Published: June 29, 2020
Report Authors: Chris Marsh, Raul Castanon-Martinez, Conner Forrest and Rosanna Jimenez
In a previously published report, we anticipated changes to workforce tooling in the wake of the pandemic across three broad areas: new types of virtual communication, a more integrated people management stack, and a more empowered edge. We believe these themes are also relevant for considering potential M&A activity in the overall workforce technologies market.
In this report, we focus on the potential for M&A across the virtual communications landscape, while in parts 2 and 3 of this series, we examine the people management stack, and the potential for tooling at the empowered edge.
The 451 Take
Being three months into a global pandemic that is having historic impacts on economic conditions isn't a conducive environment for M&A activity. But the need for digital transformation hasn't gone away. In fact, given the degree of disruption to businesses and their workforces, the scope of the requirement has only widened. Going into the crisis, improving the workforce productivity and collaboration experience was already among the top IT transformation priorities. Given the range of compounding, severe and interrelated effects on the workforce, this is likely to intensify and persist. There is strong impetus on the supply side of workforce tooling to cater to businesses' new demands. As the economy stabilizes, more businesses will prioritize getting on the front foot in terms of investing, in order to adjust to the new work environment. With many vendors looking to capitalize on that opportunity, we anticipate that M&A across this category will pick up.
COVID-19's Long-term Impacts
451 Research's recent Voice of the Enterprise: Digital Pulse, Coronavirus Flash Survey June 2020 survey shows just how much the COVID-19 pandemic is impacting businesses' longer-term thinking around their operations. On one reading of the data, businesses have regained some of their composure since the start of the crisis:
- 71% say they have either already opened their offices again, will do so within the next three months, or will as soon as the regulations allow.
- The proportion of businesses reporting they can go at least six months without suffering a major disruption has increased from 49% in March to 64% now.
Yet clearly, the resumption of normal operations won't be straightforward. In particular, the survey shows a staggering 67% of businesses anticipate their expanded remote-work policies will remain in the long term, maybe even becoming permanent.
- 79% say that supporting social distancing in office environments will be the biggest challenge of resuming work in offices.
- By the end of this year, only 39% expect to be operating with no altered conditions, such as the requirements for personal protective equipment (PPE), social distancing, or enhanced cleaning practices. In a year's time, that will only be 55%, and around 17% say they'll be operating under restrictions beyond 2021 and maybe permanently.
- Travel will come back only very slowly – in Q4, only 17% of businesses expect to see half or more of their pre-crisis travel return.
Workforce Transformation is a Priority
Our Voice of the Enterprise: Workforce Productivity and Collaboration, Work Execution Goals and Challenges May 2020 survey shows that 47% of employees feel their performance at work has been negatively impacted by the circumstances surrounding the pandemic, compared to 23% who feel positively impacted. It's not clear what lies ahead and how organizations can rectify this, but it's unsurprising that workforce tooling has come under the spotlight more than at any time before, and that vendors see opportunity in this crisis.
Even as the wider public policy environment becomes more supportive of the resumption of office work, it's not clear there will be enough employees, or employers for that matter, that will want to return to their previous status quo. Beyond this uncertainty around office work and business travel, it's our belief that the wider impacts of the pandemic will be multidimensional – influencing the larger social and economic environment within which employees and employers will make their decisions. The locations where people work, the manner in which they work, who they work for, the personal and professional goals pursued through work – these are becoming more contested now than they have been for many years.Businesses will likely need to support a more diverse workforce operating model. Here, many technology vendors are eyeing an opportunity. In our numerous conversations with workforce tooling vendors since the crisis began, the majority are anticipating some changes in their customers' needs – but, given their centrality to supporting these evolving workforce dynamics, not necessarily less demand. There is reason to think this isn't just hubris.Custom survey data that we collected on behalf of one of our clients (which we can't explicitly share here) highlighted increased planned spend across a range of workforce technology categories over the next six months. Across the eleven categories we asked technology decision-makers' opinions on, none had a larger proportion of anticipating less rather than more spend, only one category had an equal number saying less as saying more. For every other category – 10 out of 11 – the ratio was between double and four times in favor of increasing spend over the next six months.Perhaps this pandemic's single biggest long-term impact on the workforce will be the propulsion of workforce transformation even further into the mainstream – it was already climbing up the transformation agenda pre-crisis, as our Voice of the Enterprise: Workforce Productivity and Collaboration, Technology Evaluations December 2019 survey showed.
With a hundred days having passed since the start of the quarantine, businesses are mostly at the stage of having a minimally viable model for remote work productivity, with increased investments in collaboration tools to at least keep people talking while remote.
Workforce Tech M&A
For this reason, we think the workforce technology supply side – across the board – will respond as a result, and that M&A will be part of this response. It's certainly the case that on the whole, tech M&A has slowed, with the tech giants abandoning acquisitions at a historic rate. But with choppy waters ahead, ensuring business continuity itself is now transformative. There is plenty of reason to think supply-side innovation will be funded by new business needs, and that M&A will come back on the agenda.
New Types of Virtual Communication
New spin on audio collaboration. As hot as video is, other collaboration modalities may arise in the post-crisis order. Stirring the twitter-sphere is startup Clubhouse, where users drop into virtual rooms and listen to others having free-form conversations. Part conferencing, part participative podcast, this model could assist democratized information sharing, the diffusion of expertise, and inclusion. These are each important in fostering alignment and engagement, two things weakened by the mass remote work shift. Collaboration vendors might be interested, intranets could see it as a more interactive communication plane, or it could be embedded within tools facilitating crowdsourced decision-making.
