Back
Forbes

Microsoft Is Building A Cloud-Based Phone Company — And Taking On A Public Company It Helped Grow

September 24, 2020
Ryan Koontz

Microsoft spent years building Teams into a strong challenger to Slack. Now it's using its software suite to take on another cloud success: Twilio.

The Redmond-based tech giant announced Tuesday that it had launched Azure Communication Services, a new suite of tools that it says is the “first fully managed communication platform offering from a major cloud provider.” In short, the services will give developers a way to add text messaging, voice and video calling to their apps. And next month it plans to add old-school landline calling as an option.

But Microsoft’s new tools will directly compete with those offered by Twilio, the $34 billion company that, until now, has enjoyed a relatively comfortable market lead in the cloud-based communications services sector, dubbed Communications-Platform-as-a-Service. Twilio currently holds a 25% market share in the sector, which was valued at $4.2 billion in 2019, says IDC analyst Courtney Munroe, who adds that the space is growing 33% annually.

The news is a blow to Twilio’s relationship with Microsoft, which courted its business in 2012 before Twilio agreed to provide communications services to Azure cloud customers. Twilio then became a customer of Azure to host its software. Twilio declined to comment on whether it would remain a Microsoft Azure customer.

“Microsoft isn’t the first to enter our space and they won’t be the last,” Twilio spokesperson Caitlin Epstein said in a statement. “We respect, but don’t overreact to competition because it’s much more important to focus on customers than another tech company’s latest press release.”

In an interview, Scott Van Vliet, Microsoft’s corporate vice president of intelligent communication, wouldn’t discuss the future of Microsoft’s relationship with Twilio, other than to say: “We hope that our customers that look to Microsoft will see that we provide one of the most reliable and scalable cloud platforms.”

<highlight> Twilio says it currently has about 200,000 enterprise companies that use its communications services. Analysts say that the San Francisco-based company has built a sales machine that effectively helped build the sector, and point to its soaring revenue, which reached $400 million in the second quarter. Because the cloud-based communications sector is so young, and yet to be adopted widely in industries such as healthcare and retail, Twilio’s market-leading position will enable it to keep growing, adds Ryan Koontz, an analyst at Rosenblatt Securities. <highlight>

But Twilio faces stiff competition from a motivated Microsoft. Microsoft’s Teams’ platform is used daily by more than 75 million people, enabling the company to pitch a vast customer base for deploying its new communications services. In addition, one of the key threats to Twilio will be Microsoft’s ability to cross-sell its communications suite to developers on GitHub, a service it owns that is used by more than 50 million developers to build applications. “There's almost no doubt in my mind that a significant number of those developers use Twilio,” says Rich Valera, an analyst at Needham & Company.

Depending on the success of Azure Communications Services, a major competitive push into a new software sector could raise flags about Microsoft’s effect on its smaller competitors. Over the summer, as Microsoft avoided antitrust scrutiny directed at its rivals Google and Amazon by U.S. regulators, the company was sued in the European Union by Slack, which claimed Microsoft’s Teams product violated antitrust laws. Since launching in 2017, Teams has far outpaced the number of users of Slack, which currently counts 12 million users.

With the cloud communications services sector still growing, analysts don’t see Microsoft’s offensive on Twilio as a zero-sum game. But some are taking notice of the company’s broad reach. “You start becoming too big to fail, and I think that is something becoming more evident: the little guys are being hunted,” says Ted Chamberlin, a Gartner analyst. “David probably won't win this, Goliath will.”

Link to full article.

Recent Posts

Back To List