TBR Perspective: Amdocs Must Accelerate Push into Non-Telecom Verticals for Growth and Diversification

Amdocs has made substantial progress on its reinvention, diversifying its customer base, portfolio and business mix while shifting the market perception of the company from a traditional OSS/BSS provider to more of an ICT software transformation specialist. However, most of Amdocs’ transformation thus far pertains to the telecom industry; Amdocs still needs to transition from being a telecom-centric vendor to a multifaceted provider that supports a diversified mix of verticals. The pressure to move in this direction will intensify as the telecom industry’s challenges persist and Amdocs’ organic growth from the industry continues to slow.
 
Amdocs’ current situation is reminiscent of Tech Mahindra’s before it merged with Mahindra Satyam in 2013. Pre-merger, Tech Mahindra was largely viewed as a telecom-only shop and had minimal exposure to other verticals (the company’s revenue split was around 90% telecom and 10% other verticals pre-merger). This specialization helped Tech Mahindra differentiate and compete for business in the telecom vertical but kept it from benefiting from diversification and greater scale.
 
After the Mahindra Satyam merger was completed, Tech Mahindra became a multifaceted ICT services provider, with robust diversification across many verticals. Though TBR is not suggesting Amdocs should or will take a similar approach, Amdocs has already made several acquisitions that bring exposure to nontelecom verticals. However, these acquisitions are relatively small and have not brought transformational changes to the company’s business mix.
 
Amdocs has been involved in nontelecom verticals for at least a couple of decades, and TBR estimates Amdocs’ nontelecom revenue currently composes approximately 10% of the company’s total revenue. While Amdocs has yet to formalize its foray into nontelecom verticals, TBR notes that is beginning to change as the company seems to be making a stronger push into the financial services vertical, as evidenced by acquisitions (especially Astadia, Projekt202 and Sourced Group) and an increase in dedicated resources to support that vertical.
 
Amdocs is also supporting a variety of brand-forward customers from other verticals, primarily via its Stellar Elements business unit, and is focused on opportunities to help companies in the utilities and media & entertainment verticals with IT and digital transformation.

Impact and Opportunities

Astadia Exposes Amdocs to Mainframe Migration Opportunities

One of Amdocs’ newest acquisitions, Astadia, plays into the nontelecom vertical theme and could serve as a key beachhead to winning more deals with nontelecom customers. Astadia is focused on helping mainframe users migrate to the cloud and has carved out a strong niche in the financial services industry, which is one of the verticals outside of telecom that Amdocs is focusing on. Helping companies migrate off mainframes plays well into Amdocs’ mission-critical transformation value proposition. Amdocs estimates there are 40,000 mainframe computers still in use worldwide by a range of companies and government entities, representing a significant opportunity for net-new business.

Competitor List for Products and Services Broadens for Amdocs

Amdocs’ string of acquisitions and new strategic initiatives, such as the partnership with Microsoft, broadens the scope of companies Amdocs now competes with, from both a products and services standpoint. Historically, Netcracker was Amdocs’ most formidable competitor in terms of portfolio overlap, but that list now includes companies like Salesforce, ServiceNow and Oracle. Meanwhile, on the services side, Amdocs is increasingly crossing paths with traditional C&SI companies, such as Accenture, Tata Consultancy Services and Tech Mahindra.

Amdocs Can Compete (and Win) Against C&SIs like Accenture, Just at Smaller Scale

Amdocs possesses all the capabilities required to drive customer IT and digital transformation, both for and beyond the telecom industry. Though the vendor is less than a tenth of the size of Accenture (which is arguably the benchmark vendor to emulate in the C&SI domain) in metrics such as revenue and headcount, Amdocs can still compete against Accenture and other C&SI firms and win business.
 
Amdocs needs to focus on its specialization in delivering migration and transformation for mission-critical software environments, a skill that is broadly applicable across verticals, as well as its leading KPIs for project completion rates.