Asynchronous voice and video find a foothold. Regardless of how much remote work continues, spending too much time on work calls, and in email and messaging platforms has historically and will likely continue to be a pain point for employees. According to 451 Research's Voice of the Enterprise: Workforce Productivity and Collaboration Work Execution Goals & Challenges May 2020 survey, nearly one in three (31%) respondents struggle with finding time to collaborate with others. Voicemail and video messaging have not been strongly positioned in collaboration suites compared to synchronous communication, but the time for alternative asynchronous communications may have come, with a few startups positioning heavily for the remote work use case. UCaaS and other collaboration tool vendors without this capability might be acquisitively interested.
Live streaming opens the ideas funnel. We believe more businesses are slowly embracing agile, self-organizing and cross-functional teams coming together around specific, common goals. There is certainly an appetite for more collaborative forms of decision-making – our Voice of the Enterprise: Workforce Productivity and Collaboration Work Execution Goals and Challenges May 2020 survey finds that 47% of employees would prefer their organization make decisions in a collaborative manner – double the 24% of employees who say they actually work for an organization where that's the case. This shift will be facilitated by decentralization of the top of the funnel for project ideas, and for their ownership. Mirroring the consumer trend where there's been a rash of new platforms, live streaming could be one modality to support this shift in the enterprise, with employees creating their own idea platforms and subscribing to others. This could reside in collaboration suites or talent development systems. It could also exist externally to enterprises as platforms for candidates to promote themselves to employers.
Real-time communications for frontline workers. The pandemic has put the spotlight on frontline workers across different industries and elevated many into essential roles, and may well have caused irreversible changes in consumer behavior. This could prompt large e-commerce vendors, retailers and supermarket chains such as Amazon, Target and Walmart, third-party delivery platforms, organizations in hospitality and leisure, those with physical plants, sites and factories, and other frontline organizations to consider acquiring mobile messaging applications to better enable the digital experience and further automate and optimize their workers' operations. This has been an active category in previous years, with 14 mobile messaging-related deals in 2019, and 15 the year before, according to 451 Research's M&A KnowledgeBase.
Contactless interfaces in offices and public spaces. The use cases for contactless interfaces in the workplace include biometric authentication for secure entry and exit, and activating conference room equipment, desk phones and computer terminals. According to 451 Research's Voice of the Enterprise: Internet of Things, Workloads & Key Projects May 2020 sensor-enabled access control is one of the top four smart building use cases, with 39% of respondents stating their organizations have already implemented this. Any phone hardware provider might look therefore at biometric, speech recognition and gesture control technologies to provide secure access to enterprise applications from these devices. Providers of speech technologies could also be a target for manufacturers of elevators and other equipment in public places and common areas such as building lobbies, factories and warehouses.
Securing communications. The sudden need to support a substantial number of employees working from home has led many organizations to realize that the tools they use for communications and collaboration may not adequately support use cases such as external collaboration and remote workers. This remains a gap for many vendors, raising concerns and resulting in a backlash for videoconferencing app Zoom – leading to its acquisition of secure messaging service Keybase in early May. The need to address security and privacy requirements could lead major UCaaS vendors and collaboration pure plays to target emerging secure enterprise communications applications, which have been niche players until now.
CPaaS has a golden opportunity. Digital channels have for many businesses been the only ones to remain operational, with demand for real-time chat, messaging, voice and video communications across customer and employee experiences already growing strongly going into the crisis. There were seven CPaaS-related deals in 2019, and a total of 14 the year before, according to 451 Research's M&A KnowledgeBase. Sinch's move to acquire SAP's Digital Interconnect in early May could signal a trend with larger CPaaS vendors looking at the crisis as an opportunity to expand their global coverage.
Videoconferencing looks to virtual reality. The enforced reliance on video and voice tools risks causing user burnout – due to cognitive overload and dissonance, tiring hyper self-awareness, and behavioral pretense. Although still niche, VR can bring a deeper level of interpersonal engagement and organic spontaneity that aids ideation and overall enjoyment. The use of VR/AR for improved communications – especially for mobile workers – was already gaining traction pre-COVID-19. According to our VoCUL: Endpoints and IoT, Consumer Representative October 2019 survey, the third-most-important reason for deploying employee wearables was to improve real-time communication with mobile workers and field employees, cited by 36% of respondents. Many hurdles exist, but VR collaboration software vendors could encroach on the videoconferencing space. UCaaS vendors could look to one of the group of specialist collaborative VR vendors to add to their existing remote meeting experiences.
Raúl Castañón-Martínez is a senior analyst based in Boston focusing on business communications and collaboration technologies such as enterprise messaging, voice, bots, speech recognition and unified communications. Before 451 Research, he was a product manager at EMOSpeech, analyzing emotion recognition technology.
Brenon Daly oversees the financial analysis of 451 Research's Market Insight and KnowledgeBase products, having covered more than a quarter-trillion dollars' worth of deal flow for both national publications and research firms.
As an Analyst in 451 Research’s Information Security Channel, Patrick Daly covers emerging technologies in