Making Markets EP9: Five9 CEO Rowan Trollope on the End of the Zoom Deal

Zoom to acquire Five9. It felt like a perfect deal. It may have been, but we will never know for sure. Two companies, both amidst a run of great growth, well set up to deliver a complementary suite of collaboration and customer experience, but it just wasn't meant to be, at least for now. Rowan Trollope, Five9 CEO, joins me to talk about what happened with this deal and what is next for Five9. Welcome back to Making Markets.

This is the Making Markets podcast brought to you by Futurum Research. We bring you top executives from the world's most exciting technology companies, bridging the gap between strategy, markets, innovation, and the companies featured on the show. The Making Markets podcast is for information and entertainment purposes only. Please do not take anything reflected in this show as investment advice. Now your host, principal analyst and founding partner of Futurum Research, Daniel Newman.

Rowan Trollope, CEO of Five9. Welcome to Making Markets. Great to have you here.

Great to be here. Thanks for having me on.

It was fun. Not too long ago, you joined my esteemed co-host, Pat Moorhead and I on The Six Five. And it was a different time. Things were looking a little different. We had a long chat, a lot of interesting things going on at Five9. Of course, the Zoom deal was a headline at the point. And I think everybody, or I don't know about everybody, but at least Pat and I both thought in most indicators were that we were going forward. And yet here we are, it's Monday, October 4th. Friday, I got an alert on one of my various Apple Alerts popped up on my phone and told me the deal is off. And the first thing I did was I messaged your comms team and I'm like, all right, I got to get Rowan on the show and find out what's going on. So give me the quick recap, give me the skinny. What happened? Um, I'm sure it wasn't just on Friday. How did we get here and how did this deal sort of come off, uh, come off the wheels?

Yeah, absolutely. So it's pretty straightforward and all the news is, is out there at this point, but essentially our shareholder, we had a shareholder vote on Thursday and the shareholders voted the deal down. And so at this point we're moving on as a public company and as a standalone entity as we were before. So that's sort of what happened. This was not unexpected by anyone. When Zoom, when we announced this transaction originally, the notional value per share for Five9 was just over $200 per share. And at the time and today, we have a tremendous amount of confidence about our future. And so as we move forward to the shareholder vote, given what had happened with Zoom stock, it just didn't make sense to continue that going forward.

Yeah, it was really interesting because I was kind of reading through all the notes and I saw, I believe the Internal Shareholder Services, ISS, came out with a memo just ahead of the vote Zoom's had a really interesting couple of quarters. I will say this as someone who has watched pandemic growth year over year and said 54%, I believe it was 54%, wasn't bad. But overall, when people had gotten used to these 300% and 400% growth for Zoom, that setback of getting to 54% saw that share slide. Then the one thing, while you're looking maybe synergistically at how this partnership could have been very good, the return to shareholders started to erode when that price fell down. And your growth, when we'll talk more about this later, has been very, very strong. And so I guess the ISS recommendation, despite the fact that there was a lot of strength and synergy in the partnership, made a lot of sense just on a, on a technical basis, if nothing else, where, uh, you know, they had to really make that recommendation as this would be what was best in the moment for the company shareholders.

Yeah, I mean, it really was just about, about price, frankly. And we were confident of the company's future, you know, we were, we were, we were confident of where we were going and confident that, you know, the— what the right share price was in order to, to do a transaction, or the right exchange ratio with a notional share price. And so that's, that's where it landed.

Yeah. So real quick, kind of wrap up the what happened and getting into what will happen for Five9. So that's what I'm really interested in digging into though, is there has been some speculation. Of course, if you read the internet long enough and you go down the, you know, the Substacks, Reddits, and you follow the Twitter streams and everything else, you can find anything. But that this may not be the end of the deal, that, you know, perhaps there will be another bite at the apple from Zoom. And of course, after the deal initially got announced, there were some other potential suitors that were named as possibly having had interest but maybe exited the process or hadn't gotten their offer together in time. You think there might be another bite at the apple? You think there's deals in the future? And again, I know you may not be able to speak to this, but the rumors are out there.

