Elka Popova's Blog

Unified Communications: What does the Future Hold for Vendors?

25 Feb 2010

Finally! It’s done!

After several  months of hard work, we have now completed the update of our World Unified Communications (UC) Markets study. The reason why I feel like celebrating (more so than after any other study) is because this market presents some unique challenges. Typically, we discuss and analyze markets by product or service category – e.g. the enterprise telephony platforms market, the enterprise media gateway market, the videoconferencing endpoint market, etc. But unified communications is all about … well, unification … that is, application integration. At the risk of repeating myself and stating what may be the obvious for some, here is how we define UC:

“Frost & Sullivan defines a unified communications application as an integrated set of voice, data and video communications, all of which leverage PC- and telephony-based presence information. UC applications are meant to simplify communications for the end user by making it easy to “click to communicate.” A unified communications application must contain the following:

  • PC-based presence (online or offline)
  • Telephony presence (on the phone or available for a call)
  • Point-to-point voice calling
  • Chat (i.e., instant messaging)
  • Audio conferencing
  • Web collaboration (application, file, and desktop sharing)
  • PC-based video
  • Find-me/Follow-me capabilities (for call routing)
  • Unified messaging

A unified communications application may include the following:

  • Mobile client
  • APIs for easy integration with other applications
  • Social networking capabilities
  • Wikis/blogs
  • Integration with room-based video conferencing
  • GPS or other location information”

While assessing business models and identifying demand drivers and restraints is quite challenging, the real trouble begins when you try to size a market based on post-shipment “integrations”. Vendors claim they do not track those; decline to comment; or bury the information in various other metrics. We did, however, estimate the installed base of integrated UC users at about 2 million as of the end of 2009.

We did, however, see to size the market using some more reliable metric and we looked at UC client shipments – IM-centric ones like Sametime and Office Communicator (only if shipped with an Enterprise CAL), or advanced softphones such as Alcatel-Lucent’s My Instant Communicator, Avaya’s one-X Communicator, Cisco’s CUPC, or Siemens’ OpenScape Enterprise Edition, to name a few. We estimated that in 2009, vendors shipped a little over 15 million UC clients.

That number says little, unless you compare it with 2008 shipments of about 5 million. What happened? The market must have taken off in spite of the recession …! Not really. What actually happened was vendors made a tremendous effort to populate the market with UC clients to let their customers get a taste of this new experience and thus create a more favorable ground for the future acquisition of the platforms that support advanced UC capabilities such as conferencing, presence, and so on. Bundling strategies and compelling packaging and promotions drove client shipments more than any real pull from enterprise users. These shipments, therefore, resulted in relatively small incremental revenues for the vendors.

Overall, we do not believe UC will be a big revenue source for the vendors. That said, we believe it is here to stay. Vendors will use unified clients and presence integration to drive adoption of various advanced communications solutions – conferencing, collaboration, mobility – as well as telephony and IM infrastructure refresh. As business users become increasingly used to the convenience of certain UC capabilities such as soft clients, conferencing capabilities that are only a click away, affordable video, and so on, it will be difficult to take those away from them.

Here are our recommendations to UC vendors:

  • Vendors should focus on the basics in their messages to customers and get rid of the marketing “clutter”. After all, what businesses require and expect is secure, reliable and easy to manage and use business communications. Vendors should seek to highlight those features and capabilities of their solutions that address specific customer needs. UC and application integration is not for all – vendors may be better off focusing on the individual applications, rather than the benefits of the integration.
  • Vendors need to clearly identify their strengths and competitive advantages and seek partnerships to fill the gaps. Most likely their best shot is with their installed base so they should plan their UC strategies around the needs and migration options of existing customers. Joint product development and marketing with another vendor can help them tap into new customer bases; becoming a one-stop shop, on the other hand, is not going to be as effective except in greenfield implementations (which are rare).
  • A walled-garden approach based on proprietary technologies is a thing of the past. While open standards do not yet support all features and capabilities that businesses require from their UC vendors, increasing openness and flexibility will determine vendors’ future success. The overall trend towards integrating various communication and business process applications will favor open and interoperable solutions that provide customers with choices. Further, the threat from open-source and Web-based communications is so big, it can no longer be ignored by the incumbent vendors.
  • Telecom and IT are converging in terms of technologies (e.g. IP telephony, virtualization, etc.), decision makers, and support staff. Vendors and their partners need to address this trend on several fronts: professional and managed services skills suitable for data center environments; sales and marketing efforts taking into consideration data center issues and concerns and targeted at the respective individuals; new channels and partnerships that provide some competitive advantages for the new enterprise infrastructure paradigm, etc.
  • Explore new delivery models. Cloud communications are not for every customer or every vendor, but could provide an opportunity to expand the customer or better serve certain customer groups (e.g. telecommuters)

Welcome 2010!

11 Jan 2010

I would like to extend a warm welcome to our readers and a heartfelt wish for a Happy New Year!

We are glad to be offering Unified Communications & Collaboration (UC&C) coverage on our new Frost & Sullivan Information & Communications Technologies (ICT) blog. We are hoping to be able to provide you with valuable insight and provoke some interesting comments and discussions.

My name is Elka Popova and I lead the North American UC&C team whose members include (in alphabetical order by first name): Alaa Saayed, Krithi Rao, Melanie Turek, Roopam Jain, Subha Rama and Vanessa Alvarez. We will all be contributing to this blog and don’t be surprised if you "hear" us debate and sometimes disagree on certain topics or issues

I was wondering what would make a good first post, especially since we just started a new year. Given the severe negative impact of the recession we experienced over the past year, what most of us are eager to find out is whether we can expect improved enterprise spending on UC&C technologies in 2010. Therefore, I thought I would share some of the findings of an end-user survey we conducted in the heart of the recession in the first half of 2009. The survey targeted 102 U.S. C-Level executives in organizations with operations in more than 3 locales – within or outside the U.S. – with more than $100 million in revenues.

As you can see from the following slide, the majority of our respondents identified the main UC&C technologies as either very important or somewhat important. Based on the rest of the information obtained through the survey as well as our extensive knowledge of each of these individual technology markets, we believe the differences in degree of importance are mainly due to two sets of factors: technology maturity and respective customer awareness, on one hand, and perceived value of these technologies to the various users within the organization, on the other. For example, Telepresence and UC are relatively nascent technologies and customers are still confused about their benefits. Further, Videoconferencing, UC and Telepresence can be viewed as somewhat "nichy" and having a considerable appeal to only a limited set of roles and functions within customer organizations.

The following chart shows how respondents assessed the importance of each UC&C technology in delivering certain benefits. As the survey suggests and our research proves, technologies that ranked high in terms of customer expectations of cost reduction benefits (e.g. all conferencing technologies) fared well in the recessionary economy in 2008 and 2009.

Going forward, technologies enabling businesses to reduce costs are likely to continue to be on the investment agenda, but those delivering productivity and other benefits are likely to experience growing traction as well. The last chart attached below shows a notable increase in UC investment, for example, over the next couple of years.

Let's all strap ourselves for a very dynamic market in 2010 as the economy gradually resumes its stride on an upward growth trajectory. Please make sure we hear of your success stories!


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