Is the next step beyond the hybrid office the asynchronous office?
A lot of bosses have made their peace with the idea that workers, the kind who make a company work and you don’t want to lose, are going to want to work remotely well beyond the pandemic. But a lot of thinkers are thinking why stop there? They are agitating for an even more empowered worker, one who gets to decide when, where and, most importantly, whether to commute to the office, making the traditional workplace even less populated than before.
“Asynchronous work gives people the freedom to move away from hyper-responsiveness and real-time communication towards a mode of work where they get to decide when and where to work,” said Steve Glaveski, CEO of Collective Campus and author of a December 2021 Harvard Business Review article entitled “Remote Work Should Be (Mostly) Asynchronous,” in an exchange of emails. “It is characterized by getting stuff done, without the constant chatter of meetings, Zoom calls and instant messages.”
To Glaveski and other advocates, too often the Zoom call, or whatever online facilitator is used to re-create the face-to-face meeting, is a time waster, an opportunity for immediate supervisors to assert their superiority, as opposed to something that actually adds value to tasks.
Instead, under asynchronous work, projects are supervised by “task boards,” which are documents that anyone on a work team can access through software such as Slack or Google that allows a team member to post what they are doing, see what other members on a team have done or are doing, and see what progress has been made toward their group goal.
There are other aspects of asynchronous work that distinguishes it from hybrid offices and, of course, traditional 9-to-5, commute-to-the-office work. These include limiting the time you have to spend on work and where you can declare without penalty that you are done for the day and not available. Morning people can get up at 4 and get more done by 7 than people who get up at a normal time can do all day. Night people can live like rock stars recording an album, and work until midnight or beyond. Asynchronous schedules usually account for time zone changes, too.
For those who think all this is too speculative and reeks of academics who have too much time on their hands, they are in for a rude awakening. Big-time global real estate service firms like JLL are already monitoring the trend, and Salesforce, a maker of customer-management software that’s San Francisco’s biggest employer, is experimenting with the asynchronous work model.
“Employers are absolutely going to need to adapt,” said Cynthia Kantor, JLL’s chief client value and growth officer. “Flexibility is fundamental to the future.”
In a June report, JLL said it found that 60 percent of office workers wanted to work in a hybrid style and 55 percent were already doing so. Only about 48 percent of those surveyed saw their company as a great place to work, and one out of four told the firm they contemplated leaving over the next year. Kantor said she saw this as evidence that workers were restless, and looking for more comfort and balance between earning a living and having an enjoyable life.
At Salesforce, the company has had “asynchronous” weeks since last year, as it experiments with new work environments. It had more than 77,00 employees as of May, according to a spokeswoman, and 110 offices around the world, including six Salesforce Towers (there’s one by Bryant Park in New York as well as the headquarters tower in San Francisco) and three in development in Dublin, Sydney and Chicago. Its most exact asynchronous week was June 20 to June 24, an article on its website said.
One of the characteristics of such weeks is to go “meeting-free,” according to the Salesforce article. It offers some tips about “best practices” for going meeting-free: among them, plan, plan, plan (meaning that supervisors must set clear expectations for their workers); encourage teams to seek alternatives to meeting replication software like Google Meet or Slack; and create “enablement” materials for workers that are easy to find on the web.
The company also created a Frequently Asked Questions document for its workers, which among other things dealt with issues that might make them feel insecure about working asynchronously, such as “How do I avoid feeling isolated?” It said the answer to most such questions was to “rely on collaborative digital tools” by doing such seemingly frivolous things as greeting your team or sharing a personal playlist.
“Employees want the flexibility to decide how, when and where they work,” Steve Brashear, COO of Salesforce’s real estate and workplace services, said in an emailed statement. “But digital-first does not mean digital-only. Our employees’ No. 1 request is to get together in person with their teams, and our offices play a critical role [in that].”
From a commercial real estate point of view, the question hanging over all of this, and one for which there’s no one-size-fits-all answer, is how much, if at all, this makes traditional office-dominated skyscrapers obsolete, or less valuable. Office occupancy in major U.S. markets has already hovered between 40 and 45 percent for months, according to security firm Kastle Systems, which tracks employee ID swipes in places such as New York and San Francisco.
In a June interview with Commercial Observer, Owen Thomas, CEO of Boston Properties — the largest publicly traded office real estate investment trust and controller of some of America’s most iconic skyscrapers, like New York’s General Motors Building, Boston’s Hancock Tower and Prudential Center, and builder of Salesforce’s headquarters tower in San Francisco, the city’s tallest building — said companies would cling to downtown space that defines them, and there was no reason to abandon Boston Properties’ time-honored mantra of “A-properties in A-locations.”
And Elon Musk, boss of Tesla, which makes electric vehicles, and SpaceX, which makes rocket ships, caused a stir in June when he demanded that all his white-collar workers return to their offices at least 40 hours a week, or resign.
“Elon is the richest man in the world, so he must be doing something right,” Glaveski said in his email. “While I think that real-time communication and bringing people together has its benefits, mandating full-time face-to-face hours is not something I would do.”
As for Thomas’ take, Glaveski called it “wishful thinking from a commercial property landlord,” and a product of “optimism bias.”
Asked if asynchronous work is a trend that commercial real estate investors, especially those who have been drawn to offices, need to be concerned about, Kantor said the situation is “evolving.”
David Arena, director of global real estate for the international bank JPMorgan Chase, said that many of the bank’s clients are experimenting with remote workplaces, and that the post-COVID climate remains unsettled. About half of the bank’s own workforce, such as its tellers and its securities traders, have to be in the office to do their jobs properly. Then there’s another 10 percent who can do their jobs anywhere, leaving 40 percent who in the future might work in some combination of in the office and outside the office.
“There is a material role for physical real estate and physical offices in the future,” Kantor said. “It’s about matching the work environment with the work that needs to be done.
“When you are an office worker, and your role is work that can be performed in a variety of physical locations, then it’s best to be performed where that individual can deliver the highest-quality work product for them,” she said. “That’s the best outcome for the employee and for the company.”
Over half of the Fortune 500 companies from 2000 no longer exist. Furthermore, it is predicted that 90% of today’s Fortune 500 companies will be acquired, merged, or bankrupt by 2050. Would it be surprising to learn that these decreasing company lifespans correlate directly with increasing rates of technological innovation?
As business leaders, we’ve all heard the mantra: innovate or die. But in today’s cost-conscious world, we need to prioritize innovation that delivers the highest ROI while reducing risks that could impede success. That’s why investments in current and future product development need to begin and end with the people who vote with their wallets: the customers.
ENGAGING CUSTOMERS FOR LIFE
We’re in the midst of a customer-first revolution. According to a exact Salesforce survey, nearly 9 out of 10 buyers say the experience a company offers is just as necessary as the product or service itself. Such an insight suggests that companies need to start thinking about the whole product as including interaction with customers on multiple levels, even long after that product is sold.
Whether you’re a consumer goods, high-tech, electronics, or medical device company, a whole-product focus that begins with customer experience is the way to achieve customer loyalty in a world where brand allegiance is rare. This approach revolutionizes customer engagement and creates new revenue opportunities for innovative product companies.
Traeger, Inc. is an excellent example of how embracing deeper customer engagement can achieve rocket-ship revenue growth. In 1987, Traeger quickly established itself as one of the best grills on the market. But its growth further exploded when it embraced a whole-product strategy. Today, Traeger’s business model includes the sale of smart grills designed to cook the perfect meal, consumable revenue from pellets that ensure the grill is cooking correctly, content revenue from videos and local events that deliver ongoing engagement, and full meals from Traeger Provisions that generate profits and increase customer engagement. Traeger has been rewarded handsomely for its ability to engage customers in so many different ways, doubling its revenue over a three-year period.
Shifting focus to the whole product has completely turned around how product development and commercialization product teams work. Developing products used to be a serial process that began with suppliers and ended with customers. Today, the best product companies start with customer requirements and then determine what suppliers are needed to fulfill demand.
This re-focus has significant implications for hiring and structuring teams as well. Ten years ago, product companies focused on lifecycle costs; now, profit margins and average revenue per user are the primary focus for subscription-based models and omnichannel strategies. The desire to drive customer engagement that is deeper and longer is turning product managers into general managers. Some are evolving with the times and learning new skills; others are not, forcing product companies to hire outside traditional talent pools to find the right people.
This evolution is necessary because customer engagement is vital to subscription revenue, customer loyalty, and other future revenue streams. Additionally, the lucrative nature of subscription revenue is driving product companies to embrace this model at a breakneck pace.
Today, a lost sale no longer means lost revenue for the quarter. It means lost revenue for years to come. Product companies know this and are witnessing an historic rush to lock in long-term subscribers before competitors get a chance. That’s why the smartest investment in digital innovation that will drive ROI is called Product Value Management (PVM)—and it’s the future.
PVM’S WHOLE-PRODUCT STRATEGY FOR INCREASED REVENUE
PVM responds directly to current market conditions by focusing on three key areas: defining the whole product then evolving it over the course of its lifetime, connecting markets with compelling products and experiences, and creating product operations to help product and market teams optimize for successful economic outcomes. This is core to bridging the gap between product and commercial teams to ensure revenue growth is always front and center with product strategy.
Leading with a customer-first product strategy requires speed, data visibility, and collaboration between the whole office. When companies can implement customer feedback and adapt quickly to changing market conditions, products can be launched faster than ever.
This closed-loop process drives success in a customer-first world where a direct connection between products and customers is essential. This is achieved when:
A customer-focused strategy on whole products, product lifetime value, and recurring revenue streams is the foundation for creating profitable products—now, and in the future.
Ray Hein, co-founder and CEO at Propel Software
Featured Image for Modelit
SEATTLE, Aug. 01, 2022 (GLOBE NEWSWIRE) -- Modelit, a top-notch Salesforce partner, celebrates its 10th anniversary of offering top-quality implementation and development services to its clients.
