Channel Partners Hope for Value in 8x8's 'Fire Sale' Fuze Acquisition
The announcement comes weeks after Mitel and Vonage agreed to deals.
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Two companies that might make a bid for Five9 are Amazon and Google, Arnold said. Despite the fact that those companies prefer to grow organically, Arnold said an acquisition might be on the table.
“They kind of chart their own course, and they don’t generally do it by acquisition in these kinds of ways. But you never know,” he said.
Arnold said pure-play contact center providers will attract buyers in the coming year.
One such company is Talkdesk. Five9, whose shareholders rejected its $14.7 billion acquisition offer from Zoom, will also draw suitors, according to Arnold.
Arnold said Zoom is still looking to break into the contact center market.
“The underlying story is that because these technologies change so fast, it’s too late to build it yourself. You can’t. You won’t stay in the game, so you have to buy,” Arnold said.
And in Zoom’s case, it may need to overpay next time.
“It’s like sports with free agents going to the highest bidder. When the competition signs the big slugger, you’re going to [go after] the next big slugger. And it’s a seller’s market,” he said.
What’s next for consolidation in the UCaaS space?
First, everyone agrees that it will continue.
“We expect continued M&A to happen until only the strongest survive,” Toth said.
But who else is going to make a purchase? And who else is going to sell?
“There are not that many players left,” Arnold said.
Last week, BCM One announced yet another acquisition in the form of CoreDial.
Although Dyson said he sees potential for 8×8’s combined company to capture a niche for itself, he floated another potential outcome.
“I wouldn’t be surprised if the newly combined company was a short-term acquisition target itself,” he said.
Does Fuze add anything technologically to 8×8? Partners tended to say no.
“From a tech perspective, I don’t believe there is a lot of IP that 8×8 gains, but it does gain revenue and customers, and more importantly, it takes another competitor out of a very crowded US UCaaS market,” DeVita said.
But does 8×8 bring anything to Fuze technologically? You betcha.
Toth pointed what many partners and analysts said: that 8×8 has developed a unique contact center solution that Fuze customers will benefit from.
“Fuze hasn’t been able to break through into the highest echelon of providers, so while we do not typically look favorably upon M&A, we think that this makes sense. With this said, it’ll be challenging to merge two entirely different platforms,” Toth said.
Dyson said the main benefit to 8×8 is new customers (particularly in the enterprise) and deepened global sales capabilities.
“This feels more like a 1+1=2 acquisition than some sort of force multiplier. Given the fact that Teams, RingCentral and Zoom have separated from the UC pack, this move feels defensive, like a wooden lifeboat picking up passengers from a rubber raft while the big three above are chugging along on ocean liners,” Dyson said.
Avant has won partner awards with both 8×8 and Fuze. Shane McNamara, executive vice president of engineering and operations, agreed that the acquisition helps 8×8 scale.
“Together, 8×8 and Fuze will shape the future of experience communications as a service (XCaaS) to enable customers to better meet the demands of hybrid work and innovate for a more connected future,” McNamara said.
Despite what the photo above might indicate about an even playing field, frontrunners have clearly emerged in the unified communications market.
Sources agreed that Zoom, Microsoft and RingCentral currently hold the advantage.
Despite showing growth, Fuze wasn’t growing enough to survive on its own.
“Fuze seemed to be floundering a bit the last year or so. They had a solid platform, but Zoom, Microsoft Teams, RingCentral and 8×8 seemed to be continually eating into their market share,” Wright said.
GlobalData predicts the collaborations technology market to be worth $309 by 2025. Barton pointed to COVID-19 as an accelerant for the growth.
“The pandemic and the move to hybrid working has heightened interest in any technology that can help a business stay connected, making the collaboration sector a hotbed for mergers and acquisitions (M&A),” Barton said.
Fuze brings an enterprise customer base that will allow 8×8 to sell into for contact center opportunities.
David Wright, CEO of Disruptive Innovations, noted that Fuze’s contact center solution wasn’t competing well in the enterprise space.
