This article, authored by Donna Fluss, was originally published in the May 2018 issue of CRM magazine.
Last year could be seen as the breakthrough moment when cloud-based vendors began their takeover of the contact center infrastructure market. While most contact center infrastructure is still installed on-premises—market replacements generally occur every six to 10 years—cloud-based contact center infrastructure is where market momentum is happening, in the form of growing sales, technical innovation, and the creation of a large and lucrative ecosystem of partnerships.
Massive and Diverse Competitive Landscape
With more than 150 competitors worldwide, the cloud-based contact center infrastructure market is primed for success. This sector includes vendors that build solutions and those that sell them, although there is overlap between these two groups. For most of the past 20 years, the primary go-to-market strategy for this sector was direct sales. As this market matures, a vast ecosystem of partners has emerged to participate in this large revenue opportunity. And with the entrance of each new vendor and partner, more salespeople enter the market to evangelize, promote, and sell cloud-based contact center infrastructure solutions.
A significant challenge for this market is that there are vendors from many categories vying for sales opportunities, including purpose-built solution providers; on-premises solution providers that sell cloud capabilities; hosted interactive voice response providers; carrier/network service providers; business process outsourcers; system integrators; cloud-based private branch exchange providers; contact center platform providers; and more. Enterprise business and IT leaders are struggling to find the right cloud-based solutions for their operations. While there are major differences in system functionality, reliability, and security, as well as in vendor vertical expertise and knowledge of contact center best practices, the messaging from most of these vendors sounds the same.
It’s great that prospects have many choices, particularly after years of limited on-premises infrastructure options, but the proliferation of cloud-based solutions is creating a great deal of market confusion. Selecting the right vendor partner is critical for the long-term success of the contact center because the client organization will need to work closely with this vendor to achieve mutual success.
Market Benefits and Potential
As of the end of 2016, DMG estimates that the revenue size of the cloud-based contact center infrastructure market (excluding carrier revenue) was at least $2.8 billion. Given that this represents only 11.4 percent of total contact center seats, the revenue potential for the cloud-based contact center infrastructure market is in the tens of billions. As value-added partners join the cloud-based ecosystem, the costs for enterprise clients increase, as each vendor must get a piece of the action. It’s great to have a large group of vendors to choose from and lots of value-added options, but with each additional layer, the costs go up.
A cloud-based contact center infrastructure solution offers many benefits. The primary one for most companies is that it frees their IT departments from implementing and maintaining hardware and software with which they have little expertise, allowing them to dedicate time to addressing their specific business needs. There are many other benefits, including a geographically redundant environment without the need for buying and maintaining a second system; a simplified upgrade process and reduced risk; timely access to new features and capabilities; and the elimination of annual maintenance fees, which are often in the range of 18 percent to 24 percent, and climbing.
In many but not all cases, when a company buys a cloud-based solution, it ends up spending more after year four or five than if it had purchased it outright as a capital investment. As a result, the revenue potential of the fast-growing cloud-based contact center infrastructure segment and ecosystem is larger than the on-premises sector, which is another reason why so many vendors are entering the cloud-based market.
Security and Regulatory Compliance are Key
As strong as this market and its solutions are, there is still room for improvement. The top reasons why companies have avoided using a cloud-based solution are security and regulatory compliance, two very different but often related issues. Businesses are literally under siege from hackers, fraudsters, and industrial spies intent on stealing secrets for a variety of nefarious purposes. At the same time, companies are facing a growing number of often confusing regulatory requirements, such as the Health Insurance Portability and Accountability Act (HIPAA) in the United States, the Payment Card Industry Data Security Standard (PCI DSS) worldwide, the Data Protection Act in the United Kingdom, the BDSG federal data protection act in Germany, the upcoming EU General Data Protection Regulation (GDPR), and many more.
Companies need systems that protect them from security breaches and keep them in compliance with these myriad regulations. They are also looking to the vendors to help clarify the regulations and to deliver the features they need to prove compliance. The more mature cloud-based contact center infrastructure vendors have a senior security officer to help them stay current with industry security and regulatory requirements and to work with clients to understand and meet their needs.
The argument that contact center solutions do not access or store personal consumer or customer data or protected health information, for example, might once have been valid, but it isn’t any longer. Contact center solutions access sensitive data when they use computer telephony integration to go into a CRM system or other customer data repository to access data to personalize and route a transaction. Additionally, even if the most sensitive data, such as Social Security numbers, account numbers, or credit/debit numbers, is redacted—which is rare—there is still a great deal of personal information in recordings stored in the cloud. Financial services and healthcare companies, in particular, are hypersensitive to these issues and are hoping the cloud-based contact center infrastructure vendors can provide tools and knowledge that allow them to mitigate their security risks and compliance concerns.
Innovation and Artificial Intelligence in Contact Centers
Purpose-built cloud-based contact center infrastructure vendors entered the market with their first-generation offerings more than 20 years ago. In the technology world, this makes these solutions dinosaurs, even though their technology and design are more current than those of many of the on-premises solutions. The cloud-based contact center vendors have invested millions of dollars in their solutions and the supporting networks and operations to run them. But the time has come for them to push the market forward with new and innovative designs, architecture, functionality, user interfaces, and best practices. Vendors that want to differentiate themselves as market leaders must move beyond functional parity with legacy on-premises contact center infrastructure. This is where artificial intelligence, machine learning, natural language understanding, and analytics come in. The market leaders will begin a major round of innovation to build “smart” and personalized contact center and self-service solutions. They will also introduce next-gen user interfaces with vastly improved user experiences for administrators, managers, and agents. At the same time, to achieve and maintain a leadership position, these vendors must invest in marketing and sales to differentiate their offerings and messaging from the rest of the pack.
The cloud-based contact center infrastructure market is confronting its next set of major hurdles—architecture, functionality, innovation, AI, security, regulatory compliance and, of course, service reliability. Additionally, even the best solutions in the world cannot succeed without outstanding sales, marketing, and support. The vendors in the exciting and adaptable cloud-based contact center infrastructure market have what it takes to succeed, and this IT sector is going to look even better in 10 years.
Donna Fluss is president of DMG Consulting. For more than two decades she has helped emerging and established companies develop and deliver outstanding customer experiences. A recognized visionary author and speaker, Fluss drives strategic transformation and innovation throughout the service industry. She provides strategic and practical counsel for enterprises, solution providers, and the investment community.