8x8 Poised for a Breakout?

Over the past 30 or so years, the big telecommunications companies have come up with noteworthy innovations such as touch-tone dialing, caller ID, and ... well, that's about it, according to 8x8 (Nasdaq: EGHT  ) Chairman and CEO Bryan Martin.

"AT&T (NYSE: T  ) , Verizon (NYSE: VZ  ) , and Qwest (NYSE: Q  ) would still be charging $5 per month for the privilege of using touch-tone dialing if not for competitors who weren't afraid to change the landscape and challenge the norm," said Martin in a recent phone chat.

While the big telecommunications might be skilled at maximizing their profits, said Martin, they are reluctant participants in an industrywide wave of innovation. Where once businesses needed to store massive PBX (private branch exchange) machines in their closets, for example, companies such as 8x8 are now able to provide enterprise-class telecommunications services (with all the bells and whistles) using Voice over Internet Protocol (VoIP) infrastructures.

"From caller ID to voice mail to auto attendant and call forwarding services, 8x8 provides everything its larger peers might, but without the need for expensive equipment investments," wrote Fool telecom aficionado Tim Beyers. "All its services are delivered via the Internet. It's good business."

Martin describes his company's typical business customer as "tiny," with an average of eight lines and services per customer, although he just hired the senior VP of worldwide sales from Polycom (Nasdaq: PLCM  ) to try to reach offices of 100 or more (just a few months after 8x8 received certification from Polycom as a VoIP interoperability partner). With low up-front capital costs and savings of $500 to $1,500 per month, Martin claims new customers break even in month 1 or 2.

A marketing challenge
Martin admits it's hard to get the attention of small business owners when they're more concerned with meeting payroll than switching phone systems. But as Beyers reported one member of our Motley Fool CAPS community saying:

8x8 has found a niche for itself in that they can service small and medium-sized businesses that AT&T and Verizon cannot. 8x8 service is agnostic -- they easily provision companies that have displaced workers in different states or countries. One of 8x8's customers, for example, has 150 extensions in 26 different countries. All they had to do was plug their phones into an Internet connection and they were all on their enterprise class phone network.

Martin names Fonality and RingCentral as competitors, along with Speakeasy, which was purchased by Best Buy (NYSE: BBY  ) in 2007 and then spun back out and combined with Covad Communications and MegaPath, both of which provide Internet services to businesses.

A sunny forecast
But it's 8x8 that has caught the eye of Fool analysts. As the Fool's Rich Duprey wrote late last year:

8x8 has built a solid foundation and profitable business model by delivering hosted VoIP and unified cloud communications services to businesses. Like Skype and Vonage (NYSE: VG  ) , it has been building support by integrating VoIP, fax, Web conferencing, and chat into one solution for small- and medium-sized businesses. And any time Google enters a service arena, rivals need to take notice, but its Voice service has yet to offer anything that stands out. While the professional analysts have yet to discover 8x8, the CAPS community is weighing in favorably.

As, not surprisingly, is CEO Martin, a man who could teach classes on sticking to your talking points regardless of the question, and who describes himself as a very undiversified investor, keeping the vast majority of his investing eggs in the 8x8 basket. "There's been a lot of consolidation in this space since the VC spigot was turned off in 2008, and we're a very small company compared to the Verizons, AT&Ts, and Qwests that we're competing against," Martin says. "But with our offerings and our focus on customer service and the fact that for lots of customers what we're offering makes a lot more sense than a closet full of equipment, I see a lot of growth ahead of us."

Want to watch and see if he's right? Click to add 8x8 to your watchlist, and have all the Foolish news and analysis gathered for you in a single place.

Roger Friedman owns none of the companies mentioned in this article. Best Buy and Google are Motley Fool Inside Value recommendations. Google and Polycom are Motley Fool Rule Breakers selections. Best Buy is a Motley Fool Stock Advisor pick. The Fool owns shares of Best Buy and Google. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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