Are You Investing Enough in RCS?; Braze Rounds Out the Q2 2024 Earnings Cycle; and Dave Boddington Talks RCS Business Messaging
RCS is everywhere; now what?
Are You Investing Enough in RCS?
Did the “Hello World” version of your RCS demo embarrass you? Does your company have a public RCS demo? How does your customer get started? Do they sign up by themselves, or do they need to fill out a form? How can they brand their messages? How do disappearing messages work? If a message includes an OK button for the customer to press, is that zero-party data captured and collated? How are you processing delivery and read confirmations? How can the customer construct carousels? How can they send files and images? If the same customer uses two different RCS agents from different providers, how do messages get routed? In this agent-first world, is the phone number still relevant? And how much does it cost? If you don’t have answers to these questions, then you’re behind.
The GenAI Comparison
While an RCS strategy may have many unknowns, the same is not true for a company’s AI strategy. Everyone knows what AI is and what it will do for their customer, their product, and their bottom line. Everyone. We may be in the midst of an AI hype cycle, but today, if a company doesn’t have an AI strategy, it’s toast. For a messaging company, its RCS strategy needs the same spotlight. As industry veteran Doug Gardner puts it, RCS needs to be our AI.
The Big Question
Are we being too conservative? Even in earnings calls, the mentions of RCS are either tepid, quick, or tired. Like GenAI, RCS is a once-in-a-generation technology that will change what the industry builds and how it sells what it builds. It will touch every network, every API, and every use case, from 2FA to ride hailing. We need to move past the customer showcases and the product feature lists and talk about the what, the how, and the how much. There are no blockers to building RCS products and services. Even the lack of carrier pricing, like Apple support, is a distraction. Cost is but one input into pricing. If you make informed assumptions, you can still come up with a pricing strategy that delivers high value to the customer at a handsome profit. Black-box it, and move on to other parts of the GTM plan.
New Net-New: A GAAP Tool
One good way to gauge whether you’re investing enough is to look at the growth of “net-new software development.” A GAAP concept, net-new captures the costs associated with building entirely new software or making significant enhancements to existing software. If you were to peek under the covers of most SaaS R&D budgets, you’d find that the lion’s share of net-new investment is in AI. However, for a messaging company, RCS too should be competing for that dollar. Investments in SMS/MMS must be minimal and focused solely on managing profitability and Quality of Service (QoS).
A focus on net-new will also help overcome any “innovator’s dilemma” bias that you might face. This includes the “SMS is not going to go away” commentary you might hear from your sales and marketing teams. In the near future? True. In the long term? False.
When confronted with seismic shifts like AI or RCS, it’s best to listen to Jeff Bezos and think of the non-negotiables. As a first principle, messaging will endure as long as the human need for connection exists. As a second-order desire, the need to know that the message has reached its destination (delivery receipts) and that the message has been heard (read receipts) will not go away either.
I’ve had iOS beta since the day it was released, and I’ve gotten to love the “delivered” notification I get when texting my Android contacts. In fact, the only SMS notifications I get now are from applications, which then get downgraded to a lower priority. So when claiming that SMS isn’t going to go away, ask yourself if you know this to be true, or is it a wish? Ruthlessly embrace the truth, even when it breaks your heart and (in the near term) empties your bank account.
But I digress.
Net-new is the capital allocator’s tool for investing in the long-term future, and that future—for your company and your industry—lies in an unflinching, unhesitating embrace of RCS.
Finally
When betting on the future, the only way to invest appropriately is to overinvest. To apply what Sundar Pichai says about AI to RCS, “The risk of underinvesting is dramatically greater than the risk of overinvesting.” Mark Zuckerberg also warns that underinvesting now could remove you from the market leadership position for the next decade. There’s no room for timidity.
Well-crafted white papers and other marketing collateral, like the declarative sentence, can lull one into thinking progress is a given or has already occurred. In reality, movement comes from actively asking questions and diligently seeking the answers. And, just like in prose, asking the right questions creates velocity and reveals connections. Someone in your organization already knows the answers to the questions above (and I’ve probably spoken to them). They’ve been in the trenches working on a project that, until recently, few knew about. Seek those trenches, connect them, and you’ll lay the groundwork for a robust product offering.
Braze Rounds Out the Q2 2024 Earnings Cycle
The last one to release its results, Braze too presented healthy revenue growth—a first-ever non-GAAP profit—and gave some interesting insights into its RCS adoption roadmap. It also showed strong growth momentum and revealed new product-led initiatives.
Disclaimer: This is not stock advice. Everything about the messaging business interests me, including asset pricing. Use your judgment to invest your money.
The Good
There was a 26% YoY revenue growth, with 96% from subscriptions, plus the first quarter of profitability in both non-GAAP operating and net income. The customer count stands at 2,163, up 10% YoY, with enterprise customers increasing by 28% to 222. New launch partners for the data platform include Telium and Twilio Segment.
Also, a new free trial for startups was announced. But, I wonder (and an analyst pointed out) if fourteen days is too short for a developer trial.
The Interesting
Strong enterprise upsell—61% of revenue is now from enterprise ARR. RCS adoption is boosted by customers’ experiences with WhatsApp and LINE, facilitating a smoother transition to RCS. In fact, they’ve introduced a more flexible credits model, where all credits are available on Braze for RCS usage.
On RCS, CEO Bill Magnuson noted on the earnings call:
“Most of the R&D needs to support things like composition, previewing, testing, and reporting on RCS have already been done in some fashion due to our support of WhatsApp, LINE, or other Braze zone and operated channels like content cards and in product messaging.”
The introduction of the free trial is proof that Braze is relying on product-led growth tools to drive growth. From the earnings call:
“...what you're seeing in releases like the Braze for Startups as well as broadly the building that we've been doing under the product-led growth umbrella, is really looking at the business over the long term…”
The Unknown
Future growth might be a challenge, especially given that in-quarter NRR is marginally lower than the previous quarter. Braze also admits that churn, while expected, is higher than it would like it to be. This begs the question: Is Braze too much enterprise focused? In fact, YoY enterprise revenue as a percentage of the total has gone up from 57% to 61%.
Also unknown is how much of the growth is driven by which channel (email vs. SMS/MMS vs. OTT).
Finally
In a tough business climate, the enterprise is the first to become a hard sell. When the buyer and the user are different people, when the one signing the check is more concerned about costs, optimal product fit takes a back seat. Just ask Slack. Bill and team acknowledge this and, via their free-trial offerings, are trying to get more internal champions to do the selling for them. This brings me to a larger play I see happening.
Building a self-serve flywheel is a demanding task that takes years to perfect. True self-serve platforms that honed their onboarding processes on the SMB long-tail will find it easier to move upmarket. In contrast, enterprise-first players that rely heavily on white-glove instruments like live demos may struggle to penetrate the downmarket.
Dave Boddington Talks RCS Business Messaging
Speaking of experts Dave Boddington has been working on RCS and other OTT channel enablement for Infobip for over three years. Before that he built a long and stellar career in digital transformation. In this deep dive about the RCS Business Messaging ecosystem, he provides clarity behind the headlines, including the oft-mentioned “SMS is dead! Long live RCS!” Hope you enjoy reading it as much as I did.
Thank you for reading, and have a great week!
TJ