The CCaaS Market Sees Growing Pains and Changing Dynamics
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The contact center-as-a-solution (CCaaS) market is thriving while simultaneously undergoing an identity crisis. CCaaS solutions are being purchased at a rapid rate as companies migrate from their premises-based contact center solutions to the cloud. It is a highly opportunistic market for the vendors selling these systems and platforms, but due to changing market dynamics, they want to be known for delivering more than CCaaS functionality. Some CCaaS vendors have started referring to themselves as customer experience (CX) platforms, positioning their brands to offer an expanded set of capabilities to customers beyond the contact center. Despite their current success, this strategic maneuvering is healthy for this IT segment and will enable differentiation as the market inevitably matures and consolidates; currently there are more than 200 CCaaS competitors.
CCaaS Adoption
CCaaS solutions have been available in various forms for more than 20 years, but widespread adoption began in 2010 and has gained momentum every year. The CCaaS adoption rate was 27 percent as of the end of calendar year 2023, reflecting the sizable remaining global contact center audience to which vendors can sell these capabilities. There are many waves of opportunity to come for CCaaS providers, even if there are organizations that want to keep their premises-based solutions or migrate to a hybrid on-premises/cloud approach.
Large contact centers with 20,000 to 100,000 seats are in the early days of migrating to the cloud. A significant number of prospects in Europe/Middle East/Africa (EMEA), Asia Pacific (APAC), and Latin America (LATAM) regions still exist. Early CCaaS solution adopters are undergoing a replacement cycle as they seek systems that are highly reliable, secure, regulatory-compliant, easy to use, and deliver new benefits that improve the CX, employee experience (EX), and productivity.
Business View of CCaaS
There are two fundamental approaches to purchasing a CCaaS system. Most organizations, likely around 80 percent, look for a CCaaS solution that offers most of the applications and capabilities they need, as well as application programming interfaces (APIs) to enable integrations with third-party and proprietary systems. Companies today want CCaaS solutions to be open artificial intelligence (AI)-enabled platforms that are easy to integrate, implement, use, and maintain. CCaaS vendors are expected to function as “general contractors” to simplify their operating environment, reduce the number of vendor partners, and keep costs down.
The second group of enterprises, approximately 20 percent, prefer to purchase and integrate best-of-breed systems and applications themselves. (While significantly fewer organizations fall into this category, many have thousands of seats.) These enterprises are interested in systems that provide an open communications platform-as-a-service (CPaaS) layer that supports voice and digital channels and a wide array of APIs to facilitate the integration.
CCaaS Market Economics
A few years ago, it was relatively easy for a CCaaS vendor to find investors, enabling start-ups all over the world to enter this IT sector. There are many types of deals and investments; however, it’s common for investors to have a three- to five-year outlook, after which they want to get their money out. This is especially the case if they are not seeing the expected returns. Many CCaaS start-ups are running out of money and are having a difficult time finding new investors. This is placing pressure on smaller CCaaS vendors, which are not able to keep up with the research and development (R&D), artificial intelligence, sales, and marketing investments they need to compete effectively in this sector.
Here’s the math: CCaaS vendors with 20,000 seats that charge an average of $100 per seat per month generate $24 million in annual recurring revenue. This should be enough revenue to support a team of 50 to 60 people and the infrastructure required to operate a CCaaS solution. But it doesn’t cover the resources needed to meet changing regulatory requirements or for major investments in AI, internationalization, or Federal Risk and Authorization Management Program (FedRAMP) certification, just to name a few. This is not to say that all smaller and contending CCaaS vendors are going to fail; some are well-funded. However, it will drive an overdue wave of consolidations in this market.
It’s an AI World
AI is everywhere, yet few things feel different to consumers, who are complaining as loudly about poor service today as they did a few years ago. We’re in the early days of the AI revolution, and within two to three years, AI and particularly generative AI (genAI) technologies will make notable contributions to the CX, EX, and company bottom line. CCaaS vendors need to incorporate AI as a core layer of their platform to enable their clients to realize ongoing benefits. It’s one thing to AI-enable an application such as quality management, workforce management, or real-time guidance by using genAI to improve the accuracy of findings and responses. It’s another to incorporate AI as the system’s brain, positioning it to intelligently orchestrate all system decision making and activities.
Changing Market Dynamics and Environment
AI is only one dynamic that’s changing in contact centers and broader CX environments. Companies ask for—and expect—their CCaaS vendor to help them manage these fast-paced environments. CX leaders are dealing with hybrid work environments where employees are rarely in the office. Chief technology officers and chief operating officers are rationalizing their telephony infrastructure and digital channels, making them reconsider corporate needs for both unified communications-as-a-service (UCaaS) and CCaaS systems. It’s no longer a given that companies need both, as there is a great deal of overlap between the two. Business leaders are trying to figure out the most effective ways to support digital channels and better incorporate self-service throughout the customer journey, which generally starts on their company website. At the same time, company executives are striving to rapidly scale their business and global footprint to address the needs of demanding shareholders. While these are only a few of the high-level strategic and tactical challenges confronting businesses and IT leaders today, they all represent opportunities for CCaaS vendors.
The Impact of Self-Service
The debate is on about the contributions and impacts of genAI-enabled self-service solutions on businesses and the CCaaS providers. Companies are counting on these enhanced omnichannel self-services solutions to reduce the volume of inquiries handled by live agents. This is because self-service automation is less expensive than live agents, and it is preferred by a growing percentage of consumers. However, since it’s common for the total number of inquiries to increase as servicing improves and there is a significant rise in activity from digital channels (even as volumes from phone calls decreases), DMG Consulting expects the need for live agents to remain stubbornly consistent or even to grow.
CCaaS Outlook
It’s an amazing time to be a well-funded CCaaS vendor, as there is no end in sight to their opportunities, even while self-service comes on strong. Adoption of CCaaS solutions, as we know them today, is still in the early stages. Most companies are looking for a CCaaS solution that includes the applications they need to efficiently deliver a great CX and a vendor who is a dedicated partner. Other companies want a CPaaS/CCaaS provider that enables them to build a fully customized servicing infrastructure. Both groups expect and need CCaaS functionality delivered from an open platform with AI as a core infrastructure component. This enables organizations to intelligently manage and improve their CX as they leverage the system to increase productivity and reduce their reliance on live agents.
It’s a new world where leading and many contending CCaaS vendors are positioned for success. After decades in the background, CCaaS providers are being invited to the executive table to share their vision of the future and how they can help companies achieve their essential goals for generating revenue, enhancing the CX, and reducing operating expenses.