"It's been an amazing journey. It's been full of experiences, it's been full of learning, and most importantly, it's been great getting to know so many talented people in the Salesforce ecosystem along the way. I want to thank our team for their hard work and commitment, and our clients and partners for the trust they put in us. We can't wait to see what we achieve in the next 10 years!" -Diego Febles, Co-Founder
A Look Back
When the company began in 2012, Modelit consisted of only three team members. Since then, it has blossomed into the successful company that it is today. Over the years, Modelit has achieved such accomplishments as becoming a Salesforce Ridge Partner, becoming a PDO Partner, completing over 100 successful projects, and obtaining numerous certifications and specializations for its team members. Modelit is proud to have two Salesforce MVPs as part of its team, a privilege for a company of our scale, of which one even had the opportunity to speak publicly at the annual Dreamforce event. Now, with a team of more than 40 professionals, Modelit continues to thrive as a trusted Salesforce partner.
Modelit's purpose has always been to empower organizations and individuals with Salesforce and technology, so that they can grow and thrive. The company takes pride in its core values, which are principal to each and every solution that it delivers. A team-oriented and forward-thinking approach allows experts to show up for clients time and again, constantly increasing the value of our customers' Salesforce investments. Building trust with clients, remaining committed to project outcomes, and maintaining strong communication throughout are crucial to the reliability that Modelit has provided for its clients over the last 10 years.
"Putting people first played a very important role in achieving this success and creating an atmosphere of respect and trust. When there are people who are passionate about what they do, working in a good environment where sharing their knowledge is encouraged and motivated, working as a team towards the same goal is the key to constantly learning, improving and delivering quality products to customers. I would not trade my role at Modelit for anything." -Pablo Vigil, Team Lead, Sr. Software Developer
Modelit looks forward to continuing its journey, focused on becoming a top Summit Partner. The company will continue to strive for a cohesive team of Salesforce-certified members, hoping to be recognized as the top Salesforce consulting and development company in the Americas. The future looks bright for Modelit.
As a way of commemorating these last 10 years and celebrating what lies ahead, Modelit will be hosting a giveaway on its website. Keeping in line with the company's core values, the first 100 new subscribers will receive a copy of one of our top three recommended books.
Modelit is a highly rated Salesforce partner built by certified and experienced experts offering services in custom development, CRM configurations, and AppExchange app development. The company has offices in the U.S. and Latin America, operating within similar time zones as its customers and collaborating in real-time. Modelit is dedicated to helping its clients maximize their Salesforce investments by providing an aligned customer experience, faster time-to-market, and lower total cost of engagement.
For more information, please contact email@example.com or visit www.modelit.xyz.
Empower organizations and individuals with Salesforce and technology so they grow and thrive.
This content was issued through the press release distribution service at Newswire.com.
Mike Esterday is the CEO of the global sales performance firm, Integrity Solutions.
More than half of customers don’t believe companies have their best interests in mind, according to the Salesforce Trends in Customer Trust survey. That doesn’t bode well for satisfaction, net promoter rates or future business.
The more companies invest in automating and digitizing the buying process to Excellerate customer experience, the clearer it becomes: Technology doesn’t solve everything.
The Salesforce study hints at a path forward, though: 95% of customers are more likely to be loyal to a company they trust and 93% are more likely to recommend a company they trust. Trust hinges on your people, not your systems. The question is, are your employees engaged, equipped and inspired to fulfill this role?
People Define Your Customer Experience
While companies often equate customer experience to (post-sale) customer service, the experience begins well before the deal is done. Trust comes from employees who are committed and inspired to create more value and provide differentiating service for their customers at every step. This isn’t the responsibility of one area of the company; it’s a mindset that must permeate the entire culture.
You can’t sustain that mindset when people are burned out or detached from the purpose of their work—a huge issue that’s contributing to today’s historically high quit rates. Yet, some companies are noticeably talent—and customer—magnets. They’ve created cultures where people know what they do is making a difference for customers and the company.
When employees understand how their work impacts customers, they become personally invested. This sense of purpose fuels them to create more value for customers. And the more engaged they become, the more discretionary effort they’ll put in to ensure customers remain loyal, even when problems or mistakes happen.
This kind of purpose-driven work is powerful. As Lisa Earle McLeod detailed in her bestselling book Selling with Noble Purpose, salespeople who are committed to improving their customers’ lives are consistently more successful than quota-focused salespeople. A Deloitte study on cultures of purpose reinforces the point: When employees feel they’re working for something greater than profit, their companies are more successful.
Three Pivotal Areas To Focus On
Sales teams know the double-edged sword of technology. It’s supposed to make things easier, but many feel overwhelmed, spending less time listening and understanding customer needs and more time logging data, reciting scripts and talking about products. If they’re not listening, though, they won’t learn what their customers value.
Salespeople need to refocus on the human-to-human value they bring to the relationship. Here are some critical focus areas:
• Develop a mindset that encourages two-way conversations. Successful salespeople are genuinely curious. They ask good questions to help customers discover their true challenges and needs—and they really listen.
• Develop their questioning confidence. If salespeople are reluctant to engage in open-ended questioning, it might be an issue not just of skill but of will, which is often rooted in negative beliefs about their abilities and about selling itself.
• Define what “selling” means in your organization. By defining selling as uncovering and meeting needs and creating value for people, you provide a positive roadmap for specific actions, behaviors and objectives at each stage.
• Redefine what “closing” means. Sales training often emphasizes closing techniques designed to get the customer to say “yes.” These dynamics create tension and undermine trust. They also imply that the salesperson can disappear when the sale is finalized.
2. Customer Service
“We value you as a customer. Your business is important to us.” These are nice words, but they often fail to translate into the actual experience. This doesn’t mean your people don’t care about their customers, but they might need a clearer process and framework to turn those words into action.
Improving customer service in your organization requires a combination of both process and people strategies, including:
• An effective customer service process, which allows people to bring out their best because it gives them consistency and an anchor to ground them. This is especially important when everyone’s juggling heavy workloads and dealing with a variety of customer issues.
• Learning and development centered around people, not scripts. Handling issues effectively starts with having productive conversations, and that looks different for each customer. Teams need the skills and tools to recognize and adapt in the moment so they can communicate in a way that connects with customers.
• Developing problem-solvers by moving away from a transaction-focused mindset. Mistakes happen. But skilled, motivated customer service reps are able to respond in ways that ultimately Excellerate the customer’s brand perception and trust. Asking good questions, thinking critically and listening non-defensively will allow your employees to engage with customers on a deeper level and get to the root of problems.
• Defining what “customer-centric,” honesty and integrity mean in your organization and integrating those into your training. Teaching people to be human and appreciate the customer’s frustration goes a long way toward building trust and loyalty.
Giving meaning to the job is not just up to the employee. Managers play a critical role in helping employees find the “why” in what they’re doing. That’s where good coaching comes in. Successful managers:
• Coach people from a perspective of tapping into purpose and holding themselves accountable for their impact.
• Are vested in the employee’s success and personal fulfillment.
• Model, measure and reward behaviors that create an exceptional customer experience.
• Have confidence, credibility and skills to coach frequently and empower employees to produce desired results and reinforce a customer-centric culture.
• Celebrate stories of customer impact in team meetings and one-on-one coaching.
The Trust Difference
In a world dominated by technology, your people remain your most powerful differentiator. PwC's Trust in U.S. Business survey found almost half of consumers have started or increased purchases from a company because they trust it. A third have paid a premium for trust.
By understanding customer needs and delivering value based on those needs, your entire organization can work in sync to create a standout experience rooted in trusted, high-impact relationships.
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By Moti Rafalin, CEO and Co-founder, vFunction.
For organizations focused on digital transformation, existing monolithic application architectures present a major obstacle to modernization initiatives that have become a top priority for CIOs and CTOs alike. Monolithic application architectures stand in the way of today's highly adaptive, cloud-first, forward-looking approach to delivering faster, better and more efficient business outcomes.
• According to a survey by 2nd Watch (via VentureBeat), 79% of organizations rely on older applications for critical business functions but find themselves held back by the resilience, scaling, security and performance limitations of old code.
• The technical debt of these essential applications can get in the way of high priorities like driving innovation, improving engineering velocity, reducing ramp-up time for new developers and, ultimately, improving business outcomes like customer experience, market share and competitive advantage.
• Digital transformation efforts can be delayed, stalled or halted by monolithic architectures.
Modernization should be a priority for everyone. According to our exact survey of 250 director-level respondents, 92% of respondents are planning to or are actively involved in app modernization projects. There's a problem, though: Nearly 80% of those respondents reported that some of their application modernization initiatives had failed.
Let's assume, for the sake of this article, that you decide the risks of modernization outweigh the advantages. After all, your team is already overworked and understaffed, balancing between maintaining existing applications and delivering incremental improvements. You're also afraid of wasting time, money and energy on modernization projects that might not deliver results and often come with significant inherent risk. Finally, you and the other leaders in your organization simply have other priorities to think of.
However, organizations that prioritize maintaining or even migrating monolithic applications over modernization can end up with a substantial problem—a broken culture.
Your team wants to work with leading-edge technologies.
Most developers—especially young, energetic developers—are trained to work with and want to work with leading-edge technologies. They're eager to build code for the cloud; they want to use microservices and use leading-edge languages and toolkits.
The majority of developers are not enthusiastic about maintaining older code running on top of out-of-date platforms to support monolithic enterprise apps. They struggle with wrestling with decade-old challenges and weaknesses instead of building something innovative and new. They become uninterested in learning the current stack because it's so antiquated and not marketable. They aren't able to use the hard-won skills they acquired through education and previous roles.
Also, developers who work on monolithic applications often spend their days fighting fires (in the form of technical debt) instead of driving improvements. Old architectures come with security issues and scalability limitations, which weren't problems a decade ago but are constant issues today.
Thanks to these problems and many others, developers who work on legacy code may find it frustrating and unsatisfying, resulting in poor job satisfaction and low morale.
Your experts on aging applications are marching toward retirement.
Depending on the age of your monolithic applications, you may find that your experts are moving toward retirement. Developers who were 35 years old in the 1990s are reaching retirement age today. They're looking forward to enjoying their free time instead of digging through the intricacies of poorly documented code.