It's so— I haven't read any of that. You know, we announced that the deal's off. We're getting our heads down executing our business right now. We're not thinking about any other any of that stuff. I'm just focused on running our business. Like I said before, we weren't selling the company before and we aren't selling it now. So, you know, I'm not focused on that. I'm focused on driving our business forward. And you mentioned earlier, we've seen really good growth. It's absolutely true. The contact center market is on fire right now. I mean, the whole industry, I think, you know, during the pandemic and even leading up to the pandemic was really starting to tip over towards cloud. And now we've seen many of the biggest companies in the world start to consider cloud. And so I think that transition to cloud contact center is really going to start to accelerate even more than it has, right? It's accelerated. We've seen great growth in our enterprise subscription business, and I've predicted that that'll continue to grow in the 30s for the foreseeable future.

Yeah, it's a great answer. And by the way, stepping up and saying we're just focused on building, that's what every shareholder, I believe, should want to hear from the CEO of a of a fast-growth company, actually any company for that matter. You want to know their heads are in the game, they're trying to grow. If a deal happens to come across, it's great for all involved, all the stakeholders and shareholders. I think any good board is going to consider it, but this one for now, it's off. So let's circle back to that growth. I looked over the last several quarters, 2020, very strong numbers. The last two quarters, I think we're in the 40s and high 30s percentile growth. On the revenue side. Um, you know, the pandemic has fueled overall adoption of anything that could help companies better reach their customers. You guys being cloud-native enabled, um, it seems to me you're in a perfect position. So what are the focal points now to continue this? Because, you know, while we talked about Zoom, they had a serious growth as a byproduct. You had some of that, although I think there's a little bit of a difference in the secular trends, but you you know, can this growth continue? You feeling confident in that?

You know, we absolutely feel confident in this market. Like I said, it's early innings still in the transition from prem to cloud. It's less, it's probably 15% penetrated to cloud. So there's a huge market left to go get. And, you know, to be honest, for the last couple of years, we've actually had our sights set on the automation opportunity in the contact center, which is significant. I mean, it changes the addressable market from you know, what has been around a $24 billion market to what looks more like a $50 to $60 billion TAM. And that's all about just driving efficiency into the contact center. So we have been really laser-focused on that for the last couple of years. It's the number one thing driving our growth is our automation portfolio. You know, we did the Inference acquisition and we acquired Wendoo. We built our own agent-assist AI-based technology, recently won an award for our AI-based technologies at Enterprise Connect. So The team is doing really, really well at executing on this AI and automation opportunity, and I think that's going to be an important part of the future. It's a big growth and expansion space for the contact center. And look, we are, you know, we're continuing to partner with other UC companies. So, you know, there is an adjacent sort of opportunity to bundle UC and CC adjacent for us because we sell directly to line of business for that adjacency. It's really about partnerships, right? We partner with Microsoft, we've partnered with Mitel, we've partnered with Zoom, obviously. And, you know, we are open to partnering with any company on that front if it's the right thing for customers, because that's ultimately what drives this market is customer demand, right? And customers have been saying, I need you to connect your contact center product with my UC backend. We think that's going to continue, but The big focus for our company in terms of what we're investing in is AI and automation.

Yeah, let's dig into that real quick. I got a few more minutes of your time, so I'm going to take advantage of that. I think that's an understated part of your business. I'm sure those that are deeply invested, whether that's on the market side or industry side, understand the importance of RPA, IPA, various automation technologies and scaling But that's gotta be a really pretty significant differentiator in the fact that you are cloud native, something that you guys are able to maybe deploy more quickly. You know, why did you decide, I guess is my real question, to turn that into such a big focus when that hasn't been necessarily a focus or a big enough focus of more of your legacy contact center players?