“One of 8×8’s competitive advantages right now is the fact that they have a truly unified, home-grown, integration-rich, enterprise UCaaS/CCaaS platform all under one roof – probably one of the best in the industry when it comes to utilizing both solutions concurrently,” Wright said.
Barton said the acquisition first and foremost helps 8×8 scale.
“8×8 and Fuze are dwarfed by competitors such as Microsoft, Cisco, Google, and – to a lesser extent – Zoom. Unifying its revenues and research & development (R&D) budget with Fuze is a necessary move when competing against such giants.”
Wright agreed.
“It will also grow their presence in general, and will add DevOps resources they need to continue their global expansion – especially in a time when IT expertise/resources are hard to come by,” Wright said.
On the other hand, Salvage said Fuze’s support resources might fill in regional support gaps for 8×8.
Fuze operates out of Boston, while 8×8 is based in Campbell, California. For Salvage and his Virginia-based firm, adding East Coast resources could make all the difference.
“While I do believe that this will help continue to extend 8×8’s global presence, my hope is that Fuze, being out of the Massachussetts area, has substantial support resources aligned on the East Coast. That is a huge challenge for 8×8 with East Coast clients trying to get support and being unable to reach support early in the morning,” Salvage said.
How do 8×8 and Fuze differ in terms of their channel partner programs?
Most partners agreed that 8×8 has historically offered a richer channel program.
“From a channel perspective, no real gains for 8×8 as they have a much more robust and mature Channel team than Fuze,” DeVita said.
However, from a Fuze partner perspective, this marriage could lead to something positive.
“Fuze had a lot of ups and downs in how they treated the channel and I think this will ultimately lead to a better channel experience,” Dyson said.
Mitel customers and partners received a shock when the RingCentral partnership signaled end-of-life for the Mitel platform. Will 8×8 keep the Fuze offering independent or integrate it?
Analyst Jon Arnold said he doesn’t know yet.
“Anytime these kinds of moves happen, sometimes it’s obvious what’s going to happen, but sometimes it’s not. So in this case, you’ve got two companies that are reasonably sized. 8×8 is definitely the bigger company here on all fronts, but they’re not acquiring a small company, either. This is a case where you could look to make this to keep those brands going, because Fuze is well established,” he said.
Arnold did tentatively suggest that 8×8 might “blend” the Fuze brand into its portfolio.
“8×8 is pretty clear about this XCaaS vision of theirs, in terms of how they want to go to market with their branding and their story,” he said.
In some ways the acquisition represents Fuze’s investors getting out while they still can.
“[Fuze] has taken on a lot of investment and I think their backers were looking for them to emerge one of the more dominant players, and that hasn’t happened,” Arnold said. “So I’m sure their investors have seen this as a good opportunity for them to get to get their money out and let someone else take take the reins to grow the business to its full potential.”
Matthew Toth, founder and president of C3 Technology Advisors, noted that Fuze raised $494 million, according to Crunchbase.
“This represents a loss for investors that were hoping that Fuze’s early entry into the UC market would pay much better than this. This move is a sign that both are struggling in the wake of strong competition in the from of Microsoft, Zoom and RingCentral.
Gary Barton, GlobalData’s principal enterprise technology and services analyst, said 8×8 and Fuze have both been growing at about a 20% clip.
“While this is a very healthy number, it is behind most of the largest players in the market,” Barton said. “Investing in contact centers and customer experience will be vital to 8×8 as it seeks increased market traction – both through direct sales and channel partners.”
Dave Dyson, president of Eclipse Telecom, wasn’t so sure.
“I’m not sure if I can call it a good deal. Fuze had a lot of debt/ [venture capital] investment and I’m not sure what their revenue was, but in my opinion, Fuze was on shaky ground for a while now. It was only a matter of time before someone picked them up. I’m surprised it was 8×8 as it’s only additive from a customer and people perspective (no improvement or addition to the technology or product stacks).”
“$250 million is an excellent price,” said Kairos Data Communications CRO Lucas Salvage. “However, I also believe some of that is going to offset debt.”
The first thing that stood out to partners was the $250 million price tag.