To make matters worse, many programmers or developers from the 2000s have moved into management roles and aren't involved in day-to-day maintenance, bug fixes or feature additions. Their coding and development skills might be rusty. Maintaining the quality of your applications becomes more challenging each year, and as more and more problems emerge, your team is getting more and more disillusioned and discouraged.
The "Great Resignation" is not your friend.
Since 2021, developers have been leaving their companies in record numbers. According to a Salesforce survey (via InfoWorld), 93% of enterprises are struggling to retain skilled developers.
If your organization is focused on maintenance and upkeep instead of forward-looking, high-value transformation initiatives, you probably won't be able to retain high-quality, dynamic talent. It's possible that your best and brightest will exit, heading to more progressive organizations and leaving you with second-tier talent that might not be able to cope with the workload. As you lose critical skill sets to resignation, you'll be forced to find and train remaining employees to take on critical tasks, and that burden ends up putting additional stress on your team and the progress of your initiatives. In our exact survey, many respondents noted that ramping employees to maintain monolithic applications is a top challenge.
To make matters worse, key departures are likely to undermine morale. After all, what organization wants to be understaffed and overworked? What employee really wants to be on the C team?
Your organization has a damaged reputation.
If you're not pursuing application modernization initiatives, the reputation of your organization might suffer.
The days of organizations flying under the radar online are gone. Sites like Glassdoor let current and former employees paint a picture of what it's like to work at your organization. Imagine what would happen from a recruiting and hiring perspective if your organization's lack of interest in modernization was public. As your staff resigns to pursue more engaging, interesting work, what would they write about their experience working with outdated architectures and dealing with the ramifications of extensive technical debt? For that matter, what would happen if your organization's lack of interest in modernization became known to your technology partners, customers and vendors? Would your team stay happy knowing that the marketplace perception is that their skills aren't staying up-to-date and the organization isn't interested in progress?
It's clear that organizational cultures do well when they're progressive and forward-thinking, so application modernization initiatives are a critical initiative for making sure you have a positive culture throughout your IT organization. As we'll see in the second part of this series, however, deciding to pursue application modernization can result in other personnel challenges that afflict your success.
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RESTON, Va., Aug. 04, 2022 (GLOBE NEWSWIRE) -- Revature, the largest employer of entry-level technology talent in the United States, and Salesforce, the global leader in Customer Relationship Management (CRM), today announced a program to train and certify emerging tech talent in Commerce Cloud, a cloud-first solution that allows brands to deliver exceptional digital buying experiences for B2B buyers and rapidly adapt to market dynamics and customer needs.
Revature and Salesforce first partnered in 2020 to build a talent pipeline of certified Salesforce Developers, Salesforce Administrators and Salesforce Consultants to power the Salesforce economy. Today’s announcement expands upon this mission to meet the growing demand for tech talent trained and certified in Salesforce Commerce Cloud using Revature’s industry-leading approach. The program will be rolled out in phases, with the first phase focusing on the B2B Commerce solution and later expanding to other in-demand areas such as Order Management and B2C Commerce.
“At Revature, we train entry-level talent on the most in-demand skills and certifications, with real-world applications on their resume before they ever set foot in a client’s office,” said Anurag Gupta, SVP, Head of Product Partnerships at Revature. “This is exactly what we’ve partnered with Salesforce to accomplish. Online retailing and ecommerce has taken the world by storm leading to a significant demand for technology talent and through this partnership, we are connecting talent with opportunity.”
As a Salesforce Trailhead Authorized Training Partner and Salesforce Talent Alliance Workforce Development Partner, Revature will leverage its best-in-class hire-train-deploy model to recruit, train, certify and place new graduates from its network of 700+ university and college partners. Revature is now the first Salesforce B2B Commerce Cloud authorized Workforce Development and Training Partner.
“Ecommerce has revolutionized the way our world operates, and businesses are increasingly turning to Salesforce B2B Commerce Cloud to help them navigate inherent B2B ecommerce challenges, generate more revenue, and lower costs,” said Don Lynch, SVP, Cloud Solution Alliances at Salesforce. “In expanding our partnership with Revature, we are giving our customers and partners access to proven Salesforce-ready talent to help them power these initiatives.”
To learn more about Revature’s training program for Salesforce B2B Commerce, click here.
Revature is the largest employer of emerging technology talent in the U.S. and the talent development partner of choice for Fortune 500 companies, government organizations and top systems integrators. Since its founding, Revature has trained over 10,000 software engineers in 55 technical disciplines, recruited talent from 700 universities, and deployed them to blue chip companies throughout the U.S.
Revature’s mission is to create a pathway for qualified candidates from diverse experiences and educational backgrounds to reach their potential as technology professionals. Graduates of the Revature program work on innovative, challenging and rewarding software development projects across the United States. Revature has committed to training one million developers over the next decade.
Learn more at www.revature.com and follow @WeAreRevature on Twitter and LinkedIn.
Salesforce, the global CRM leader, empowers companies of every size and industry to digitally transform and create a 360° view of their customers. For more information about Salesforce (NYSE: CRM), visit: www.salesforce.com.
Any unreleased services or features referenced in this or other press releases or public statements are not currently available and may not be delivered on time or at all. Customers who purchase Salesforce applications should make their purchase decisions based upon features that are currently available. Salesforce has headquarters in San Francisco, with offices in Europe and Asia, and trades on the New York Stock Exchange under the ticker symbol "CRM." For more information please visit https://www.salesforce.com, or call 1-800-NO-SOFTWARE.
REQ on behalf of Revature
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SAP has been beating the drum for some time now with its “RISE with SAP”. We were particularly curious to see whether that message is getting through to customers and what SAP now exactly means with RISE. The goal of RISE is that you can grow your organization by using SAP solutions, where S/4HANA is the best of suite platform. But can the company deliver on that promise?
We spent a week at SAP Sapphire in Orlando, where we immersed ourselves in the world of SAP, doing multiple interviews with SAP executives, talking to customers, talking to partners and doing the research to find out where SAP is moving with RISE with SAP.
SAP has a broad product portfolio, from cloud ERP (S/4HANA), HCM and CRM to supply chain management and procurement. However, the fact is that ERP is still the most important SAP product, which also holds the most potential. To strengthen S/4HANA, SAP has built or purchased various solutions around it. The RISE with SAP story focuses entirely on S/4HANA supplemented with additional tools.
During Sapphire, we couldn’t ignore that SAP is moving towards a platform strategy, creating a “best of suite” offering around S/4HANA. In doing so, SAP is moving in the same direction as Microsoft, Salesforce and ServiceNow. It doesn’t seem to want to communicate this yet, or it simply doesn’t dare. Instead, they keep shouting “RISE with SAP”. That doesn’t help customers get a clear picture. practicing between the lines, it is clear that people at SAP also have trouble with this slogan. We heard comments from various corners that say that SAP should call it by its name: “Cloud ERP as a service”, or if you want to position it more broadly, “Cloud ERP platform as a service”. “RISE with SAP” comes across to us as a somewhat bloated meaningless slogan, which SAP should not continue to use for too long. It doesn’t add anything and ultimately creates more confusion than clarity.
If we zoom in deeper on that “best of suite” approach. Then we see that SAP is putting the S/4HANA ERP solution at the center. To strengthen the suite offering, SAP has purchased two solutions that add value. These are a Business Process Intelligence solution and a solution for no-code development.
The Process Intelligence solution is provided by SAP Signavio, a company that SAP acquired in early 2021. With Signavio, you can do process mining, among other things, to get visibility and make your business processes transparent, but also to automate them and make them more efficient. For companies that have a lot of business processes, this can be very useful. Process mining can save a lot of money, but it also helps to meet governance and compliance requirements better because you have better insight into your processes, making everything more transparent.
We mentioned it earlier, a form of no-code development; this falls under the SAP Business Technology Platform at SAP. For this purpose, SAP has acquired the company AppGyver. AppGyver allows the creation of simple applications via a drag-and-drop interface. For example, forms for quickly modifying or adding data. Or to display data from an ERP system in a slightly different way. SAP has already presented the first integrations of AppGyver in S/4HANA.
For companies that want to go a step further, SAP also has a low-code solution, this is the SAP Business Application Studio. The Business Application Studio allows you to build SAP applications and extensions that use the SAP Cloud Application Programming Model. In other words, you can use it to build extensions on top of existing SAP applications.
Of course, based on available documentation, you can also build integrations with SAP in any programming language of your choice. The fact is, however, that low-code and no-code increase the speed of application development and firmly lower the threshold for building something. In that respect, investing in no-code and low-code is a good strategy.
To make this best of suite even more attractive, SAP is now paying more attention to its ISV partners (independent software vendors). They develop applications on top of S/4HANA, for example. They add valuable functionality, which can be in the form of features, but also complete solutions that use the reliable HANA database and back-end. Examples are the integration with Icertis for contract management, which delivers a complete contract management solution. Or what about PriceFX, they provide a feature to price your product more accurately.
However, this focus on ISVs has been developed in the last three years. In the meantime, SAP has signed up some 1,800 partners for the SAP Store, but at the same time, there is still a long way to go. SAP wants 8 out of 10 applications to come from partners rather than SAP itself. To make the SAP Store more attractive, it has decided to adjust the revenue distribution. Previously SAP wanted 50 percent of the revenue generated in the SAP Store, now SAP takes 15 percent for the Integration Tier and 25 percent for the Platform Tier. In theory, anyone can become an ISV partner of SAP, but the company still applies an extensive approval process.
To Excellerate the offering, SAP has now divided some 80 people into industry teams, whose task is to enhance the offering in the SAP Store for their specific industry. SAP has a lot of specific industry knowledge in-house because it has been in business for many years. The company should therefore be able to make the overall package more attractive for specific industries quickly. Whether it will succeed in doing so remains to be seen.
