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It’s the right time for Service Providers to get into cloud video

Ryan Murphy
February 27, 2019

According to market analysis, the Video Conferencing Industry is set to triple in size by 2024. All three segments – hardware, software and SaaS solutions are set to grow exponentially as more companies recognize the benefits of connecting face to face over distance. Read on to learn about our history in the conferencing industry, and what industry experts are saying about the future for companies like ours. If you’re an ITSP or an AV solution provider, now may be the best time to start diversifying your services portfolio by adding cloud video conferencing.

Service Providers – does any of this story sound familiar?

Pragmatic got its start in the audio conferencing industry. But like any highly competitive commoditized service, rates have been dropping steadily for years. Companies sacrifice more and more margin and hope that it attracts a larger number of customers. They end up facing diminishing returns with every new customer acquired. Given that still have to FIND customers, it gets tougher maintain revenue, let alone grow the business significantly.

Like many independent businesses in the conferencing industry, we recognized and understood what this trend meant for us years ago. Obviously, we weren’t about to abandon our bread-and-butter service (indeed, today it still makes up the largest part of our business) but it was clear that we needed to diversify if we were going to survive in this space.

With that in mind, we partnered with Polycom, one of the most trusted names in conferencing hardware (in both audio and video) to this day. That was our introduction into the world of video conferencing.

At the time it was still a tough sell, video conferencing – reserved for the enterprise with offices around the globe. For decades, the biggest selling point was that it could save these national or multinational companies the cost of flying their people all over for meetings. An investment in video conferencing equipment could pay for itself within a year or two. But SMBs were boxed out by the higher price tag, and really didn’t have a lot of reason to want or need video.

But then came cloud video.

Here, the technology created demand: with the ease and cost-efficiency of video conferencing software and cloud video solutions, businesses could start seeing the benefit of chatting with collaborators and customers face-to-face.

Cloud video also made adoption easy. Instead of having to have expensive equipment that met via very specific industry standards, people could now join a common virtual meeting room in the cloud from any internet-connected device that they had available. It blew things wide open.

Our anecdotal experience is common in the industry, and more and more ITSP and AV companies like us are adding cloud video in order to future-proof their portfolio in a time when conferencing is set to explode on all fronts.

Room to expand: Adding Cloud Video Services

It’s a great time to be adding cloud video to a services portfolio, too. I’d like to share some metrics and projections from industry research partners. It’s solidified our position (and helped to put our minds at ease, after a few years of making some educated guesses).

First off: some great news. The video conferencing industry in the Western Hemisphere is set to grow from around 3 billion USD in 2018 to over 9 billion USD.

Figure: Canada, US, Mexico and LATAM Cloud-Based Video Conferencing Market Projections through 2024

Projections
Source: Maia Research Analysis

There are several factors contributing to this growth. Without getting into too much detail, the fairly intuitive reasons that more businesses are adopting video as a primary means of communication:

  1. Ever-increasing demand for flexible work/life balance initiatives like working from home.
  2. Reducing travel costs between offices and for sales people on the road.
  3. Office/plant relocation due to labour costs and corporate taxation.

The industry is also immune to geopolitical fluctuations that may disrupt other industries. Our own metrics suggest that time of crisis and turmoil actually boost usage on communication platforms.

So we know that as a whole, the industry is heading in the right direction, but what is the segment breakdown? The numbers in the chart above include hardware, services and software. Well, in 2018, the breakdown looked like this: 

Figure: Canada, US, Mexico and LATAM Cloud-Based Video Conferencing Market Share by Types in 2018

Segments

Source: Maia Research Analysis

Here’s the key:

  • Hardware typically refers to the cameras, displays and any standards-based codecs used to communicate via video
  • Software encompasses unified communication platforms like Skype for Business and Slack
  • Services include SaaS solutions like RP1Cloud, Blue Jeans and Zoom. As indicated above, it still represents sales of nearly 1 billion USD. When seen in combination with software solutions, with which SaaS solutions are becoming increasingly integrated, it represents roughly 3/5 of the video conferencing market

Projections analysis suggest that these percentages will not really change over the next five years, and have not changed much over the LAST five years:

Figure Solution Type Market Percentage 2014, 2019, 2024

Projected segments

Source: Maia Research Analysis

You can see that hardware, while growing in terms of overall revenue, is losing a tiny bit of ground to both Service and Software. But fewer conferencing service providers are as keen to get into cloud conferencing, even though it adds a brand new recurring revenue stream.

So what is keeping people out of the cloud game?

While cloud services are already a huge segment of the conferencing industry, few of our partners have added it to their offerings, even as they face increased competition to their core business. Given that we rely on channel partners to help sell our own cloud solution, this hesitation is something that we’ve been keen to understand.

There are two primary reasons that we’ve heard time and again:

  1. Low margins: most cloud services offer relatively low margins to resellers – often no more that 20%. That’s barely enough to justify the work that it takes to actively sell. Those who do offer it have usually signed on to make sure they have their bases covered if one of their customers request it – it’s almost never something that they lead with. And it makes sense – why would a company making 50% on their hardware sales start pushing a solution that offers so much less?
  2. Reduced relationship with customers: when selling for one of the big Cloud companies, once the sale is complete, you lose contact with that customer. The relationship, the billing, the up-selling and communication is taken over by the big brand instead of your own. Not to mention that the company that actually made the sale is often cut out of renewals.

The other option, of course, is building one’s own cloud solution like we did with RP1Cloud. But as we can attest – that takes a lot of time and resources in development and infrastructure investment. It can be out of reach of a lot of independent conferencing businesses.

There is a new solution on the horizon, though. Without getting to salesy (because it IS something that Pragmatic and RP1Cloud is currently pioneering), it looks like this: a Cloud Platform as a Service, or PaaS. This is something that has existed in the audio conferencing world for some time, but it’s making its way into video: the option for partners to purchase a pool of connections, add their own branding (if they so choose), and sell their own service to their customer base at service-provider margins.

That is, of course, just one more option. The point that I’m trying to make here is GET INTO CLOUD. Even if your bread and butter is VoIP or hardware. Cloud and Unified Conferencing is the future – just ask Microsoft as they double down on their Slack killer “Teams.” It’s your best bet to diversify, future-proof, and add a brand new recurring revenue stream (boosting the valuation of your business).