On October 23rd, 2017, BroadSoft announced its impending acquisition by Cisco, which marked the unified communications as-a-service (UCaaS) industry’s crossing of the Rubicon. With its inception in 1998, BroadSoft heralded the rise of cloud/hosted services and, for almost two decades, symbolized the next generation of business communications, standing tall against the “establishment” embodied by Avaya, Cisco and the other private branch exchange (PBX) vendors. As new cloud providers emerged, occasionally referring to BroadSoft as a provider of “legacy” hosted technology, BroadSoft stuck to its guns as an independent telco carrier enabler, avoiding direct competition with its channel. With this acquisition, BroadSoft surrendered its independent status to the powerhouse of the old guard Cisco and ended an era that forever changed the enterprise communications space. At the same time, BroadSoft’s acquisition by none other than the leading premises-based UC platform vendor provides strong validation of the industry’s move to cloud.
It’s important to examine how this acquisition, if successfully completed, will affect the different stakeholders. This analysis focuses on the acquisition’s impact on Cisco, endpoint and technology partners, UCaaS providers, UCaaS platform vendors and end customers.
Intensifying competition is posing challenges to everyone in the ecosystem—including pure-play telco platform vendors such as BroadSoft, Centile, Metaswitch and netsapiens; traditional telcos such as AT&T, CenturyLink and Verizon; cable operators such as Comcast and Spectrum; next-generation UCaaS providers such as 8x8, Fuze, Jive Communications, Nextiva, RingCentral, Star2Star and Vonage; and more diversified UC providers straddling the premises-based and cloud worlds such as Avaya, Alcatel-Lucent Enterprise, Cisco, Microsoft, Mitel, NEC and Unify. In an effort to adapt to evolving market trends and become more competitive, some of these participants are reaching far outside their comfort zones and launching new solutions and strategies that require significant asset and skillset re-alignment.
Particularly notable are Cisco, Microsoft and Mitel’s concerted efforts over the past few years to shift their businesses toward a more cloud-centric portfolio and market position. Premises-based UC system vendors are looking to the cloud as an opportunity to differentiate, generate new revenue streams and deliver greater value to their installed customers. Some vendors have been slower to successfully address this challenge, thus adopting a defensive stance, whereas others have pursued it more aggressively as a growth opportunity. Vendor market approaches also differ in terms of their role in the hosted IP telephony and UCaaS value chain. Some UC vendors have become service providers delivering services under their own brand, while others have chosen to deliver hosted communications solutions through service provider partners. As third-party platform providers, UC vendors compete against more established service provider platform developers such as BroadSoft, which compels them to develop unique value propositions for both service providers and end customers.
Accelerating merger and acquisition activity in the UCaaS space demonstrates a growing provider need for faster speed to market and greater market power. Cisco’s acquisition of BroadSoft is an important part of ongoing market consolidation that is likely to affect various stakeholders. In one broad swipe, Cisco filled a gap in its portfolio, dramatically expanded its share in the rapidly growing UCaaS market, created more opportunities to sell its communications endpoints, entered the SIP trunking and residential VoIP space, and eliminated a formidable competitor. Should the acquisition complete successfully, it will be well worth Cisco’s $1.9 billion investment. Changes are likely to take place; most will be for the better, but some may pose challenges to the BroadSoft ecosystem. Like most other acquisitions, the Cisco-BroadSoft deal could be viewed as a sacrifice of competitive options for the benefit of a stronger UCaaS market growing forward. Also, further M&A activity is likely to ensue and company valuations are likely to be impacted by how this deal was priced.