If you look at what is happening in enterprise IT, you see that one trend is precisely to do a lot of collaborating. Your worst enemy can become your best friend. All solutions must be able to work well together. At SAP, however, we still see some traditional thinking that gets in the way of this. The company has invested heavily in the SAP Store offering to enable better collaboration with, for example, Microsoft Teams and other Microsoft products. An integration with Slack, on the other hand, is out of the question, as Salesforce currently owns it. During an interview at Sapphire, we noted the following quote: “Slack is not an option, due to Salesforce acquisition”.
From this perspective, SAP will not encourage integrations with Salesforce or Tableau in the SAP Store. Salesforce is seen as a major competitor. That’s a traditional mindset that SAP needs to eradicate because it doesn’t benefit the customer. Suppose a customer has decided to choose Slack as an internal communication and collaboration tool. In that case, it should be able to work together with SAP just as well as Microsoft Teams can.
We also see this mindset when looking at opportunities to roll out SAP S/4HANA. You can roll out SAP S/4HANA cloud to your own data centre, AWS, Azure, Google Cloud or Alibaba. However, if your organization has chosen Oracle Cloud or IBM Cloud, SAP will block your deployment. This is absolutely not allowed and will never be an option, so we were told. We understand that the Oracle Cloud is at the bottom of the list if you’re SAP, but as long as you support S/4HANA on-premise, you better tell customers that any location is possible, including the Oracle Cloud.
SAP currently has over 19,000 S/4HANA customers, of which over 1,600 have been added through the RISE with SAP program since the beginning of 2021. Those customers also have access to Signavio, Appgyver and other tools. SAP already manages around 56,000 workloads in the cloud with an uptime of 99.98%. SAP has established a good track record as an “as a service” provider.
It also became clear that SAP is signing up most S/4HANA customers through ECC migrations. These customers are running an old version of SAP ECC and have to migrate before 2027. Official support for SAP ECC expires in 2027, although customers can extend it for years for an additional fee. At least until 2030, possibly even 2035.
SAP ECC is SAP’s legacy on-premises ERP product. With SAP ECC, the trend was to build modifications in the source code to make the ERP system better fit the customer’s needs. A huge disadvantage of this practice is that you cannot upgrade to newer versions easily because you will lose those customizations. The market has solved this with the so-called fit-to-standard principle. Companies must let their business processes run via standard procedures that the ERP system supports. Additional customization also remains possible through extensions and modular software that can be built on top of the ERP system and that hooks up to the APIs of an ERP system. S/4HANA has been developed according to this principle. You have the S/4HANA ERP system, and you have separate applications that interact with it or modular blocks that become accessible within the ERP package. This is possible by using the available APIs and SDKs.
So the key to success for SAP’s strategy with this best of suite platform approach lies in its ability to extend, link and integrate S/4HANA with other applications and solutions. To do this well, you need APIs, an application programming interface, which is a way for applications to communicate with each other in the background. With APIs, third-party applications can communicate with the SAP platform and exchange data. Of course, after permission and authentication have taken place first.
At the time of writing, S/4HANA has 585 APIs, and the SAP Business platform has over 450. So there are plenty of opportunities to link with SAP software. SAP customers have told us many times that it is complex to integrate with SAP because the data model and the APIs are pretty complicated. This was a big hurdle for potential ISVs. Our discussions with SAP made it clear that they also received this signal and developed the SAP BTP, the SAP Business Technology Platform. This includes the low-code and no-code solutions but also an iPaaS solution, SAP BTP Integration Suite. This has made it much easier to integrate your own software with SAP.
In addition, SAP has introduced a so-called One Domain Model. The One Domain Model allows you to use APIs to communicate with SAP uniformly, where data can be exchanged with different SAP applications using the same model. You no longer need to have a separate API set for each application. The integration between SAP applications is also a lot easier.
For companies that especially want a lot of access to data in SAP, but do not need to modify it so much, there is now the possibility to use the SAP Data Warehouse Cloud. In the SAP Data Warehouse Cloud you can bring together data from SAP solutions and data from third parties. So that you can then make it available for data science models, think machine learning and AI or analytics solutions to create better insights.
SAP’s strategy is clear if you can read between the lines or just got to this article. If you’ve been walking around on SAP Sapphire, then, unfortunately, it’s a lot less clear. As far as we are concerned, SAP should clearly outline which direction it is moving in and stop using slogans that cause confusion.
SAP is more or less reinventing itself. For years it has been pushing S/4HANA, now more as-a-service with all kinds of additional services, so it is starting to become a large platform with all kinds of applications around it and on top of it. As a result, it’s beginning to look more and more like a best-of-suite approach. However, some things could be better or are still challenging for SAP.
To start with, the offer in the SAP Store. That still leaves something to be desired, the adoption of the applications falls short. We hope that the 80 people who are now working on adding industry-specific applications or persuading partners to add them will be very successful. This is where SAP really lags behind the competition.
Furthermore, SAP would do well to invest heavily in low-code and no-code capabilities so that customers will make a greater contribution to building modular extensions. For this, SAP will also need to rig up more training courses and events to educate customers in no-code and low-code development.
Finally, SAP must abandon traditional competitive thinking and embrace anything and everything. If you want to play a central role as a platform, you cannot ignore top-rated solutions because a competitor owns them.
If SAP wants to offer the largest and most complete best-of-suite platform, it will need to add more SAP solutions. Also, SAP Ariba, SAP Concur, SAP SuccessFactors, and SAP CRM should all become part of that suite. With a complete best-of-suite platform, customers can do a broad SAP platform integration.
You also see this at Salesforce and Microsoft; many products are included by default within the subscription. Of course, there are still options to further scale up specific solutions at extra cost, but the primary offering should be broader and more solid.
The trend today in IT is also simplicity. A product can be very advanced, but the interface the user is presented with must be simple. As far as we are concerned, this also applies to the product portfolio. It must be clear, and customers must be able to quickly see what they are getting. As far as we are concerned, SAP could still be a bit clearer about the SAP Business Technology Platform and the SAP Business Process Intelligence package. What does it includes, and what can customers do with it?
If SAP can do all that, then Europe’s largest tech company can compete even more effectively with its mostly American competitors.
LivePerson, Inc. (NASDAQ:LPSN) Q2 2022 Earnings Conference Call August 8, 2022 5:00 PM ET
Chad Cooper – Senior Vice President-Investor Relations
Rob LoCascio – Founder and Chief Executive Officer
John Collins – Chief Financial Officer
Conference Call Participants
Arjun Bhatia – William Blair
Zach Cummins – B. Riley Securities
Peter Levine – Evercore
Ryan MacDonald – Needham
Siti Panigrahi – Mizuho
Ryan MacWilliams – Barclays
Good afternoon ladies and gentlemen, and thank you for standing by. Welcome to LivePerson’s Second Quarter 2022 Earnings Conference Call. My name is Claudia Gandit, and I will be your conference operator today. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded.
I’d now like to turn the conference call over to Mr. Chad Cooper, Senior Vice President of Investor Relations. Please proceed.
Thank you, Claudia. Good afternoon everyone, and thank you for joining us today. On the call with me are Rob LoCascio, LivePerson’s Founder and CEO; and John Collins, Chief Financial Officer.
Please note that during today’s call, we will make forward-looking statements which are predictions, projections, and other statements about future results. These statements are based on our current expectations and assumptions as of today and are subject to risks and uncertainties. actual results may differ materially due to various factors, including those described in today’s earnings press release and the comments made during this conference call and in 10-Ks, 10-Qs, and other reports we file from time-to-time with the SEC. We assume no obligation to update any forward-looking statements.
Also, during this call, we will discuss non-GAAP financial measures. Reconciliations of GAAP to non-GAAP financial measures are included in today’s earnings press release where applicable. Both the press release and supplemental slides, which include highlights for the quarter, are available in the Investor Relations section of LivePerson’s website.
And with that, I will turn the call over to Rob. Rob?
Thanks, Chad. Thank you for joining LivePerson’s second quarter 2022 earnings call. In 2Q, we generated revenue of $132.6 million, non-GAAP gross margins were up 500 basis points sequentially, and our adjusted EBITDA was at the top end of our guidance range at negative $5.5 million, a $12 million improvement sequentially. We’re still on track to deliver positive EBITDA on cash flow by year end.
Early this year, we made a commitment to prioritize profitable growth. I’m pleased to report, we are delivering margin expansion faster than expected through a combination of OpEx discipline, the improving productivity of our salesforce and focusing on more high margin revenue. We continue to make substantial changes to strengthen our P&L by focusing on the most differentiated high value components of our business with the greatest capacity to drive high gross margins, strong operating margins, and high quality revenue growth.
In the short term, we’ll be intentionally trading some lower margin top-line revenue for substantial, sustainable near and long-term margin expansion and growth. Our goal is to achieve best-in-class operating and financial models, which would be near or above 80% gross margin and mid-teens or better operating margins.
Incredibly proud of the agility and innovation that allowed us to rapidly respond to the needs of our clients in the market and to drive growth during the past two years of the pandemic, but as pandemic driven trends normalized laser focused on our more repeatable and high margin growth engines.
As the industry leader in conversational AI messaging, we provide AI-powered customer engagement solutions to thousands of companies, including 450 enterprise brands worldwide, among them many of the world’s leading consumer businesses. Our solutions help brands cut costs while improving consumer experience and achieve measurable ROI. Our platform has reduced our brand’s customer care costs by up to 50% while increasing customer satisfaction equally important. Our commerce solutions have increased annual sales by hundreds of millions of dollars for some of our customers.
We do not simply automate labor intense tests. We help our brands optimize their engagement with their consumers throughout the customer life cycle. We’re proud to consistently deliver measurable ROI to brands through our care and commerce solutions. We’re also excited about new applications and our Conversational Cloud technology, including moving into voice and into expanding our healthcare vertical, which I’ll touch on in a moment.
First on three key actions to optimize profitable revenue growth, new logo growth, expansion within existing accounts and partnerships, and opening our AI, so they can be accessed on other third-party platforms.
