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Why More Contact Centers are Moving to the Cloud

December 23, 2015, 3:04 PM UTC
Courtesy of Five9

It’s easy to forget that most of the estimated $304 billion spent globally this year on business software applications fell under the “legacy” model—one in which applications are licensed, installed and run from inside a company’s network firewall. To be more precise, about two-thirds of software budgets were dedicated to that model, according to projections by independent technology researcher Forrester Research.

I challenge you to think of a single software category—other than customer relationship management, where Salesforce is the bona fide market leader—that is undeniably dominated by a cloud-first company.

Difficult, right? Clearly, though, many categories are moving quickly toward that turning point. Human resources management and recruiting software jumps to mind. Another area poised for disruption over the next 12 months is customer service, in particular, the software that runs the contact centers full of service professionals.

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Right now, contact center technology represents a $22 billion market dominated by equipment suppliers like Genesys (formerly part of Alcatel-Lucent), Avaya, and Cisco (not necessarily in that order). A mere 10% of the estimated 14.5 million agents worldwide use cloud-delivered contact center applications, although penetration should be closer to 13% by December 2016, according to estimates from research firm Gartner. A separate forecast from MarketsandMarkets suggests revenue related to the cloud portion of this category could triple to around $15 billion by 2020.

For evidence of this accelerating shift, take a peek at the latest financials from up-and-coming call center software company Five9. Its overall revenue grew 25% in the third quarter, while sales for its “enterprise” edition expanded 35%. Although public, Five9 (FIVN) is still a small company with projected sales of about $130 million for its current fiscal year.

WATCH: Salesforce CEO Marc Benioff on why chief executives need to worry more about customer relationships.

Five9 CEO Mike Burkland told Fortune that two big forces are catalyzing interest in cloud contact center software. First, the technology running many corporate contact centers is nearing the age (eight to 10 years old) at which it should be upgraded or replaced. Second, some of the biggest players in cloud CRM, such as Salesforce (CRM), Oracle (ORCL), and Zendesk (ZEN), are encouraging their own customers to make the switch. Indeed, almost 40% of Five9’s sales opportunities now come through these types of recommendations, Burkland said.

“We see a major evolution in terms of how customer service is delivered,” he said. “Other channels such as email, chat, SMS, and social media are becoming more popular. We can give the agents a full view, a single view.”

Right now, that level of integration requires agents to use more than one system, a far more expensive proposition than what Five9 promises. That’s a pretty compelling reason to switch. Put this category on my list for a reality check next December.