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Contextual Communications Overview

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The communications software market is undergoing a dramatic shift from legacy hardware- and network-centric systems to more efficient cloud-based tools that enable businesses to have more meaningful and informed contextual conversations with their customers.

Catalyst has seen this first-hand through its investment in Weave (recently named to the 2019 Forbes Cloud 100). For example, a common phone call between a dentist office using Weave and their patient has been transformed from “while I have you on the phone, is there anyone else in your family that needs an appointment?” to “while I have you on the phone, I see your children haven’t had appointments in over a year – should we get them scheduled next month as well?”

Weave’s solutions are just one example of how contextual communications are having an impact on how businesses communicate internally and with their customers – Catalyst believes we’re in the early days of a generational transformation and is excited to partner with more vertically and functionally focused businesses enabling contextual communications.

At Catalyst, we employ a proactive, research-based approach to investing, targeting sectors experiencing outstanding growth. If you are an owner, operator, or investor in a growth stage company innovating the way businesses communicate either with their customers or internally, we would like to hear from you. Please send inquiries and business plans to kyle@catalyst.com.

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Contextual Communications Overview

  1. 1. 1 Contextual Communications September 2019 Kyle Howard-Johnson, Grady Kidder, and Mia Hegazy
  2. 2. 2 Contextual Communications Overview Sources: Gartner, Jan 2019; “Worldwide Unified Communications and Collaboration Forecast, 2018-2022” IDC, May 2018; “Magic Quadrant for Customer Communications Management Software” Gartner, Nov 2014; “Worldwide Voice and Text Messaging Communications Platform-as-a Service Forecast, 2018-2022” IDC, May 2018; “How APIs Enable Contextual Communications” Nexmo, Dec 2016 • Market Size: Gartner estimates that $3.9 trillion will be spent on information technology globally in 2019, 38% of which will be attributable to communications services – more than three times what will be spent on enterprise software and more than six times what will be spent on data centers o Gartner estimated that more than 70% of customer communications would be digital, contextualized, and consumed on-demand via multiple channels (including the web, mobile devices, and social media) by 2019 o Of the $1.4 trillion expected to be spent on communications services in 2019, IDC estimates contextual communications will account for ~$48.0 billion o While Unified Communications as a Service (UCaaS) represents a ~$44.0 billion market today that is expected to grow at an 8% clip, the Communications Platforms as a Service (CPaaS) market is roughly $4.0 billion in size but expected to grow at a CAGR of nearly 40% over the next three years, indicating the direction the market is headed – cloud-based solutions • Investor’s Perspective: The market migration from legacy hardware- and network-centric systems of communication to a more agile, customer-centric, cloud-based approach has enabled businesses to rethink how they approach communications o This is an exciting time to back the differentiated, mission-critical companies that are innovating how businesses communicate, both internally and with their customers, on a vertical and functional basis o We also see opportunity in the robust infrastructure layer that empowers companies to transform their communication strategies • Contextual communications refers to the two-way transfer of information between two parties, where both sides are aware of the relational, environmental, and cultural context of the exchange (i.e., a conversation where both parties understand the background of the conversation), typically with the goal of providing a more engaging and efficient experience o Contextual data includes user identity, history, location, reason for engaging, preferences, etc. • This report focuses on i) the underlying technology that enables companies and their customers / prospects to engage in real-time, personalized, consistent communication across touchpoints (e.g., text, voice, in-app chat, email) and ii) the vertically- and functionally-focused applications that leverage this infrastructure to inform and deliver communications • A few examples of contextual communications include reminding users of appointments via SMS, click-to-call or message functionality, web-based chat, call tracking, anonymized communications, and SMS surveys
  3. 3. 3 Market and Business Drivers Inform Solutions Sources: “Gladly 2018 Customer Service Expectations Survey” HubSpot, 2018; “2018 Customer Service Expectations Report” Bandwidth, 2018; “The Ultimate Guide to CPaaS” Gladly, 2018; “Businesses Lose $75 Billion Due To Poor Customer Service” Forbes, 2017; “The Hard Truth About Acquisition Costs (and How Your Customers Can Save You)” HubSpot, 2018 Customer expectations continue to rise, and the businesses that serve them are responding by adopting contextual communications strategies to make interactions more efficient, engaging, and informative • Customer expectations for service are higher than ever before, and engaging in trusted, consistent, personalized communication via preferred channels promotes higher-quality interactions o According to Gladly’s 2018 Customer Service Expectations Report, 71% of consumers want consistent experiences across any channel, but only 29% receive it • Personalized service matters more than speed – customers want companies to remember their history, follow up, and greet them by name • Texting has become the most widely-used app on smartphones – 97% of Americans text at least once per day • Click-to-call, according to consumers, is the most important feature available during their online shopping