In December 2021, leading communications company, Ericsson surprised industry analysts with a decision to purchase Vonage, a cloud communications leader. The purchase follows a year full of consolidation, with companies like Salesforce purchasing Slack, and 8×8 acquiring Fuze. However, not every industry expert believes the acquisition of Vonage by Ericsson makes sense.
Ericsson is a massive global brand, enabling communication service providers to unlock the benefits of full connectivity, with a portfolio spanning managed services, digital services, and networks. Vonage is an innovative cloud communications leader, with a growing presence in the CPaaS (Communication Platform as a Service) space.
The purchasing price of $6.2 billion in cash represents around 4.4 times the expected full-year revenue for the company. Let’s explore what the purchase means for both companies.
Why Did Ericsson Buy Vonage?
Vonage might be a smaller player in the UCaaS, CPaaS and CCaaS market than some market leaders, but it’s innovative approach to API technology and a footprint of over 1 million registered developers makes the company particularly compelling.
The Vonage Communication Platform was the business unit which attracted Ericsson in the first place, and it should give the larger company access to a market expected to reach a value of around $17.7 billion by 2024. The API environment, set to hit a value of $173.3 billion by 2025, is a further major selling point for the transaction.
According to Ericsson CEO, Börje Ekholm, the acquisition of Vonage allows the company to take an important step forward in bringing enterprises onto wireless networks. The acquisition should deliver sensational value for the full wireless ecosystem.
What’s more, Ericsson Executives say access to a wider developer landscape will help to prevent wireless innovators from making some of the same mistakes they did with 4G LTE, where developers made the most money riding on top of wireless networks, rather than the operators.
The cloud-based “Vonage communications Platform”, or “VCP”, currently serves more than 120,000 customers and 1 million registered developers worldwide, and the API platform within this landscape allows developers to embed all kinds of communications such as video voice and messaging, into products and applications, without back-end infrastructure.
Vonage also provides UCaaS and CCaaS solutions within its platform. Ericsson believes access to the API environment and a strong developer community will be essential in the future. The company claims to be actively trying to help their operator customers “monetize” their assets, rather than competing against them.
An Exciting Move in Ericsson’s Eyes
The board for Vonage unanimously approved the merger, perhaps unsurprisingly. Ericsson’s board believes the transaction will help to accelerate the company’s acceleration towards global wireless expansion. It also builds upon the successful integration of Cradlepoint in 2020, a company Ericsson says has continued evolving since the acquisition.
The purchase of Vonage represents the largest ever deal for Ericsson so far, following the $1.1 billion acquisition of Cradlepoint, which gave the company access to some initial network APIs. Vonage will deliver a wider selection of communications APIs. According to ZK Research’s Zeus Kerravala, this is just one of ways the purchase makes sense.
The deal will also allow Ericsson to build synergies with its 4G and 5G networking technology, according to the executives. Specifically, Vonage’s communications APIs will help operators to leverage more of the future connection options they need, like 5G. During an announcement about the acquisition, Börje Ekholm said the core goal of Ericsson’s strategy is to build leading mobile networks through “technology leadership”.
Highlighting the 5G-related benefits of the acquisition, Ekholm said the vision is in putting the power and capabilities of 5G – the current biggest innovation platform for the mobile environment – into the hands of developers, through the Vonage environment.
Rory Read, the CEO of Vonage, said both Ericsson and Vonage also share synergies in their vision of the future. They both want to accelerate their long-term growth strategy by investing in the digital landmarks of the future. This involves focusing on the convergence of the internet, the cloud, mobility, and powerful 5G networks, which are forming the next wave of digital transformation.
As concepts like hybrid work continue to take the world by storm, and companies invest more in a distributed team, the 5G landscape and the ability to access flexible, API-based enhancements, will both be valuable to the future communication stack.
Greater Opportunities in the Enterprise
Outside of a stronger developer and API presence and new opportunities in the potential access to 5G innovation, Ericsson’s decision to purchase Vonage will also bolster the Enterprise aspirations of the company. Ericsson’s strategy of delivering innovative opportunities to operators in the modern market, paired with the Vonage acquisition should give Ericsson more scope to expand into the enterprise segment.
It could be, like many acquisitions over the years, that the purchase of Vonage by Ericsson helps to place the company in a new light among Enterprise customers. Of course, the only way for the company to succeed in this new landscape will be to ensure they continue to support and empower the developer community, so Vonage innovators share their loyalty with Ericsson.
While analysts have expected to see the acquisition of Vonage for some time now, most agree they didn’t imagine Ericsson would be the acquiring brand. While some people are still struggling to see the connection between the two companies, others say the move could be a smart one – provided that Ericsson takes a right following steps.
After making its way into the communication market with VoIP technology, Vonage managed to create an important place for itself in the communications space, competing with only a few other companies. The transition into the API and CPaaS world further enhances this unique position for the brand, who only has a handful of competitors like Twilio to consider at the moment.
Acquiring Vonage puts Ericsson in an excellent position to become a leader in a flexible API and CPaaS market, but only if the company continues to knuckle down on its strategy for enterprise CPaaS technology.
The acquisition is expected to be completed within the first half of 2022, at which point Vonage will become a wholly-owned subsidiary of Ericsson, but will continue operating under its existing name, with Vonage CEO Rory Read joining the Ericsson executive team.