Enterprise Communications


Have we Reached an Inflection Point in the Hosted Communications Market?

by Elka Popova 28 Apr 2011
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The North American hosted IP telephony and UC services market is growing rapidly, driven by maturing technologies and business models, and increasing market awareness of both the availability of such services and their specific benefits. The hype around cloud technologies has also contributed to growing customer interest in hosted/SaaS services, in spite of, or maybe even due to, some confusion about the meaning of these terms.

The lingering impact of the economic recession slowed down market growth in the first half of 2010. Most businesses were still wary of making significant new investments or major changes to their IT and communications infrastructure. However, in the second half of the year, more businesses were prepared to make a change and many of those seriously considered, and some actually adopted, hosted services for their flexibility and lower CAPEX requirements.

With about 2.1 million installed lines/users/seats in 2010, the market is projected to reach 15.0 million users in 2017, growing at a compound annual growth rate (CAGR) of about 33.74 percent in terms of installed lines/users/seats and 37.00 percent in terms of revenues. Over the next decade, hosted IP telephony users are likely to reach about 27 million users, which will represent about 20 percent of the total business telephony user base in 2020. It should be noted that these estimates only include business-grade, PBX-replacement services. Consumer VoIP services (such as Skype, for instance), even when used for business purposes, are not included.

The market remains highly fragmented, with over 50 market participants offering a broad spectrum of hosted IP telephony and UC services. Tiers of competition are not clearly delineated and most service providers hold market shares of less than 10 percent. Next-generation VoIP providers such as 8x8 and Smoothstone focusing entirely or primarily on business IP telephony services continue to lead. However, the incumbent carriers, especially Verizon, are becoming increasingly aggressive with their hosted IP telephony offerings.

As service providers seek to differentiate and offer greater value to their customers, they are increasingly adding new features and capabilities such as presence, messaging and conferencing to their service bundles and are marketing these as UC solutions. The number of users of comprehensive UC solutions with integrated presence and an advanced soft client providing a single point of access to a broad set of applications is, however, still very small.

We had previously predicted that the market will bifurcate into low-end, basic telephony services and advanced UC solutions. While we continue to maintain that features and functionality will provide some degree of differentiation, we believe that the key differences between services targeted at the most cost-conscious, typically very small, businesses, on one hand, and advanced solutions targeted at more demanding, typically larger, businesses, on the other, will reside elsewhere. The degree of service availability, QoS and performance management, as well as the flexibility to customize the solution and integrate with various premises-based platforms and applications for hybrid architectures will have the largest impact on the cost and value of hosted services and their appeal to different customer groups.

Look out for a new study titled North American Hosted IP Telephony and UC Services Markets coming up soon. Also, please feel free to contact me for any further insight of this rapidly growing market. 

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