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The majority of business applications have shifted to a software-as-a-service (SaaS) model. Today, it’s commonplace to buy CRM, expense management, accounting software and almost everything else as a cloud-based service. However, the communications industry, particularly contact centers, has been slow to catch the cloud wave.
There are many reasons for this, the biggest of which is that the contact center is at the heart of customer service. Any disruption there impacts customer service, which leads to unhappy—and eventually, lost—customers.
An interesting data point from ZK Research supports this: In 2019, two-thirds of millennials changed loyalties to a brand because of a single, bad experience. It’s for this reason that many businesses have adopted an “if it ain’t broke, don’t fix it” mindset with their contact center.
Talkdesk Gets Huge Series C Round of Funding
However, over the past few years, this trend has been changing as there has been tremendous momentum in the contact center as a service (CCaaS) industry. But, despite the recent success, less than 10% of all the contact center seats have been moved to a cloud model, meaning the best is yet to come.
Investors appear to believe this too as this week CCaaS vendor Talkdesk announced a $143 million series C round of funding. This current company valuation is a hefty $3 billion, which may seem high for what still amounts to a startup. Being private, Talkdesk does not provide revenue numbers, but I estimate the revenue to be about $200 million annually.
This round of funding has some serious heavyweight investors as well, including Franklin Templeton, Willoughby Capital, Skip Capital, Lead Edge Capital and Top Tier Capital Partners, along with existing partners Viking Global Investors and Threshold Ventures. In total, Talkdesk has raised $268 million through all its funding rounds and has been an innovator in the CCaaS industry. Over the past year, Talkdesk has released more than 600 new features, including its “20-in-20” initiative, which aimed to deliver 20 product introductions in the first 20 weeks of 2020.
Contact Center Modernization Drives First Wave of CCaaS
The initial wave of growth for Talkdesk and its peers in the CCaaS market has come from businesses wanting to quickly modernize their contact centers. Legacy solutions are often voice only, but today’s consumers want to communicate with businesses using digital channels including social media, SMS and chat, and through virtual agents. Upgrading a traditional system can be expensive and time-consuming.
Juxtapose this with CCaaS, which immediately gives customers access to a fully modernized, omnichannel contact center, and it’s easy to see why the contact center pendulum has swung the cloud way. Customers should expect to see an acceleration of innovation as artificial intelligence is infused into the solutions.
COVID-19 Work From Home Drives Second Wave of CCaaS
A more recent driver of CCaaS has been the COVID-19 pandemic that chased contact center workers out of the office and into a work from home mode.
Businesses with on-premises solution were faced with a tough decision: deploy VPN clients and additional hardware and beef up software licenses to enable contact center agents to work from home or find another way. Many chose the “another way” option through the use of CCaaS. The cloud option gives agents direct access, without any IT support. IT saves time and agents get access to a modernized system—a win-win.
Non-contact Center Agents Can Use Contact Center Software
Another trend has emerged that should increase the net number of CCaaS seats sold. Typically, contact center seats are used by people who work in a contact center—agents and supervisors. However, it’s more than just agents who can take advantage of the rich data stored in contact center solutions. Salespeople, inside sales, marketing, field service and other customer-facing workers can all use this information. In fact, one could argue that anyone with a CRM seat should also have a contact center seat.
The challenge? Extending contact center functionality to other departments and locations is not easy with on-premises solutions. With cloud, however, it’s simple.
This shift to non-contact center workers using contact center seats significantly expands the total addressable market (TAM) for CCaaS. Currently, the accepted CCaaS TAM is about $24 billion, which comes from multiplying the total number of seats by the average seat price. When one adds the number of non-contact center agents in, the TAM is at least twice the size. For example, I recently spoke to a company that transitioned all 50 of its agents to CCaaS. Post-deployment, it provisioned an additional 100 users that are not agents, including field service workers. That’s twice as many non-agents as agents. Conservatively, the revised TAM could be $50 billion, but I think it’s closer to $60 billion.
The funding news is certainly good news for Talkdesk and its customers, but the story behind this story is that CCaaS will be a “rising tide” from the majority of businesses shifting their contact centers from on-premises to the cloud. This is driven by the platform modernization to address new customer demand, work from home and the expansion of contact center seats.
The fact that so many Tier 1 investors are willing to pay such a hefty premium should give businesses comfort in making this shift, as the cloud is where the investments and innovations will be now and into the foreseeable future.
Zeus Kerravala is an eWEEK regular contributor and the founder and principal analyst with ZK Research. He spent 10 years at Yankee Group and prior to that held a number of corporate IT positions.