So, let’s start with new logos. We’re seeing progress with our quota carrying reps and continue to expect them to be productive with bookings in Q4 and contributing to revenue in 2023, and beyond. In Q2, we delivered the most new logo wins we’ve had since 2020. We won 45 new logos in the quarter, which was a 55% year-over-year and 73% increase sequentially. These new logo wins are green shoots indicating that our enterprise salesforce are returning to historical rates of productivity after a change in field leadership, we made early this year that made great progress at generating new land and expand opportunities.
Second, we’re leveraging and extending our existing customer relationships by both cross-selling and upselling, and we’re seeing strong adoption of multiple AI and automation products. In Q2, we continue to see robust platform usage with overall Conversational Cloud messaging volume growing 32% year-over-year, and AI-based messaging conversations growing 20% year-over-year.
Third, we have continued our partnership momentum to unlock expanded and indirect revenue opportunities. We added 15 unique partners in Q2, and this channel produced nine new logo deals. Few weeks ago, we announced new partnership with Solunus, a technology has focused – technology company has been focused on improving business process for large enterprises. Our joint offering called Contact Center Conversation Mining combines the omnichannel conversational analytics from VoiceBase and customer journey mapping and back office execution management from Solunus.
I’m also happy to note that Q2 marked the return of our in-person executive community events with extremely successful events held in New York and London during the quarter. Pre-pandemic these events were a key element to our go-to-market strategy and we’ve historically accelerated our sales cycles because they educate brands about the power of conversational commerce and AI generally through our existing clients sharing their real world outcomes. In aggregate, the Q2 events directly influenced over 50 million pipeline.
From a product perspective, we are capturing incremental scale world revenue opportunities by opening up our platform. This will enable brands. Those agents primarily use a third-party CRM to have conversations within consumers driven by our Conversational Cloud. This has historically been a pain point for brands has been a key component of our product roadmap. Our acquisitions of VoiceBase and Tenfold have accelerated this initiative. VoiceBase is being integrated into the core analytics of our platform and Tenfold is driving the overall go-to-market probably work with CRM and other enterprise technology platforms.
We’re unifying our voice strategy from a standalone business unit to an integrated part of our broader portfolio. This provides a clear value proposition for our sales people as voice becomes a key channel within our Conversational Cloud. With VoiceBase, we’re digitizing the voice channel so we can extend the benefits of our conversational AI platform into it. This enables brands to not only meet consumers on voice, if that their preferred channel, but also extract AI-powered insights from this traditionally analog channel in real time. These insights can also be analyzed post conversation to help brands better serve their customers, Tenfold and VoiceBase, both play key roles in the strategy of enabled us to extend these capabilities to voice providers like Avaya, Cisco, Genesys to just name a few.
As I turn to some of our top customer wins in the quarter, I’d like to highlight how each reflects, how brands recognize LivePerson’s ability to deliver tangible value. Even as current economic conditions are driving brands to assess cost savings, consolidate technology, stacks, and deprioritize all projects that do not have direct impact on savings or revenue growth. These are some of the most innovative brands in the world. They’re working with us to cut costs while simultaneously improving the customer experience through automation and AI.
We signed five seven figure deals and achieve the total deal count of 104 deals in the quarter. Utilizing our rich data set, we also are able to target vertical industries with repeatable AI and automation strategies. In Q2, we signed one of the largest new logo deals in our history with Capitec, the largest retail bank in South Africa with approximately 19 million consumers Capitec originally came to us from initial use case with VoiceBase. However, we’re able to show them that they could go further automating their customer experience over WhatsApp, as well as take advantage of the power of VoiceBase for real time insights into their consumers experience and banking operations.
This is seven figure three-year deal, even more importantly provides us with a referenceable customer in an important new geography with a new use case. This is a great example of our new logo initiatives and rich product synergies. Following last year’s acquisitions, driving revenue expansion. As we execute on our plan of profitable growth. We also won a large multi deal with Canada’s largest bank being selected over two of our major competitors. The client chose LivePerson for our ability to reduce the cost of servicing customers and open the virtual doors of the bank to new account growth by managing the entire consumer journey by our messaging, AI and automation.
On the renewal front, we signed a large two-year extension with one of our major airlines using LivePerson first platform technology. This customer makes it easy for travelers to begin conversations on their app and directly from Apple Business Chat, SMS, IVR deflection, QR codes within airports and social media.
We also signed a multi-year renewal agreement with Verizon. Verizon’s been a client for us for three years. They started with messaging for customer care and sales. And now they’ve expanded to leverage our AI as well. In Q2 our GainShare division signed a three-year seven figure automation as a service contract with the largest automation OEM, automotive OEM finance companies in the world. This deal is great example of the type of higher margin contract structure for prioritizing going forward with the GainShare offerings. This brand wanted to transition from a 100% voice agent call center environment into AI-driven digital first contact center with the goals of supporting their consumers through automation while reducing OpEx and increasing CSAT.
And finally, we’re making excellent progress on our healthcare strategy, which is one of our largest verticals behind telecom and financial services. And it’s one of our fastest growing. We’re working towards delivering a very scalable solution for the healthcare market, especially around using machine learning and Conversational AI for improving patient experience and outcomes. This is a big opportunity and we are in a good strategic position to go after it. Specifically related to our Wild Health acquisition, the group is performing very well and is ahead of their revenue plan. And in Q2, we sign deals with Spartan Race and USA Boxing to bring our AI and telehealth capabilities to their athletes as their official healthcare partner.
As I mentioned at the top of the call, we continue to execute on our profitable growth plan announced at the start of the year and we’re ahead of schedule delivering results faster and previously forecasted.
As we embarked on these initiatives, we have found other areas of the business that we can further Excellerate our margins and profitability and lay the groundwork for future growth. While some of these initiatives are anticipated reduced total revenue in the near term, as we deprioritize lower margin, non-repeatable areas of the business. We continue to expect to generate positive and free cash flow in the fourth quarter position as well for profitable growth in 2023 and beyond.
And with that, let me now turn the call over to John to discuss the detailed financial results and our revised outlook for the rest of the year. John?
In the second quarter, we continue to execute on the plan. We announced on our fourth quarter call to adopt a balanced approach to profitability and growth. Revenue grew by $2 million sequentially to $132.6 million or 11% year-over-year. And within our guidance range. Despite the lower revenue adjusted EBITDA increased by $12 million sequentially matching the top end of our guidance range. The improvement in adjusted EBITDA was driven by a $9.7 million sequential reduction in operating expenses, which exceeded the top end of implied guidance.
The cost reductions were associated primarily with post M&A integration and consolidation non-quarter carrying sales and marketing and research and development reduced costs coupled with the wind down of COVID-19 testing drove expansion in non-GAAP, gross margins from 69% to 74% sequentially, which also exceeded the top end of our, we expect continued gross margin expansion for reasons I’ll discuss in a moment. This year discuss during last two quarterly calls, we are focused on adapting our operating model to ensure a sustainable framework for profitable growth in a post pandemic world.
To this end, optimizing our cost structure will continue to be a primary strategic imperative for the remainder of 2022, in order to position the company to deliver long term profitable growth and to generate positive cash flow throughout 2023. In addition to expense reductions, we have begun purposefully eliminating low quality sources of revenue in order to further enhance the overall of the P&L. While we expect both the magnitude of the expense reductions and the elimination of low quality revenue to impact near term growth. We are confident that these - will set a long term foundation for best in class gross margin, significant free cash flow generation, and a return to the Rule 40 framework.
Before proceeding with the standard financial update. I’d like to elaborate on the largest sources of low quality revenue, that we’ve begun to purposefully wind down. Last quarter, we shared two significant changes impacting our revenue stack.
First COVID-19 testing revenue would be minimal in the second quarter and would roll off of the P&L entirely going forward. Second, we converted over 90% of our gain share revenue from variable to recurrent secured, primarily by multi-year contracts that increased revenue, stability and transparency. Approximately half of this revenue is high margin revenue derived from scalable usage of the conversational cloud.
The other half is low margin revenue derived from agent labor that we supply to our customers via contractual arrangements with BPO partners. Consistent with our goal to optimize the overall of the P&L. We have begun eliminating this labor based revenue from both our sales pipeline and existing customer agreements, which we expect to contribute to a temporary slowdown in revenue growth in the second half of 2022, while turning down growth, accretive revenue sources in Denver and easy decision.
This move will simplify the business model materially, expand our gross margin and enable us to focus management and resource allocation on our most strategic and scalable sources of revenue growth, such as automation and messaging. In the second quarter GainShare represented 11% of total revenue, which was in line with the expectations we set previously. However, going forward, we expect this percentage to contract. As we wind down labor based revenue. Over the long term, we expect bees and related change to the business model to drive expansion of non-GAAP gross margins to at least 80%.
Turning to our reporting segments for the second quarter within total revenue, B2B grew 12% year-over-year – hosted software was approximately unchanged year-over-year and professional services grew 95% year over year within revenue from hosted software, lower revenue from gain share. And COVID-19 testing offset, increased revenue from other customers relative to the comparable period last year. As a reminder, COVID-19 testing was expected to be minimal in the second quarter and going forward. In terms of professional services, recall that PS revenue declined 3% year-over-year, last quarter because several large projects pushed into the second quarter. This dynamic is driving the substantial year-over-year increase. The largest PS project relates to the eight figure healthcare deal we signed last quarter and is focused on automation as a service for healthcare delivery companies.
Traffic perspective, U.S. revenue group, 12% year-over-year, and represented 68% of total revenue while international revenue grew 9% year-over-year and represented 32% of total revenue. Finally revenue from the consumer segment declined 7% year-over-year, which was a function of a hard comparison to pandemic driven growth in the second quarter last year. As Rob mentioned, we signed five seven figure deals in the second quarter, two upsells and three new logos. RPO increased 18% year-over-year to $409 million and net revenue retention was just below our target range of 105% to 115%.
Driven primarily by lower variable revenue and labor based down sales in the GainShare portfolio. Consistent with the strategy for GainShare, that I described a few moments ago. We expect modest pressure on net revenue retention in the short term. Given last year’s large revenue contributions from variable revenue and labor based GainShare customers. Average revenue per user improved to 660,000 up 23% year-over-year. Total messaging volume on the Conversational Cloud increased 32% year-over-year and AI-powered messaging volume increased 20% year-over-year. Our strongest verticals this quarter were retail, financial services and telecommunications.
