Fortune Article

Your regular host Adam Lashinsky is enjoying a short break. This is the final edition of Data Sheet before Christmas. Adam will return next Monday, Dec. 28, with his final essay of 2015. Until then, wishing you a restful holiday filled with family and friends.

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.

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 is still a small company with projected sales of about $130 million for its current fiscal year.

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, Oracle, and Zendesk, 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.

Heather Clancy

@greenTechlady

heather@heatherclancy.com

BITS AND BYTES

Oracle's cloud chief explains his team's latest acquisition. Peter Magnusson, the former Google executive tapped to lead Oracle's cloud strategy last year, believes "container" technology will make it easier for businesses to move applications from private data centers to public cloud services. That's one rationale behind his decision to buy StackEngine, an open source software company. (Fortune)

Microsoft delays videoconferencing system, again. The company's Surface Hub technology—originally due Sept. 1 and then pushed back to Jan. 1—won't be delivered until some unspecified date in early 2016. In addition, Microsoft is also raising the price by a whopping $2,000 per model: The 55-inch model will now cost $8,999 instead of $6,999, for example, although Microsoft will honor what companies already paid for pre-orders. (ZDNet)

Google: Can we chat? The Internet giant already has two messaging services (Hangouts and Messenger) that don't have all that much market share, but it's working to fix that with a new, smarter service, reports The Wall Street Journal. The twist is that the new service will include artificial intelligence "chatbots" that can search the Internet for answers to your quick questions. (Wall Street Journal)

Attention IPO watchers, Nutanix is next. The storage technology company, which has a reported private valuation of between $2 billion and $2.5 billion, seeks to raise $200 million in a public offering early in 2016. According to a prospectus filed Tuesday, Nutanix had revenue of about $241 million in its latest fiscal year, but its losses were steep. (Reuters)

Apple makes board nominations easier. It's the latest company to approve "proxy access," which allows shareholders to nominate director candidates. McDonald's, Coca-Cola, and Goldman Sachs have already done the same. (Wall Street Journal)

Accused digital pirate Kim Dotcom closer to U.S. trial. A New Zealand judge ruled in favor of extraditing the German Internet entrepreneur, who created the notorious Megaupload website, to face charges of copyright infringement. The country's prime minister has the final say, and there's an appeal currently pending. Megaupload was once one of the busiest sites on the Internet. Dotcom and three colleagues are accused by the U.S. government of illegally distributing $500 million worth of films, music, books, and other copyrighted digital goods. (Reuters)

Sprint ignores expensive advice. The wireless carrier paid at least $25 million for strategy suggestions from external consultants that it chose not to follow, reports the Wall Street Journal. Sprint CEO Marcelo Claure hired the team to find ideas about how to improve Sprint's network quality, but his boss Masayoshi Son apparently disagreed with their recommendations so the contract was ended early. (Wall Street Journal)

THE DOWNLOAD

Investors worry about NetApp's latest deal. George Kurian, NetApp’s chief executive, tells Fortune's Barb Darrow that his company’s planned $870 million acquisition of SolidFire will open the door to new customers. The deal includes cloud service providers building out data centers to support more demand for their offerings. “At the very, very high end, the top five cloud providers are the only ones with the scale and ability to invest in designing their own systems," Kurian said, pointing out the new opportunity for NetApp. But some analysts believe NetApp is too late to the game, while investors are worried about the debt the company is taking on to finance the acquisition. (Fortune)

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ONE MORE THING

Merry Christmas, from The Beatles. Starting on Christmas Eve, the Fab Four's entire catalog will finally be available on pretty much every streaming music service except for Pandora. (Re/code)

MARK YOUR CALENDAR

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Connect: IBM's social business and digital experience event. (Jan. 31 - Feb. 3; Orlando, Florida)

IBM InterConnect: Cloud and mobile issues. (Feb. 21 - 25; Las Vegas)

Enterprise Connect: Communications and collaboration trends. (March 7 - 10; Orlando, Florida)

Next 2016: Google's cloud platform strategy. (March 23 - 24; San Francisco)

Microsoft Build: Microsoft's premier developer conference. (March 30 - April 1; San Francisco)

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Knowledge 16: ServiceNow's annual service management conference. (May 15 - 20; Las Vegas)

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