As everyone has likely heard by now, Cisco entered into an agreement to acquire BroadSoft for $1.9 billion. The official announcement came earlier this week during BroadSoft’s annual Connections meeting.
Immediately following the announcement, service providers and customers alike began asking “Wat does this all mean?”. A significant amount of our time this week has been dedicated to addressing this question with many of our enterprise customers and partners. Let me share some thoughts.
Broadsoft is the undisputed #1 global platform for cloud communications. In fact, according to a recent report by the industry analysts at Synergy Research Group, BroadSoft not only retained its number-one position in the global Unified Communications as a Service (UCaaS) but expanded its leadership position, growing its market share of new line shipments from 42.6% to 49.4%. Cisco’s acquisition of BroadSoft does NOT represent a life line or the fire sale of another distressed technology provider like we have seen so many times in recent years. Cisco is paying a premium (5x revenue) for several reasons.
UCaaS & CCaaS
Cisco has developed leading cloud delivered UC&C technologies primary aimed at the large business segment via their Hosted Computing Services (HCS) platform, Spark platform and WebEx platform. The Cisco HCS platform is also deployed with several major service providers who operate BroadSoft based software simultaneously. Broadsoft, through its Broadworks and Broadcloud platforms is generally packaged, branded and sold by regional and global service providers. Most of these providers sell in the micro SMB ie less than 10 seats, with a few selling into the small to medium market defined as 10-1,000 seats. With the Broadsoft suite of UC One, CC One, and Team One, Cisco acquires a comprehensive suite of industry leading UC (UCaaS), Contact Center (CCaaS) and Workstream solutions; offers that compliment Cisco’s large business segment. Once the acquisition is complete, Cisco will be positioned as the undisputed global leader for cloud delivered solutions across the entire market spectrum.
The acquisition is expected to be finalized in late Q1 2018. Over the next few months, expect the most immediate impact to be the certification of new Cisco phones on BroadSoft’s BroadCloud platform. Polycom has long been the SIP phone deployed by most BroadSoft-based cloud communication service providers. Customers and service providers will now be able to take advantage of the full gamut of Cisco endpoints.
The word long-term, is somewhat relative when it comes to technology especially rapidly evolving cloud delivered communications. That said, it will be interesting to see how quickly Cisco integrates BroadSoft into their existing solutions. We expect to see a marriage of Spark and BroadSoft’s collaboration application, My Room. We may also see interesting offerings that incorporate BroadSoft and Cisco’s SD-WAN offerings, Viptela and Meraki. Ultimately, this acquisition will only accelerate cloud adoption for large enterprises who have historically been heavily invested in Cisco hardware. Gartner, another technology analyst, estimated that the shift away from on premise PBX phone systems to cloud based phone systems will continue to accelerate, with cloud line shipments increasing by 17.9% in 2017 while premise-based line shipments forecast to decline by 5.2%. Furthermore, Gartner forecasts that cloud-based installations will surpass premise based shipments by 2020.
If nothing else, this acquisition demonstrates the continued market shift away from on-premise technology to cloud-based solutions. You may remember that Cisco disrupted the PBX market during the shift to IP based communication garnering global leadership in short order from the likes of Avaya, Nortel, and Siemens. Once the Broadsoft acquisition is complete, Cisco once again is in a disrupter position to be the market leader in cloud delivered communications technologies which is projected to grow to well over $20b during the next couple of years. Exciting times ahead!
Synergy Research Cloud & On-Premise IP PBX Market Share Report June 2017. New shipments share for CY16, market share as of 1Q17
Gartner, Forecast: Unified Communications, Worldwide, 2014-2021, 2Q17, Meghan Fernandez, et al. 27 June 2017
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