On July 18, 2021, Zoom Video Communications, Inc. announced the acquisition of Five9, Inc. in an all-shares transaction. The transaction values Five9 at around $14.7 billion.
According to the press release “the acquisition is expected to help enhance Zoom’s presence with enterprise customers and allow it to accelerate its long-term growth opportunity by adding the $24 billion contact center market.”
According to Eric S. Yuan, CEO and founder of Zoom, the company is “continuously looking for ways to enhance our platform, and the addition of Five9 is a natural fit that will deliver even more happiness and value to our customers”. He continues with “enterprises communicate with their customers primarily through the contact center, and we believe this acquisition creates a leading customer engagement platform that will help redefine how companies of all sizes connect with their customers”.
Rowan Trollope, CEO of Five9 adds that “businesses spend significant resources annually on their contact centers, but still struggle to deliver a seamless experience for their customers”. Trollope will become a president of Zoom and continue as CEO of Five9.
Zoom expects the acquisition of Five9 to be “complementary to the growing popularity of its Zoom Phone offering […] The combination of both firms also offers both companies significant cross-selling opportunities to each other’s respective customer bases”.
As especially Rowan Trollope emphasizes upon repeatedly in the acquisition briefing, this acquisition is about accelerating growth by combining the respective assets, software as well as customers.
The bigger picture
The trend towards call centers in the cloud has been there before and it has been amplified with the Covid pandemic. Connecting phone lines from diverse and independent locations into one telephony system gets greatly simplified with a cloud-based infrastructure and the required upfront investments are far lower.
At the same time, the desire and need for unifying personal as well as corporate communication have increased tremendously, for the same reason.
Last, but not least, it can be assumed that workforces will stay in a hybrid mode, with people having the ability to work from anywhere.
Zoom profited from the Covid pandemic in a phenomenal way and was probably one of the biggest winners. However, since October 2020, its stock price went down from a peak of nearly $560 to around $360 (July 22, 2021). This can be largely attributed to businesses having invested into communications tools and strong competition. Especially Microsoft has upped the ante considerably and invested heavily into its Teams software.
From an economy point of view, we are looking at the conversion of some markets in the ongoing platform game. We have the call center software landscape and the communications and collaboration software landscape — usually referred to Call Center as a Service and Unified Communications as a Service.
My Analysis and PoV
Zoom itself has evolved a lot from its beginnings.
Looking at the Communications as a Service landscape, one can see that most of the major vendors have messaging, telephony, and meetings in their portfolio. A small number, e.g. Fuze or 8x8 also offer call center functionality. Microsoft Teams offers collaboration and Cisco’s Webex supports collaboration and call center.
Zoom, without Five9, offers neither of these functionalities, which makes it vulnerable, especially in direct competition with a software that is as ubiquitously available as Microsoft Teams. The vulnerability is the risk of being pushed into a niche instead of staying the top dog that Zoom still is at least in the videoconferencing/video meeting market. Zooms reduced, yet still impressive, growth, is indicating this vulnerability.
On the other hand, the company is awash in cash and can draw off its still high valuation, which it did to acquire Five9.
Zoom is a top dog when it comes to meeting solutions, with its additional solutions it plays pretty strong, but not decisively so, in the market of communications solutions. Five9 is a serious player in the cloud call center software space.
With these areas merging, both players have lots of parts that the respective other does not have. Think video call centers, or video assisted support and remote control. Combining this is a strong value proposition in the short- to midterm.
I do not fully buy in to the story of the proposed “omnichannel engagement platform” as I do think that some crucial aspects, like the ability to identify and profile a customer and her complete context, are missing. I rather see an omnichannel engagement execution platform. Add the profiling part, as Twilio did with acquiring Segment, and we have a really compelling story, especially if Zoom Phone takes off. Having access to the call center, consented customer profiles, and the access to the consumer customers’ devices via Zoom Phone could totally change the game.
Until this happens, I do not see much that hasn’t been done before, although the respective offerings of Zoom and Five9 may well be better than the ones offered by the companies I mentioned earlier.
Still, a good, yet expensive, move that raises the appetite for more.