Why Amazon Connect May Fail

Unless you have been living under a rock, you know that Amazon has launched its cloud call center offering, Amazon Connect. Since we have been in the cloud call center space for the last 8 years, here are a few of my thoughts on why Amazon Connect will most probably fail in its current avatar.

1. Support: Call center products thrive on support. Call center solutions are real time products. What happens when you get one way audio? What happens if your calls are not going through? What happens when your number is not reachable? What happens when your agents are not able to login? Sure hope you have a number to reach out to. Email support does not cut it. But this goes against the AWS principles as AWS support is mostly through email.

2. Positioning: The current positioning of Connect is confusing to say the least. Its setup is similar to AWS instance setup which is generally done by technical people. Technical people prefer Twilio for their call center. Its feature set is limited and hence enterprises will not prefer it and will go for regular cloud call center solutions like Five9, Avaya, Cloudagent*.

It tries to go in the DIY route, but its drag and drop approach is complicated. Newer players like Aircall and GetKookoo* can help you get started in less than 5 minutes.

3. Mandatory features: Cloud call center solutions should have some mandatory features like CRM integrations(the more the better), live call barge in, call whisper, agent toolbar shortcuts,live reports,screen pop etc. Connect does not have many of these features. So in effect its more of a glorified PBX than a cloud call center in its current avatar.

4. Scaling: The whole premise of going the cloud route is to take care of scaling automatically. And I know I am questioning Amazon scaling :), but hey, they have not mentioned how many calls can an instance handle. Do we need to spin up more instances to handle more calls or will this be automatically taken care of.

I know, the title of this article talks about failure, but lets also look at why Amazon Connect may succeed:

1. Because its Amazon: Well, Amazon is known to have made risky bets and pulled it off. So they may yet pull a rabbit out of the hat.

2. Pricing: They have an aggressive pricing and for businesses with less than 100 calls in a month, its a very good proposition.

3. Amazon Lex: The future may be about bots and automation. Here Amazon’s Alexa and Lex may hold the key for the success of Amazon Connect.

But as things stand, my bet is on Amazon Connect not making a big dent in the cloud contact center space.

* denotes products which are built by us at Ozonetel

Gross margins for SaaS startups in India

Gross margin is a very important number for SaaS products as that gives an indication to how much money you will have left to innovate on hiring,discounts,marketing etc.

What is a good gross margin for a SaaS startup in India?

To get the answer to that,lets first see what is gross margin:

“Gross margin is defined as the percent of revenue left over after the cost of servicing that revenue is taken into account”

So it is not just the cost of goods, but also the cost involved in servicing and supporting your product.

For Saas products the highest cost comes from hosting services. But thanks to cloud providers like AWS and Google cloud, hosting service costs have been coming down. And this in turn increases your gross margins.

It is widely accepted that a gross margin above 80% indicates a good SaaS business. Such a business can command a valuation of 10x on revenue. But anything above 65% should be ok. You can then optimize and move the needle towards 80%.

For us at Ozonetel,since we are in the cloud telephony space, our hosting charges are a little high as we need to manage data centers in each location in India. Also last year, we experimented with outbound calls and SMS services. These do not have a lot of margin as you make only 1-3 paise per call/SMS. When we were doing that model our gross margin fell below 50%. Though our revenues increased a lot, since our gross margin was low, we did not have too much left out to invest in the growth of the company.

So we made a conscious decision to concentrate on selling only software as that has higher gross margins. Right now, we have 70% gross margins and with a few more optimizations we should be able to reach 80% this year.

As a Saas business, make it a priority to improve your gross margins. The higher gross margins you have, the better multiples on revenue you will get. That is why ecommerce and SMS/Outbound call providers dont get too much revenue multiple valuations.

In fact if you have less that 40% gross margins, I don’t think you can be called as Saas company. You will be more of a service company with a Saas bent.

Please share the gross margins of your Saas startup in the comments so that we can discuss and improve.