“This was a fire sale,” Peter Radizeski, president of Rad-Info, told Channel Futures. “$250 million for Fuze, who burned through almost $500 million in investor money. 8×8 gets enterprise clients on the cheap. Can’t believe RingCentral didn’t try this!”
Other partners agreed.
“Excellent acquisition by 8×8 at $250 million,” said Robert DeVita, CEO of Mejeticks. “This is a really good deal for 8×8.”
Meghan Keough, 8×8’s senior vice president product and marketing, extended a welcome to Fuze channnel partners.
“8×8 and Fuze share a partner-centric go-to-market strategy and culture and we look forward to welcoming Fuze’s partners into 8×8’s Open Channel Partner Program. 8×8’s acquisition of Fuze will deliver additional value to customers, while expanding the opportunities available to all of our valued partners,” Keough said.
“We have a shared focus on enterprise customers and our two programs are incredibly complementary. We anticipate a smooth transition without any major changes needed on either side. 8×8 is committed to supporting Fuze’s customers on the Fuze platform and keeping our partners’ customer relationships protected, and the acquisition will create significant new revenue opportunities for partners with an expanded solution portfolio. 8×8 continues to drive innovation with 8×8 XCaaS and the Fuze acquisition will only strengthen our offerings to partners and customers.”
Meghan Keough, 8×8’s senior vice president product and marketing, extended a welcome to Fuze channnel partners.
“8×8 and Fuze share a partner-centric go-to-market strategy and culture and we look forward to welcoming Fuze’s partners into 8×8’s Open Channel Partner Program. 8×8’s acquisition of Fuze will deliver additional value to customers, while expanding the opportunities available to all of our valued partners,” Keough said.
“We have a shared focus on enterprise customers and our two programs are incredibly complementary. We anticipate a smooth transition without any major changes needed on either side. 8×8 is committed to supporting Fuze’s customers on the Fuze platform and keeping our partners’ customer relationships protected, and the acquisition will create significant new revenue opportunities for partners with an expanded solution portfolio. 8×8 continues to drive innovation with 8×8 XCaaS and the Fuze acquisition will only strengthen our offerings to partners and customers.”
8×8’s pending acquisition of Fuze will help the UCaaS provider cement itself as an alternative to rivals Microsoft, Zoom and RingCentral.
8×8 on Wednesday announced the $250 million acquisition of Fuze. The stock and cash transaction will reportedly bolster 8×8’s XCaaS platform and give it more enterprise customers. Fuze on the other hand will retire as much as $130.2 million in debt and pay off non-accredited stockholders.
Jon Arnold of J Arnold and Associates studies the unified communications market. He said 8×8’s move plays well with what its larger rival, RingCentral, is doing in the market. Most recently, RingCentral announced that it was paying $650 million to “partner” with Mitel. In 2019 RingCentral paid $500 million to partner with Avaya. In both cases RingCentral acquired a massive customer base that it could harness for upselling opportunities, specifically in cloud migration.
J Arnold & Associates’ Jon Arnold
But Arnold said some customers, particularly on the Mitel end, have expressed unhappiness over the news that their Mitel systems will be coming to an end.
“There’s always risk with these partnerships. You’re going to pick up some ground, but you’re also going to lose some ground. You’re always going to alienate some channel or some end buyers who don’t like your brand and deliberately went to the other guy,” Arnold told Channel Futures.
With some of those customers and their partners looking for an alternative vendor and uncertainty looming over what Ericsson will do with its $6.2 billion Vonage acquisition, 8×8 could provide the alternative they’re pursuing.
“This is an opportunity for 8×8 to certainly make a clear signal to the market that they’re in. They’re staying in the game. Because you could look around and say ‘Jeez, Vonage is out now. Ring – no one catches them. Maybe I should just throw in the towel.’ But no. 8×8 is still a very viable player, and it shows the market that they’re keeping pace, and they’re charting their own course. In that way, it’s a very strong, very foundational move,” Arnold said.
Arnold also said Fuze brings vertical-specific expertise, particularly in retail.
We asked a variety of partners and analysts for their thoughts on the acquisition. See our slideshow above for their insightful commentary.
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