for 8x8. Verma said that six out of 8x8’s ten largest deals in the quarter included both the Virtual Office communications service and the Virtual Contact Center service. A contact center seat typically costs about five times the monthly $25 charge of a communications seat. 8x8 is in the process of rolling out a new, lower-priced contact center service called EasyContactNow, based on technology from 8x8’s U.K. acquisition, DXI. Verma described it as the “iPad version” of a contact center, easier to use than the more feature-rich Virtual Contact Center product. However EasyContactNow also includes an outbound dialer, to enable users to call prospects automatically. “You can download EasyContactNow and be up and running in 15 minutes,” he said. “With this product, a hair salon or a car dealer can operate their own contact center.”
Profitability was another strong feature of the quarterly report. Non-GAAP net income rose to $5.3 million or 8% of revenue, up from 6% of revenue in the year-ago quarter. Many software-as-a-service companies don’t make any profit at all, but 8x8 has now turned in 26 consecutive quarters of profitability on the non-GAAP basis, which is the basis Wall Street investors look at. Verma attributed 8x8’s profitability to its modestly-sized but highly efficient engineering team, which is spread across three locations: San Jose (California), Cluj (Romania), and London (U.K.). “We spend half what a competitor spends on engineering and we do double the number of products,” Verma said. He pointed to a recent Gartner report that named 8x8 a “leader” in unified communications and a “challenger” in contact center as evidence. “We’re the only company that ranked in both categories.”
While the move of businesses from on-premise PBX’s to cloud-based communications services is gathering force, one competitive concern investors have had about the sector is the impending entry of the industry giants. Microsoft has been loudly marketing Skype for Business for around a year, while Cisco launched its cloud-based UC system, Spark, earlier this year. Verma said that so far, 8x8 has seen little of either product. “Microsoft and Cisco are incredible companies, but we’re not seeing them as a cloud competitor,” he said.
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