In terms of new logos, we signed 45 in the second quarter, which was an increase of 55% year-over-year and 73% over the first quarter. The traction in new logo acquisition validates the progress we’ve made on rebuilding the foundation of our go-to-market motion. Including the strategic focus on acquiring new logos, considering our robust ability to rapidly expand with our base, which has been a primary growth driver over the last two years. New logos represent an exciting leading indicator of future expansion in revenue.
As discussed last quarter, integrations with strategic partners is another foundational component of our scalable sales motion going forward. By increasing the breadth and simplicity of open APIs and third party integrations, we’re ensuring that customers on other have rapid and seamless access to LivePerson best-in-class capabilities, across automation, messaging, omnichannel, conversational analytics, and other unique innovations that Excellerate customer engagement and reduce reliance on human agents.
As Rob mentioned, we recently announced a strategic technology partnership with Solunus to integrate conversational analytics into its data processing and execution management platform. In addition, Contact Center operations that primarily depend on third party CRM platforms can now leverage messaging and automation capabilities through scalable integrations with the Conversational Cloud. Of course, VoiceBase and Tenfold are at the core of this strategy.
Moving down the P&L adjusted EBITDA was at the top end of our guidance range at a loss of $5.5 [ph] million in the quarter. The upside as per described, was driven by solid execution on our profitable growth plan, including expense reductions, which are part of a broader restructuring plan focused on the following areas, post M&A integration and consolidation, non-quota carrying, sales and marketing and research and development.
Turning to full year [Audio Dip] with a focus on adapting the business model [Audio Dip] for and profitable growth. We are making [Audio Dip] offs that will slow growth in the short term, in order to materially Excellerate our unit economics profitability and overall financial profile in 2023 and beyond. Critically, these moves will also enable us to focus strategy and resource allocation on scalably, delivering the automation messaging and related customer engagement outcomes that set LivePerson apart from other platforms. As a result, we are revising down our guidance ranges for revenue from to $507 million to $518 million or 8% to 10% year-over-year growth.
As for full year guidance on adjusted EBITDA, despite the lower revenue we remain committed to generating positive adjusted EBITDA in the year and positive free cash flow in the fourth quarter. These outcomes are made possible by swift and thoughtful decisions in the first and second quarter to right size our expenses. I think it would be helpful to recap how execution on our profitable growth strategy has manifested in our results and expectations.
We, when we initially set guidance for the full year, we expected a loss of $10 million adjusted EBITDA at the midpoint, which implied $560 million in operating expenses. Last quarter, we improved the outlook to [Audio Dip] positive and adjusted EBITDA implying [Audio Dip] in operating expenses. Now by reaffirming guidance for adjusted EBITDA in the range of $1 million to $10 million we’re margin of zero to 2% for the full year. The implication for operating expenses is approximately $507 million at the midpoint.
Committed execution on our profitable growth strategy is transforming our business model to generate meaningful profit and cash in 2023. As I discussed earlier, the elimination of low quality revenue coupled with continued optimization of our cost structure are expanding our gross profit margin. Our initial guidance for non-GAAP gross profit margin for the full year 2022 was 67% to 70%. We raised that guidance to 70% to 72% last quarter, and we were raising, it began to 72% to 74% for the full year 2022. In the long-term, we expect continued expansion of non-gross margin to at least 80%.
For the third quarter, given the purposeful P&L optimizations. We are driving together with continued ramping of our sales force. We expect revenues to be in the range of $120 million to $123.6 million or 1.8% to 4.5% year-over-year. As for adjusted EBITDA in the third quarter, our guidance range is $0 million to $4.3 million or [Audio Dip] to 3%. We’re also expecting non-GAAP gross margin in a range of 72%, 74%. Before taking questions, I’d like to quickly emphasize several key themes for 2022 and how continued execution on our profitable growth strategy will position us for 2023.
We have made strong demonstrable progress on rebuilding our sales motion, including a 73% sequential increase in new logo acquisition. We’ve also taken concrete steps to expand our partner strategy and open the platform to create new sources of indirect revenue and ensure our best-in-class customer engagement solutions are driving differentiated treated outcomes in the wider CX ecosystem, consistent with our previously announced profitable growth plan and the goal to further strengthen our P&L for the long-term, we are continuing to optimize our cost structure and purposefully trading some term lower quality revenue for stronger financial profile with sustainable, higher margin revenue in 2023 and beyond.
Collectively solid execution on our profitable growth strategy is transforming our business model, positioning us to generate meaningful cash in 2023, expand non-GAAP growth margins to a best-in-class long-term target of at least 80% and focus resource allocation on more strategic, differentiated and scalable sources of revenue growth.
And with that operator, we can proceed the Q&A.
Thank you very much, sir. [Operator Instructions] First question comes from Arjun Bhatia from William Blair. Please proceed with your question Arjun.
Yes. Thank you. John, can you just help us understand maybe how much of the revenue reduction that we’re seeing in the full year guide is coming from reducing investments that you’re making versus eliminating some of the lower margin revenue that you’re talking about? Like the labor portion of GainShare revenue?
Hi, Arjun. Yes, for sure. So first – just given the magnitude of that change, I want to emphasize that our proactive strategy to strengthen the P&L is playing a large role. We have a medium to long-term goal to generate 80% gross margins, as I described in the prepared remarks. And we want to do that through highly scalable and repeatable software revenue derived from what we do best, which is of course, AI automation messaging. And in order to get there, eliminating the lower quality revenue we described specifically that labor based piece in the GainShare portfolio is key that equates to approximately half of the revenue change.
The other half of the change is associated broadly with the continued ramp of our newly hired sales force and, broadly rebuilding the go-to-market momentum following the leadership transition that we previously discussed. So in order, I think to reiterate some of the key measures though, that we’ve made is the new logo acquisition, 73% increase sequentially is a, a very strong leading indicator of the additional build, rebuilding of the momentum that we had lost previously that we are gaining back now. And while new logo acquisitions represent a lower near term revenue goal or revenue contribution for in the long term, they’re the fuel that our sales force uses for expansion.
Understood. That’s helpful. And then I think Rob, one of the things that you mentioned as, a goal of yours going forward is to open up your AI and provide access to it to third parties. Can you just help us understand how those partnerships would work in practice and how you would be able to monetize some of the, providing some of your technology? What’s the plan on that front?
Yes, the part obviously that’s the very high valued part of our platform is our AI and automation technologies. Today, it runs solely on our messaging platform and soon to be voiced, but what our customers want is sometimes they’ve got voice investments and other platforms they’re running and they, but they want our AI running on it. So we want to kind of free it from our own walled garden and then move it out into the ecosystem of other CRM players and other contact center software.
And do those integrations, Tenfold allow the acquisition, allows us to do a fair amount of that. Like we now can take our agent console and it can be – it’s sitting in salesforce, like our messaging console now can sit within salesforce if someone’s a salesforce user. So we’re kind of at place in the evolution of the market to be much more platform centric than product centric. And that’s what we’re doing then the other part is we do run other AIs on our platform as we’ve been doing for years, but we don’t allow our automation tools like our analytics tools to optimize those AI.
So we’ll also be doing that, whether it’s Google Dialogflow or Lex or Watson, they can use our, all of our tool sets on the analytics side to optimize their, those bots too. So we’re becoming more of a hub for the AI and that, that’s where we’re moving with our investments this year.
Okay. Got it. Perfect. Thank you.
Thank you. The next question comes from Zach Cummins from B. Riley Securities. Please proceed with your question, Zach.
Yes. Hi, good afternoon. Thanks for taking my questions. Yes, John can you talk about if there’s been any sort of changes to the commission structure for the sales force, now that you’re really prioritizing higher margin revenue sources? So I’m just kind of curious if any sort of changes on that front to incentivize the behavior?
Broadly. I think we would want to ensure that our reps are made whole during the year despite the change in strategy for the lower margin GainShare piece of the portfolio. So that’s, that’s something we’re evaluating, but we would ensure that the, the overall structure is fair and equitable for everyone.
Got it. And another question for me, is really just around the net revenue retention number for the quarter. I mean, I think you touched on this a little bit in your script, but can you provide us a sense of maybe some of the factors that drove that slightly below your targeted range of 105% to 115%?
Yes. In fact, the variable revenue from GainShare and some labor based revenue that we slowed down and some that was a downfall were the primary in the aggregate primary contributors to the myths of the range of a 105% to 115%, I’ll note though that even with those factors, we’re still a 100% net revenue retention.
Understood. Well, thanks for taking my questions and best of luck in the coming quarter.
Thank you. The next question comes from Samad Samana from Jefferies. Please proceed with your question Samad.
Hi, this is Nathan on for Samad. Thanks for taking our questions. Wanted to circle back to your guidance. Can you help us understand what you’re embedding from a macro perspective? Are you assuming the environment stays the same its worse or perhaps improves from what you were expecting previously?
Yes, I mean, right now it’s, it’s kind of hard to tell for us because of the rebuild that we have, change in leadership back to, the person who ran it for many years. So I can’t really tell yet whether there’s a macro impact or not. I mean, the new logos is a good green shoot that the team is starting to really perform. There’s a lot of landing and expand in there. So they’re, they’re smaller deals, but they’re landing and they’re going to grow.
But it’s, we can’t see it right now. Our value proposition is cost takeout, like the Solunus, if you know, Solunus. They’re all about cost takeout too. And so we form this partnership with them because that’s kind of what the world wants right now. And especially contact center labor. It can be, in some cases the big brands have 40,000 people on payroll, and there’s an opportunity to really, change the cost structure using AI automation. So, but it’s hard to tell for us just because of the, the building up of our sales force. So, I think in a couple quarters we’ll know where, where we stand with that on the macro side.
Understood. And then on – this quarter, but that was down a little bit from, from where you were tracking previously, just talking about kind the factors impacting this and where you stand on that ELA to CPI transition?
