Twilio (News - Alert) has been hugely successful by any measure. Founded in 2007, it has been one of the emerging unicorns of Silicon Valley with six successful rounds of fundraising, and an IPO that has now delivered a valuation of $3 billion.

The company is a communications platform as a service business. The platform offers simple web APIs that enable developers to add simple voice and chat functionality into an application or business process. Twilio takes away the necessity for developers to build interfaces to the telecom world, with the attendant archaic and complicated protocols (even SIP). Developers value Twilio for making their task of integrating communications into innovative new applications and disruptive business models simple.

The market loves Twilio and the concept of CPaaS, as it is injecting new value into the relatively stale world of telecom. Each day, each week, each month, hundreds of new developers access the Twilio platform (into what is called a sandbox, or area where developers can experiment without charge) and a proportion of these developers (or their clients) sign up for a paid account and for the ongoing capacity to deliver voice, chat, and video through their apps. This generates a long-term ongoing revenue stream, which is very sticky. For example, once Uber has Twilio powering all of its telephone and message between drivers and customer and Uber, it is not going to unbundle that functionality in a hurry. In fact, the three major competitors in the CPaaS space have all been bought by major telecom players: tropo by Cisco, Nexmo by Vonage (News - Alert), and Corvisa by ShoreTel. And Avaya bought ESNA and created Zang.

However, the current CPaaS infrastructure runs on the old telecommunications technology and infrastructure. Although there are myriad Twilio servers on Amazon Web Services (News - Alert) handling transactions, they are the gatekeepers to the PSTN. The very fact that CPaaS is based on the PSTN limits both innovation and increases cost. There are limitations on what the telco infrastructure can handle and what a PSTN-based CPaaS can force to fit in legacy technology. The CPaaS cost structure, and hence margins, is determined by PSTN dialing pricing and reflects a cost-per-minute model that can be very high in volume. In fact, most CPaaS revenue is minutes of PSTN access, provided through third parties like Bandwidth.com, Tata, and others. Just like UPS was a huge beneficiary of Amazon; the carriers are beneficiaries of CPaaS. This is reflected as CPaaS suppliers generally have lower than normal margins for a cloud business.

Is there an elephant in the CPaaS room? In the new mobile first world, users are expecting communications directly within the application itself, for simplicity, context, and integration to the actual app values. Applications like Amazon Mayday work from directly in the app and include screen sharing and video to dramatically enhance the experience. This new category of communications enablement is CPaaS 2.0 communications without the PSTN.

WebRTC – supported by standards developed in the IETF and W3C, and championed by a range of net generation web leaders including Citrix, Ericsson (News - Alert), Google, Microsoft, and Mozilla – is transforming the communications landscape by providing web-based video, voice, and chat that can be built into, or embedded into, web and mobile apps without the need for any traditional PSTN calling at all – everything flows over the open internet.

A set of new CPaaS 2.0 companies are emerging that are focused on this new web/mobile world in which the PSTN is not part of the conversation. New companies like Temasys and Tokbox are in this space, as is GENBAND (News - Alert) with its Kandy platform. A CPaaS 2.0 solution delivers all the elements to deploy, including simple APIs, infrastructure, TURN servers, media servers, and even IP transport management. In fact, Twilio just bought Kurento, a Spanish WebRTC company, to beef up its capabilities in this space.

The key question facing businesses and development teams is whether to integrate to the PSTN, or, in an ever more mobile-first world, use the emerging innovation of web- based communications to deliver an integrated transformational experience. In other words, CPaaS 1.0 delivers a comfortable but limited experience while CPaaS 2.0 can deliver the WO experience that captures and retains customers.