Well, we're just being, driven by customer demand. Customers have told us, look, especially through the pandemic, you know, their inability or— yeah, I guess inability or lack of interest in really going and hiring more people to handle all this increased volume. They're saying, look, do you have things that can help us make this more efficient? And we saw that technology meeting that need. That need has been there for a long time. Maybe it got ramped up during the pandemic or exacerbated, but the fundamental need to continue to grow headcount is something that I think businesses recognize they can't really do. And for a long time they leveraged offshore. That's obviously like one of the ways to reduce costs, but there's only so much of that you can do. And at the end of the day, there's always been a demand in the contact center space for automation and efficiency gains. It's a heavily, you know, process-driven part of the organization where every dollar counts. And so we've seen this need for many years. It's really that what's new here is that the technology has finally caught up to the market demand and specifically Specifically, this is with automatic speech recognition, which is now achieving human levels of accuracy, and text-to-speech as well as dialogue and conversation management, all of which have been propelled by the Alexas and, you know, Siris and Google Home Assistant. So those underlying platforms are now there, which is allowing us to build that next level of technology on top of it to bring those technologies to the contact center. Where it's early days. It's a big opportunity, as you mentioned, but it is still early days, but a lot of interest from customers.

Yeah, I see a lot more integration too for you in the future with your more, you know, asynchronous chat-based CX platforms, whether those are, you know, your traditional social platforms and full integrations, but more likely some of those you know, pure chat type services where I just don't think there are enough. I just don't think there's enough connectivity there. I mean, I can't tell you how often those services just leave so much to be desired. And then, like I said, you know, anyone like us that probably has ever called a call center to talk to an issue with our bank or an issue with our air travel realize how we are looking for something more efficient. And I think kind of tying this whole ecosystem together, it seems like you guys are just so well positioned. You start adding in automation, you add in AI, you add in NLP, You add in the ability to use APIs and connectors to get into some of those backend chat-enhanced systems. And it seems the full slate of just really world-class CX is within reach in the cloud on a subscription basis where almost any enterprise can adopt it and embrace it.

Yeah, we have a vision. I have a vision in this space, which is that engaging with a business should be as seamless and simple as engaging with a friend. You know, if you— we've all got experience right on our mobile phones of what it's like to text and voice call or send videos and photos and use all of the different sort of rich channels that we have on our mobile phones. But yet when we go to contact a business, it's a really disjointed experience. You're talking to different people through different channels. They're not all supported. It's not in the applications that you want to use. And our vision is that that just needs to all go away as an area of complexity, that whether I want to talk to you on the phone or message you using whatever platform I have, or even do a video call, that all of that should be totally seamless between the end user and the customer, and that the— or the business— and that the business should treat each customer uniquely and holistically across all of, you know, all of the backend systems so that they aren't getting a disjointed experience across their different channels. And, you know, that's something we've been pushing forward with. And I think you're right, we are in a unique position to be able to integrate those together and to make that really, really seamless experience. And that's what we've been working on. And then to go even one step further is then how do you layer in automation on those platforms? Because, you know, we know that you can't and don't want to do everything with human beings. So we've been talking a lot recently about the digital workforce and how you need to really invest in and train your digital workforce, which is really an AI sort of based technology that we're now able to offer to those customers. So it's those combinations of a very seamless experience for the end user backed by a great technology platform that's integrated with automation that we think is going to define the future of the contact center for the next period here.

Yeah, it sounds like the future is exciting, Rowan Trollope. The obvious reactions to a deal like this happening and not happening will create, you know, varying emotional and different responses from people, from investors, from customers. But the two companies were always very, very positive towards one another. The partnerships will continue to exist. You know, what may have been built together, I believe both companies through your platform investments will continue to build closer and closer and more and more integration. It sounds very promising. Last question, just quick response. Anything out there, anything really interesting for the market investors and those paying attention following Five9 beyond what we shared today? Any sort of, you know, let's just say lesser-known interesting facts about the future of Five9 that you'd like to share?

I mean, I think we've covered it. You know, this is the same Five9 story that we had before. It's the same market. You know, I think what folks should take away from this is ultimately we were very convinced about our standalone prospects and we're really excited about them.

Yeah, I like that. There was a ton of confidence elicited in that decision. It came out strong. It came out very, very affirmative from the shareholders. They believe, they believe in where the company's going. And so, you know, the growth speaks a lot for itself, I always like to say. But the story you're telling, the product service, the investments in automation, Definitely something to watch. But overall, really good prospects for Five9. And appreciate you, Rowan, showing up and having the conversation here on Making Markets.

Oh, thanks for having me on. I appreciate it.

We'll have you back soon.

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