Workforce Optimization Is Under Siege
By Donna Fluss
The workforce optimization (WFO) market is showing its age. Revenue is down and mergers and acquisitions are up, occurring at a rapid rate never before seen in this IT sector. Enterprises still need workforce optimization solutions, but given the maturity of the sector and the availability of so many offerings, they are unwilling to pay high prices for applications that they view as commodities, such as recording and, to some degree, quality assurance.
At the same time, many WFO company owners or their investors are weary and want to cash out, particularly now that there appear to be buyers that are willing to pay an acceptable price. The buyers are a diverse group; some are cloud-based contact center infrastructure vendors that want to broaden their suite’s functional capabilities by adding WFO capabilities. Others are investment firms that see a strong future for workforce optimization applications. Still others are software companies that want to purchase some of the underlying intellectual property found in WFO suites. The strong interest and prices have distracted many of the smaller vendors from innovation and investing in their future, leading them instead to package themselves for a sale.
WFO’s market performance in the first half of 2016 was not strong, but given the concerns about the state of the economy, which have made companies reticent to spend, it could have been a lot worse. Total company revenue for WFO vendors in the first half of calendar year 2016 was about 1.67 billion, down nearly $6 million from about 1.68 billion in the same period of 2015. (The 2015 numbers are a pro forma representation of WFO market activity during the first half of 2015, after removing revenue for the two security-related companies sold by NICE. These numbers are consistent with NICE’s restated published financials for 2015.) Two companies accounted for the majority of the WFO sector’s revenue decrease in the first half of 2016: Verint Systems and Aspect. Verint’s total company GAAP revenue dropped by $58.1 million between the first half of fiscal 2015 and and the first half of 2016, a reduction of 10.3 percent. Aspect’s WFO revenue is estimated to have decreased by $12.3 million, or 5.9 percent, between the first half of 2015 and the half of 2016.
A few other vendors, however, delivered either acceptable or strong performance. NICE, which announced the acquisition of WFO competitor VPI in March 2016 and speech analytics vendor Nexidia in January 2016, grew by 3.3 percent between the first half of 2015 and the first half of 2016. NICE’s $14.4 million increase in revenue, based on NICE’s restated public financial information for first-half 2015, is likely due to this inorganic growth. Interactive Intelligence, which was acquired by Genesys in August, also delivered a strong performance, as sales grew by 12 percent, or $22.3 million, between the first half of 2015 and the first half of 2016. inContact, a cloud-based contact center infrastructure vendor with WFO capabilities, which was acquired by NICE in May, delivered strong results, increasing its revenue by $21.8 million, or 20.9 percent. And Calabrio is estimated to have grown by 40.2 percent, an increase of $11.3 million, between the first half of 2015 and the first half of 2016. A review of the other vendors named in this year’s “Workforce Optimization Mid-Year Market Share Report” shows that the overall momentum of the sector was positive, with more companies showing gains than slowdowns in revenue.
Reaching a Critical Juncture
Contact center WFO revenue decreased by 3.7 percent, from $714.3 million in the first half of 2015 to $688.1 million in the same period of 2016. Contact centers are still buying WFO solutions, but not at the same rate as in the past. A number of factors are slowing down investments in the contact center WFO market, including market confusion caused by the many mergers and acquisitions and the changing composition of the solutions—leading WFO solutions are increasingly embedding analytics, and adoption of these new capabilities is slower than expected.
The contact center WFO market, then, is at a critical juncture. Analytics is playing an increasingly important role throughout WFO suites, as it can provide ample insights into customer needs. Innovative companies appreciate the potential contributions of the new generation of analytically oriented WFO solutions, but are still struggling to fully realize the benefits. Best practices are emerging, but most of the expertise remains with the WFO vendors and has not found its way into end-user companies. When that changes, expect the adoption of analytically oriented WFO solutions to increase.
In recent years, few new contact center WFO suite or application providers have entered the market. That’s a common scenario with most mature markets, but for the contact center WFO sector, it’s new. The WFO market is hungry for innovation in the form of new technology, capabilities, inventions, concepts, and practices. DMG expects this void to be filled by a new generation of solutions that are going to leave behind the approaches of the past and replace them with new science and practices that will alter and improve contact center performance. At the same time, the new breed of offerings will be designed to address the needs of back-office and branch environments, giving companies enterprise-wide solutions that will enable them to revolutionize the customer journey. WFO has always been an essential productivity tool for contact centers, but the new generation of solutions will be designed to integrate into the routing process and engines, allowing companies to improve the customer experience, reduce operating costs, and better engage their employees.
What’s Next for WFO
Market consolidation and the resulting slowdown was expected in the WFO market; it’s part of the natural course that IT sectors take as they mature. The question is what comes next. Is this the beginning of the end of the WFO market, or the dawn of something new? DMG believes that the contact center WFO market will experience a renaissance after it goes through a couple of years of clean-up. Companies need the functionality offered by WFO vendors; they need the traditional tools that give them visibility into staff performance, that can help their employees improve. They also need analytically oriented WFO applications that give them understanding and insights into their customers’ needs. Adoption of the new generation of WFO solutions is under way and it is expected to take at least five years before the most basic of these solutions, analytics-enabled QA, becomes an industry standard. As this occurs, there will be substantial improvements in the analytics capabilities of WFO solutions, which will finally become true suites. Next, WFO will evolve from a suite to an employee and customer framework. This is the future of the market.