There Is More Juice to Squeeze Out of CSPs but Not Much

Amdocs boasts over 400 communication service provider (CSP) logos globally, including most of the top 50 CSPs, and in many of these accounts Amdocs is already the dominant provider in terms of the products it sells. Therefore, squeezing more revenue out of these customers (and/or taking more market share from competitors) will be increasingly challenging as telecom operators chronically struggle amid market maturity and anemic growth prospects, and resort to cost containment and M&A for additional economies of scale.
 
Amdocs is also proactively trying to move further down market, targeting smaller CSPs such as MVNOs and Tier 3 operators to sustain growth. However, this approach is unlikely to move the revenue needle significantly, given the largest CSPs globally account for well over 80% of the total telecom market opportunity.
 
GenAI remains exploratory; automated, scaled usage of GenAI in commercial environments is at least a year away
Amdocs is actively exploring how generative AI (GenAI) can be incorporated across domains, both within its own company and for its customers. Thus far, the company is primarily utilizing GenAI internally for code development, and focusing on contact center transformation for its customers. Amdocs’ strategic partnership with Microsoft broadly applies to AI coinnovation and go-to-market efforts and the current focus is offering a joint solution for marketing and sales process automation.
 
Amdocs is also embedding Microsoft Copilot across its broader product portfolio. TBR notes that the GenAI-enabled “virtual agent” and process automation technology Amdocs showcased at the event were compelling and demonstrate a clear path to business value for CSPs.

Learnings From Partnerships with Hyperscalers Provide a Strong Beachhead Into Other Verticals

Amdocs has been learning a lot from its partnerships with Microsoft, Amazon Web Services and Google Cloud, especially as it pertains to implementing cloud migrations of ICT workloads and digital transformation. Specifically, Amdocs has obtained certifications, status and organizational alignment with hyperscalers. The skills and capabilities Amdocs has developed from the telecom ecosystem can be leveraged across other verticals. Solution cocreation also opens new doors for Amdocs, both within telecom and in other verticals.

Amdocs Makes Waves in CRM for Telecom Leveraging Microsoft Partnership

Amdocs has integrated Microsoft Dynamics (CRM) with Amdocs’ Customer Engagement Platform to offer marketing and sales automation solutions to its customers (TBR notes the joint solution, including the GenAI large language model it uses, is customized specifically for the telecom industry by Amdocs’ TelcoGPT, amAIz).
 
Microsoft Dynamics is integrated with Microsoft’s other key business productivity applications, such as Outlook, O365 and Teams, and the company’s Copilot is embedded across the stack, bringing customers improved outcomes. The joint Amdocs-Microsoft solution will enable the two companies to compete with incumbent CRM providers, especially Salesforce, Oracle and ServiceNow. TBR notes that the joint CRM solution is differentiated by the power of its GenAI platform, an aspect where incumbent CRM providers are lagging, and could displace incumbent CRM providers from CSP accounts. Deals would draw in Amdocs’ systems integration capabilities as well as other services, yielding larger deal sizes.

Conclusion

Amdocs has been navigating the increasingly challenged telecom market well, but with organic growth slowing, the company will need to seek out and accelerate into other areas for more sustainable, long-term growth. Amdocs’ incremental steps into other verticals, mostly via acquisitions, are moving the company in the right direction, but a larger magnitude shift is required.
 
This aspect of Amdocs’ reinvention would encompass the institution of formalized strategic, organizational and portfolio changes gearing the company toward addressing multiple verticals. Doing so would enable Amdocs to expand its total addressable market, diversify its business mix and hedge against downturns in the telecom industry.
 
As a first step toward formalizing Amdocs’ strategy in other verticals, TBR encourages the company to start providing more information about its initiatives in verticals outside of telecom, which are known to be significant but are unquantified and minimally discussed, as it will become more important to Amdocs’ business results and growth profile over time.