Yes, I think ARPUs in a range we would expect considering, as I described in the guide in the build to guide, there is some step down from customers that were previously contributing to that value. Namely the larger customers in our GainShare portfolio. In terms of ELA to CPI, we we’re tracking pretty close to where we were last quarter. We didn’t have a very large number to convert this quarter. So that’s around 70% and I would expect it to, to be in that ballpark in Q3 as well.
Understood. Thanks for taking our questions.
Thank you. The next question comes from Peter Levine from Evercore. Please proceed with your question, Peter.
Great. Thanks for taking my question, I guess. Robert, John, if you look at the top of the funnel, were you not as successful at converting leads or adding leads at a similar level versus kind of expectations or plans?
No, I don’t think it’s about the top of the funnel. Like we were saying, it’s been a rebuild, we lost a lot of our capacity during, when we had the leadership change last year. So when we look at the bookings capacity, it’s definitely a build, it was trending nicely and then it went down and now it’s trending back up. But I don’t think its top of the funnel. And we did, we started the marketing events, which did definitely created some closes in the quarter that we saw in the new logos.
So but it’s a built, I mean we’re rebuilding a lot of what was kind of unbuilt, so it’s but I don’t see anything on the top of the funnel right now and we have very good attendance to the events. So we’re seeing demand for what we’re offering in the market.
Then you prepared remarks, you kind of mentioned voice as a preferred channel for customers, can you kind of outline to us what differentiates your voice Contact Center offering versus what’s in the market today? When that product will go, GA, I believe you said if I missed it on the call. Sorry, but I think you said the second half, but any updates on when that product goes live and kind of what differentiates you versus some of the competition out there?
Yes, I don’t think voice is a preferred channel. It’s still the largest channel, but it’s predominantly non-digital. And so most of the world, whether it’s contact center or digital heads at the companies want to convert as much analog into digital as they can. So, as we know, messaging still as a growth channel is still the growth engine over voice. What that said is, is voice, people still want to sometimes talk to a machine like an Alexa type thing. And so we’re already out in beta, there’s a handful of customers using our voice AI platform. And by the, we said second half of the year, we’ll have it out in GA in Q4, we’ll be when it hits a GA.
So what makes it different is that, when you create an automation on our platform, you can deliver it through any endpoint, including a voice endpoint. And so you kind of write once and deploy. And then, and then with VoiceBase, which is a very powerful product and it competes with the likes of other voice analytics, but it’s, it’s very powerful. We also can do the voice analytics around, how is that automation performing. And even today, our guys, our sellers are baking in the VoiceBase into sales opportunities, because it’s the start of a relationship on the voice side. We can analyze the voice channel and see how it’s performing. And then we can layer in our voice automation and then live agent.
We’re not trying to build, become a CCaaS player. And so we can – we want to do voice automation. And then we do have live agent abilities to take a voice call, but we’ll also be integrating into all the major voice platforms. And you also could bring your own voice, or we will have voice on the platform. Also if you don’t have your own voice, but we’re more or less looking to integrate into all the voice platforms that are there, but you get a single way to make an automation and deploy to all endpoints, whether it be messaging or voice.
Okay. Thank you. The next question comes from Jeff Van Rhee from Craig-Hallum Capital Group. Please proceed with your question, Jeff.
Jeff Van Rhee
Great. Thank you. A couple from me, just guys on the retention, maybe you could address the retention rate X GainShare. I’m curious what you saw there? And then secondly, on the AI messaging, it looks like the AI messaging volumes were down a bit last quarter, and then down even sequentially on an absolute basis this quarter. And to help me sort of contrast that with what I think most people believe in that your leadership around the AI capability. So, why are volumes down there?
Hey, Jeff, I’ll start with the retention question. X GainShare we’d be in the range is the short answer.
Jeff Van Rhee
And your other question was on volumes?
Jeff Van Rhee
Yes. AI messaging volume has been down.
We typically – yes, I’ll start there. So typically following the first quarter, we do have our kind of seasonal low there, before it picks up again in August, September, and reaches our seasonal peak in the fourth quarter. So, I – we don’t, there’s some slight variation there. We don’t see anything in the trends that would suggest a problem though. It’s more or less consistent with how things have trended seasonally in the past.
Yes. Like we see…
I would also that, sorry, Rob, add one more piece here. That is that we have automated volumes at a very high percentage of total messaging. So the pace at which that continues to grow will lessen over time naturally.
Jeff Van Rhee
Okay. And then on the rep count need a little clarification there. I guess we ended Q4 2020 at 80 reps, I think in Q4 2021, you said you were around 144 and you were going to stop there. You went through the sales leadership change. But I think at that time, the expectation was that you you’d see some leadership churn where you probably retained a lot of those guys. So just the comments around sort of not having capacity and not having ramped reps at this point, where are you in terms of rep count and then just kind of recap that chronology for me if I have that wrong.
Yes. The rep count is pretty much where it was last quarter, but during at the end of last year, beginning of this year, there was a lot of – we overturned reps. So even though we added more reps. We lost a lot of season reps during the past leadership. So basically where we see then a buildup of capacity then where we were, if we kept all those old reps that were already baked in, we’d probably be – we now probably would be at a different bookings number during the quarter, but because we have a lot of new reps they’re just building up. Now, they’re showing new logos, which is good. So they’re showing that and there’s a little bit more than 50% of them all had a deal so far this year. So that’s good.
So, we’re seeing some good once again, green shoots on these reps starting to come out. We didn’t on the losing of the leadership. We kept our regional leaders. And then we hired a new set of leaders below them in that, in North America. So, we have that leadership team, some of the leadership team below the main leaders are new, and they were put in Q1. So, they’re also coming up to speed, and then they have their reps under them. But the actual leadership team that’s running, that was the one that was there previously. So…
Jeff Van Rhee
Okay. I’ll leave you there. Thank you.
Thank you. The next question comes from Ryan MacDonald from Needham. Please proceed with your question, Ryan.
Hi, thanks for taking my questions. Rob or John first one for you, as you think about ramping reps, can you talk about what the expectation is in terms of sales cycles? Or what they’ve historically trended as? And then is there any – are you seeing anything in pockets with whether it be an EMEA or APAC of an elongation of those sales cycles? I know you’re – I understand that you’ve got new reps that are ramping, but just curious, I guess, how those sales cycles and those time to productivity are trending versus historical, expectations and whether or not the macro could be playing any role in that?
Yes. I mean, there’re…
Yes, I think – go ahead, Rob.
I’m going to say they’re, we look at about nine – we model a nine month sales cycle. It could go out a little bit longer now, once again, it’s hard to tell on the macro, just because just to be transparent, just because of when you’re ramping a bunch of new reps, and they came at the end of last year, beginning of this year, it’s hard to see with the macro, but I’m assuming it’s playing into something. I mean, it would be foolish to think the macro doesn’t play into slowing down sales cycles and elongating sales cycles. But once again, we’re just monitoring like how well do these reps, like the new logo count once again, shows, okay, these reps are starting to deliver more than 50% of them have at least one deal under their belt.
So, I – it’s just hard for us to tell cycle yet. I think by Q3, Q4 will understand a little bit better and then understand the macro impact. What’s happening in the macro, just on the enterprise side is there’s a lot of layoffs going on in the enterprise customer base, they’re restructuring, and what they’re restructuring around is cost savings, obviously. So once again, we’re trying to play into what automation does. And that’s where we’re really we’re going. But I, once again, I think we need a couple of quarters to see if there’s a macro impact on what’s going on with – in the enterprise with the restruction, but as you can see, we sign, we even had renewals and some of our very large enterprise customers like Verizon and Starz [ph]. So far I feel pretty good about that, but I assume there’ll be an impact somewhere. It’s just – we it’s once again, with a bunch of new reps, a little hard to tell,
Understood, thanks for the color there. And then on the gross margin trajectory, can you provide us a sense of the timeline it’ll be required to sort of get that labor component of the GainShare revenue out of the P&L and then how quickly you think you can start getting to the progressing to those 80% plus target margins? Is this a fiscal year 2023 expectation? Or is this more of like a 2024, 2525 expectation? Thanks.
Yes, so the gross margin expectation in that 80% range would be not just 2023, a little bit longer term broadly is the way we’re thinking about it now, but in terms of your first question on the lower margin GainShare components, we’re executing swiftly on that in the back half of 2022, and probably at least the first quarter of 2023.
Thanks for the color. I’ll hop back in the queue.
Thank you. The next question comes from Siti Panigrahi from Mizuho. Please proceed with your questions, Siti.
Thanks for taking my question. I just wanted to dig into the third growth driver you talked about today, is that opening your platform to third parties. Could you dive a little bit more, I understand you have partners from Tenfold and VoiceBase, but is it something you are opening up your AI messaging, and then who are the CRM vendors right now you targeting to a partner, is my understanding a lot of CRM has this solution messaging, so that will be helpful?
Yes. So, obviously we’re, we just put into salesforce, the app stores and integration of our messaging platform into it. What you find is most – it’s not a channel of communication. If you look at messaging at its core, it it’s a way to operate the business in a digital way. So yes, if you treat it as a channel and communication, it becomes like chat. And we used to be in the chat business, but messaging provides really this digital connection to the consumer. You can be proactive over it. There’s a bunch of technology around asynchronous operations, and that’s where we really shine.
With said, we know over time messaging, it may become like chat. It’s not there right now, but we knew that from six years ago when we launched it, and that’s why we got heavy into AI four and a half years ago, an automation, the value of it is an and if I can step back for a second, when you look at the contact center, the care software business, it’s it – and you add up Genesys and Five9s and everyone else in there, it’s about a $10 billion TAM, if you add their revenues. But if you step back, there’s close to $40 billion, $50 billion in labor. And so it’s not about the software. It’s really about how do you take the pot of money that’s in labor and move that and take that and we – and automate that. And that’s the value that it provides.