experience • Communications tools that either integrate into existing workflows or enable more efficient workflows benefit from a seamless adoption into business processes o Employing a vertical or functional approach enables these solutions to focus on specific workflows or integrations • A unified view of customer interactions helps to inform business decisions o Integrating with CRMs and other apps helps provide a holistic view of the customer o Collecting data to inform comms strategies can also allow businesses and developers to iterate on their solution and drive retention • Communications are mission-critical, so quality matters o Robust network infrastructure with a high level of quality and reliability can serve as a major differentiator, though not all modes of communication use cases require direct access to network carriers Customer Preferences • Businesses lose >$75 billion a year from poor customer service, and it is 5-25x more costly to acquire a new customer than retain an existing one • Businesses seeking to improve customer interactions and experiences are increasingly adopting contextual comms strategies to: o Improve customer satisfaction and retention through personalized interactions o Increase market penetration by reaching, engaging, and converting new customers o Save cost and time by leveraging contextual data for more informed and efficient interactions o Reduce risk exposure by addressing security and compliance issues • Ingesting data from various sources helps inform future exchanges – over time, analytics and AI will automate interactions while maintaining the personalization that customers seek Business Benefits Contextual Comms Solutions
  4. 4. 4 Example: Weave’s unified phone service, two-way texting, chat, and other features allow businesses to engage in personalized exchanges with patients and customers by integrating with practice management software, extracting relevant information, and providing it to the office processionals during these interactions Cloud Solutions Enable Contextual Communications Innovations in the early 2000s such as smart phones and APIs, coupled with the migration of communications technology to the cloud, set the stage for today’s contextual communications solutions UCaaS (8x8, RingCentral, Fuze) CPaaS (Twilio, SendBird, Ytel) Analytics/ Automation (Afiniti, Clarify, Invoca) UCaaS solutions are bought by businesses and typically consist of hardware and software with out-of-the-box functionality that allows businesses to take an omni-channel approach to communications by bundling various modes of communication and collaboration – some offer APIs to provide greater interoperability, but they are typically less flexible than CPaaS solutions Example: Canvas (owned by Jobvite) leverages Twilio’s Programmable SMS product to offer a text-based interviewing platform that enables recruiters to source, engage, and screen more job candidates while amplifying employment brands CPaaS solutions are leveraged by developers, allowing them to embed voice, text, and other capabilities within their existing business applications through open APIs/SDKs, removing the need to own hardware or network infrastructure and empowering developers to take a simpler, faster, and more cost-effective approach to communications by moving them to where most business applications exist today – the cloud Example: Voci’s Customer Experience application offers their customers the ability to generate and analyze call center call transcriptions to understand, in real-time, their customers’ pain-points and address them more quickly Analytics and automation represent additional layers that can be integrated with applications through APIs or other developer tools – analytics further inform communications strategies by empowering businesses to act on operational insights while automated workflows and communications, through the use of AI/ML, increase efficiency by streamlining basic tasks
  5. 5. 5 Competition is Driving Innovation In the highly competitive contextual communications market, we have identified a set of ‘Minimum Standard’ traits that providers must demonstrate in order to remain a viable option and another set of ‘Differentiators’ that allow certain companies to stand out from the crowd Analytics InfrastructureCompatibilityEfficiency Functionality Affordability Security & Compliance Automation Minimum Standard Differentiators Ability to streamline communications and increase efficiency when compared with a businesses existing comms strategy Platforms offered at a competitive price point geared towards the target customer segment with the ability to flex up and down as required Multiple modes of communication (e.g., voice, text, chat) and customized workflows for the segment of the market the company targets Standard integrations with all apps required by the target customers (e.g., Salesforce, HubSpot, ServiceNow) Sophisticated, secure, and proprietary communications infrastructure, providing a higher level of quality and reliability Analytics layered on top of a communications platform, providing operational insights that further inform comms strategies and customer interactions Security and compliance capabilities that ensure collected data remains secure and end users adhere to applicable regulations Automated workflows and communications to increase efficiency and streamline basic tasks Reliability Leading network uptime and reliability, minimizing dropped calls, poor connections, and other service gaps
  6. 6. 6 Contextual Communications Landscape Note: this landscape is intended to be a representative sampling and is not an exhaustive list. Please direct inquiries to kyle@catalyst.com. HorizontalVertical Customer Success / Contact Center Sales & Marketing Operational (Internal) Healthcare E-Commerce / RetailFinancial Services OtherRecruiting Business Intelligence / Analytics Education CPaaS / APIs / Developer Tools UCaaS ApplicationsInfrastructure/Tools Sources: Company websites
  7. 7. 7 Please send any inquiries to kyle@catalyst.com

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