Once the darling of investors, the CPaaS sector has recently taken a hard hit.
Ericsson just slashed the value of Vonage by 50%, merely two years after its acquisition.
During the same period, Twilio and Sinch saw their market caps plummet by 80%.
The CPaaS industry heavily relies on reselling voice and SMS APIs with razor-thin profit margins that are making investors nervous.
Moreover, it's a consumption-based model. As soon as enterprises saw turbulence in the market, they hit the brakes on discretionary expenses, putting a damper on the once-soaring growth.
The good news is that the demand for CPaaS remains solid. According to Synergy's latest estimates, the market is set to hit $8 billion in ARR in 2023, with a projected leap to $10 billion by 2025.
The situation forced CPaaS providers to be laser-focused on streamlining their operations, leaving the component segment of the market somewhat underserved. It is benefiting AWS, with its Amazon Connect offering.
While we should anticipate another round of mergers and some vendors inching closer to telecom providers, CPaaS players will emerge stronger. With solid operating models in place, they will shift their focus back to creating value-added components, making this industry vibrant again.