The Stampede Has Started

8×8 CEO Vik Verma Discusses Growth and What Could Be a Take-Off in The UC Market

8x8 CEO Vik Verma is a happy man. On Oct. 23rd, 8x8 reported results for its fiscal Q2 ending in September, with revenue up 29% and topping $50 million for the first time in 8x8’s history. The company was also able to announce the third of three big enterprise deals closed in the quarter, each with over 1,000 seats. This week, 8x8 stock (EGHT) hit $11.25, its highest level this year. While there is evidence of accelerating growth among several unified communications (UC) companies, 8x8 stands out as the competitor that is leading the way with the biggest deals with the coveted large, multinational customers. Verma says the often-predicted take-off in UC services for the enterprise might finally have arrived. Up to now, replacing on-premise hardware-based phone systems with UC cloud systems has tended to be associated with bleeding-edge, early adopter types. “Now,” says Verma, “people are seeing companies they've heard of going in this direction. So they are thinking: this thing must be real. The stampede has started.”

Verma told the Daily Cloud that 8x8’s success is directly attributable to its history as a company that made a transition from its early days as a fabless chipmaker into a voice over IP company in the years 2004 to 2006. Already a public company, 8x8 had to “pivot” into a new industry while cash was tight and in the full glare of public company visibility. “We never had access to large amounts of cash, so we learned how to create fault-tolerant, highly scalable hardware,” Verma says. The result is an architecture in which up to 10,000 users can run on a single software PBX, and thousands of PBX’s can reside on a single server. “It’s a very economical architecture,” Verma says. “Our capex is 3.5% of our revenue, compared to about 7% for a typical SaaS company.”

The result of the long years developing an enterprise-class UC solution is not only a low-cost architecture but also a reputation for reliability. That’s been critical in winning the larger clients, Verma says. Back in July, he told investors 8x8 was working on ten large deals, and he was hopeful one or two of them would close in the September quarter. In the event three closed: NetSuite, Regus plc, and a third unnamed enterprise with more than 7,000 seats. “I was surprised to close three in the quarter,” he says. “And since then, the pipeline has actually expanded.”

Verma got his start in tech industry management in the 1990s, at a bootstrapped startup called Savi that was early in the development of RFID technology. Savi was acquired by Texas Instruments, sold to Raytheon, and then Verma led a venture capital-backed buyout of the business from Raytheon. In 2006, Savi was acquired again, this time by Lockheed Martin. Verma stayed on to run a Lockheed division for two years before leaving to join 8x8. “I’ve seen all three: running a company with not enough money, situations where you’ve got a lot of money, and then situations in public companies where you’ve got some money but have to be frugal,” he says. “I actually think running a public company is a great discipline for a CEO, because you have to be able to justify your decisions every quarter. That discipline is good.” He compares it favorably to some venture-backed startups whose investors encourage them to spend money in a frantic rush to achieve scale. “I don’t mean to throw rocks at venture-backed companies, but [Salesforce CEO] Marc Benioff said recently that unicorns need to go public at some point to experience that discipline." (The same point is made humorously on the hit HBO series Silicon Valley in advice from Russ Hannaman, the McLaren-driving billionaire angel investor in Pied Piper. Watch it here.)

As UC expands to take a growing share of the $70 billion market for collaboration and communication products and services, 8x8 is increasingly facing the giants of the PBX market, Cisco (CSCO) and Avaya. “We see them all the time,” Verma says. “We relish the competition. We bring a different cost basis. We come from the SMB (small/medium business) world and we bring SMB-like pricing with large enterprise capabilities. We are like the PCs taking on the mainframes or the iPad taking on the laptops.”

The channel—the network of independent distributors and resellers—is taking on a larger role in 8x8’s go-to-market strategy. Many SaaS companies believe that selling direct, often via an “inside sales” team that works the phones, is superior to selling via the channel. Verma is a big supporter of the channel. “The channel is highly strategic for us. They have the reach and the relationships into the customers,” he says. “It’s a three-legged stool. We have an inside sales force, a field sales force, and the channel. You have to find a way so each is compensated such that the company is indifferent as to where the revenue comes from.”

Verma says 8x8 is running its business for growth at a “reasonable” level of profitability. Given the fact that the top UC cloud companies account for less than $1 billion out of that $70 billion market, growth (not profitability) is today’s priority. 8x8’s business is divided almost equally between the SMB sector (52% of revenue) and the mid and large enterprise sector (48%). With 43,000 customers, its overall average revenue per customer is $360. Yet average revenue in the mid-to-large sector is $4,000 a month. So growing the mid-to-large sector should deliver some serious revenue growth. He’s also interested in boosting growth through acquisition, preferably in regional markets where 8x8 doesn’t have a big enough presence. That includes most parts of Europe and Asia.

Verma’s nature as a cautious engineer prevents him from labeling last quarter as an industry tipping point. But he’s clearly optimistic about the future.

“Using the words `tipping point’ would scare me. But I feel good about where we are. When you can go to customers and say I can give you features you don’t have today and features you didn’t think were possible on your old equipment, and I can do all that AND save you 50% on your costs, people used to say, that’s too good to be true.

“Now they’re listening.”