CPaaS platforms emerged in response to the higher cost of traditional telecommunications services such as voice and SMS and the complexity associated with integrating them into organizations’ customer-facing platforms. Typically, specialist business communications providers and SMS aggregators enabled these integrations for their enterprise customers, using processes over which organizations had little control and offering traditional pricing structures, which were not transparent.

By comparison, the CPaaS providers “democratize” access to communications services such as voice and SMS, using programmable APIs, easier access to phone numbers, simplified pricing, and pay-as-you-go (PAYG) business models—all of which are typically available via their websites. Like SMS aggregators and business communications providers, CPaaS companies have also built their own communications networks and/or negotiated interconnection agreements with third parties such as telcos and SMS aggregators to enable connectivity services for enterprises so that these organizations can use messaging, voice, and other services to interact with their customers.

At the outset, CPaaS providers targeted developers working within organizations or as contractors, building up significant resources to attract them to their platforms and providing a relatively friction-free environment to build, test, and deploy communications services. In the early days, this focus on developers influenced the types of companies into which CPaaS services were deployed—typically technology companies/disruptors. For instance, for some years, Twilio reported that a significant proportion of its revenue came from customers such as WhatsApp and Uber.

But CPaaS offerings, and the market itself, have moved on. CPaaS vendors made significant inroads into the traditional SMS aggregator market, with developers and organizations alike attracted by the relative ease with which they could use CPaaS to add SMS and voice connectivity to their customer-facing platforms. The potential of a looming cannibalization of SMS aggregators’ enterprise customer bases, combined with growing downward pressure on revenue from voice and SMS, triggered the aggregators to pivot their platforms and business models into the higher-value CPaaS market.

Meanwhile, the CPaaS pioneers continued to expand their offerings. They added APIs, expanded into value-added services and packaged solutions, invested in their own communications capabilities and emerging technologies (such as AI), built out partner networks to address gaps in their offerings, and developed additional business models and pricing structures—all to broaden their customer base as widely as possible into the enterprise market while, for some, remaining true to their developer roots. And, perhaps most significantly, the focus of the CPaaS industry has very much turned toward platforms that extend more deeply and broadly into enabling omnichannel customer engagement.

The traditional SMS aggregators that have become CPaaS providers—such as Sinch, Syniverse, and Infobip—may still retain an edge over the conventional CPaaS providers such as Twilio and Nexmo with their telco industry credentials, communications network capabilities, and enterprise customer bases. But they are also investing in APIs, value-added services and packaged solutions, partner growth, and emerging technologies to better compete with the CPaaS natives.
And during 2020–21, the investment in CPaaS included M&A, resulting in significant industry consolidation, particularly among those companies that have pivoted from being SMS aggregators.