If we develop – if we deliver a messaging and have a human behind it, we are not reaching the goal. And so that’s what most of these companies are doing. They’re providing their platforms and basically you just put more humans on it, and it costs you the same amount of money where the world is shifting is, how do we take these agents and automate them? Even the GainShare part of our business, where we provide labor and we do automation as a service is a very high value thing. That’s why we got into it where we take the labor where we make them builders.
So that’s the pot of money we’re going after. And that’s why we look at this TAM is like a $60 billion TAM, but the majority of is getting rid of the labor. And that has to be the number one thing. So, if you look at most of the CCaaS players today and whether they’re hosted or on-prem, they’re primarily human agents, and that’s going to change radically over the next couple years. And that’s where we’re positioning ourselves.
The second part is, we may not just, we may not care about messaging long term, as in somebody may choose some other platform, but they’re going run our AI on it. And that’s the value and once again getting rid of the human labor. So that could be our goal. If you – six years ago, and we launched the platform messaging, we always said, we wanted to kill voice and make a channel shift, which we’ve done a pretty good job at. But obviously our goal is to get rid of the humans, and the human labor behind it. There’s no value in that today. And that’s where the majority of our investments have been in the last four and a half years. So, I think that that’s where we’ll continue to operate. That’s why we want to take REI [ph] and move it off of our platform and let it run in many different platforms.
Thanks for that color. And then John, follow up to your commentary and thanks for that color on gross margin. But if I look at a EBTIDA margin, you kept it same to your prior guidance, guidance. When should we think about EBITDA margin expansion and how much, is it mostly that when you see the revenue ramp up? When we should see the, if that’s going to float to margin or any cost cutting you’re going to do? And any kind of without guiding, like help us understand how the margin, EBITDA margin expansion we should think going forward?
Yes. I think if you look at the implied guide on [Audio Dip] expenses, the overall cost structure of the organization is improving marketly. And to sense for where we’re going, we think as Rob described, this can allow us to produce double-digit margins at least next year, for the full year, in addition to very healthy free cash flow. So, we’re – that’s the path we’re on, and the one that we started earlier in the year.
You. The next question comes from Ryan MacWilliams from Barclays. Please proceed with your question, Ryan.
Thanks for taking the question. Just to follow up on the last question, John. While things might look different now, given you’re exiting some of the lower quality revenues, how do you think about the normalized financials of this business? And as we’re working through our model, any guidance on how we could think about revenue growth expectations for next year? Like, could we expect to see improvement of the implied revenue growth rate exiting the fourth quarter?
Yes, I think, it’s interesting actually, to take a look at the business on a normalized basis without let’s say the pandemic driven COVID-19 testing and the pandemic driven GainShare that that helped benefit growth over the last two years. If we normalize for that, meaning, remove its impact from last year and remove its impact from this year. For the second quarter, we’d be mid-to-high teens, for example. And for the full year, we would also be mid-to-high teens. So, I think that’s a good way to think about our core business, and growth potential moving forward into 2023.
Excellent. And then Rob, I’d love to hear your thoughts around the agreement and partnership with Starboard that was announced in the quarter. What are some of the goals of the new operating committee that was announced as part of the agreement? Just love to hear your opinion there. Thanks.
Yes, we obviously made an agreement with them and we are going to put a new board member on, and then they’re going to put three people that we can select from. So we’re going to put one of their people and we’re going to start interviewing both people. So that’s what we’re going to do and then we had one of our board members retire. I’m not sure the operating committee, I mean, we haven’t defined it yet. I guess when we get together, we’ll do that. We’re just working on interviewing and try to find great candidates for the board.
Appreciate the color. Thanks.
Thank you. We have reached the end of our call today. I’ll now turn the call to Robert LoCascio for closing remarks. Thank you, sir.
Thank you so much for listening today. And I wanted to just reflect a little bit on what we’re trying to do with the P&L. We that back in the dotcom or we were one of the few survivors and we made some radical changes. Some of you were shareholders back then, and we went from burning a lot of cash to profitability in a matter of in three quarters. And that saved u, and we’ve been looking at the business as a leadership team. And what we’re looking to do now is, we feel like it’s growth is important. Obviously we’re a growth company, and this is a growth market, but I think one of the lessons we’ve looked at and learned is about growth on top of a P&L that doesn’t generate cash flow is not really a great company.
And we’ve generated cash for 20 years. That’s how we got here. So, we talk about it, even though we’re taking down top line revenue and we could just hold onto that revenue and keep it going. We just felt it’s time to kind of cut it loose and move forward, because this is a huge opportunity for us, as you can see all the new logos and stuff, but putting revenue on a weak company will not make for long term value. So, as shareholders, we’re all aligned with just making this a strong company. And when you look at even a lot of the peer set in cloud today, and it’s when you look at the P&Ls, they’re all not so great. And we just don’t want to be a part of that and we want to strengthen this up.
So, we’re going to make some broad changes to the company, continue to do what we’ve done. I think you’ll see a different company on the other side of this and over the next two quarters where we’re going to focus on delivering those type of results. And what’s in the leadership team at the company is really focused on this. Because we know we have this giant opportunity, Conversational AI is one of the biggest transformational technologies, but once again we chased a lot of revenue during COVID like everyone did, but it’s time now to just work on revenue that can help us build a stronger company in the future.
So, I want to thank everybody in the company, and also I’m looking forward to we’re going to add these two new directors, one from Starboard, one from us, and looking forward to also adding new blood on the board. And with that, thank you. And we’ll see you next quarter.
Thank you very much for [Audio Dip] this conference. You may disconnect your lines at this time. And thank you very much for your participation.
For as long as we’ve had computers, we’ve had to make them work together, even when they’re sold by different providers. I can’t think of any business that has relied on a single technology vendor – or even a single technology stack – for all its needs. It’s also true that companies rarely ditch established-but-still-working technology for totally new systems because of the severe risk, and usually considerable downtime.
That pragmatic model is holding strong in the cloud computing epoch. So, while a brand new “cloud-native” implementation can in theory be the best option in many instances, many companies running pre-cloud technology want to keep getting value out of older systems while also modernizing them.
Let’s face it: Any technology will live on for as long as it’s useful. Just look at the mainframe. Launched during the WWII era, computing’s “big iron” dominated tech for decades. But in 1991 with the rise of PCs and client-server computing, one respected tech journalist made headlines by predicting that the last mainframe would be unplugged within 5 years. That would be news to the banks and other enterprises that continue depending on mainframes 37 years past that deadline.
Researchers agree that, despite talk of massive cloud adoption, the bulk of IT dollars still flow to on-premises or traditional platforms. But, they also concur that the trend is shifting cloud-wards.
Spending for on-premises software accounted for 69% of total software investment in 2020, but by 2025, 58% of software spending will be in cloud, predicts IDC.
So, the move of most IT to cloud looks inevitable but still won’t happen tomorrow even though we are well into the second decade of public cloud adoption. This is why companies need tech partners to meet them where they are and offer a path to the cloud that doesn’t obviate previous IT investments.
Oracle, for example, offers more than 80 adapters for popular third-party software including Salesforce, SAP, Marketo, Microsoft SQL Server, Paypal, ServiceNow, and Workday. Together with another 300 prebuilt integrations, these supported connectors enable customers to easily move data between applications and cloud APIs where it can be used by new web services. Adapters and integrations are available both from Oracle and from a roster of partners on the Oracle Cloud Marketplace.
These adapters allow companies to keep wringing value from data stored and processed in on-prem systems while moving toward a modern digital deployment model.
In addition, Oracle SOA integration software will move existing on-premises Oracle applications, as is, to Oracle Cloud Infrastructure (OCI) public cloud. That means businesses can continue running their proven systems until they decide to modernize further. The key point here is this big shift will happen on the customer’s timetable, not some gigantic cloud vendor’s schedule.
The notion of integration goes beyond linking legacy systems to newer cloud technology. It also requires connecting applications and data, often from different vendors, into a single process.
Many companies, for example, use customer experience (CX) or customer relationship management software from one vendor but need to funnel leads and sales into an accounting or ERP application from another provider. Pre-built adapters can make that happen in days instead of months.
UK’s busy Heathrow Airport, modernized its operations by moving to Oracle Fusion Cloud and integrating third-party software such as Azure AD directory services, IBM Maximo asset management, and Office 365 SharePoint collaboration software, with help from partners Capgemini and Flexagon.
And, to best serve its fast-growing residential lending businesses, Angel Oak Lending needed to automate manual processes among its various subsidiaries. It accomplished this by integrating data from disparate systems into unified dashboards executives can use to manage the business more effectively.
Working with partner Knex, OCI Integration services was used to automate a three-way match between its financing facilities, its loan origination system, and bank data housed in Oracle Fusion Cloud. As a result, it was able to slash the time it takes to process loan originations by 63% and speed up new partner onboarding by 4X.
“We use OCI Integration to automate transactions so we can focus on higher-value activities that grow the business,” said Angel Oak Lending’s CFO Ravi Correa.
Businesses also need to support the use of toolsets their developers can use not only to build and tweak custom applications but to integrate them to each other. That means supporting a range of programming languages such as Java used by professionals, as well as low-code tools like Oracle Apex, that enable non-technical people to create applications as well.
IDC, which estimates that 30% of organizations now successfully run their own in-house development, counsels businesses to encourage all employees – not just trained software developers—to create their own productivity-enhancing applications. This is one way to address a growing skills shortage, according to Maureen Fleming, program vice president for IDC’s Intelligent Process Automation research group.
A combination of easy-to-use low-code tooling and pre-built adapters can go a long way to easing software integration issues.
The benefits of public cloud’s scale, agility, and power are well documented. But a move to the cloud should not require businesses to discard existing and useful technologies that are in many cases what’s paying the bills.
But no one should be deceived into thinking that cloud transitions need to be instantaneous or all-encompassing. Each business will need to create its own plan, based on what is already in place, what options make the most sense going forward – and what options let it move to the cloud in a way that is least disruptive to its operations.
The age-old problem of making disparate IT systems work together has not gone away with cloud. Fortunately, better tools now exist that allow businesses to pick and choose what they keep, what they switch – and when.