83% of Enterprises Have Deployed Unified Communications

About 83 percent of 745 North American enterprise and mid-market executives have unified communications capabilities in place, or are planning to, while 17 percent report they still are not interested, says Henry Dewing, Forrester Research analyst.

Web conferencing and collaboration services, though, are seen as a priority by 55 percent of SMB respondents, as well as storage and backup services, also seen as a priority by 55 percent of SMB respondents.

Integrated communications that unify voice, email and instant messaging are the most-wanted capabilities, with twice the number of executives saying that is important, compared to other features such as presence, integration with business applications, can conferencing capabilities.

That isn’t to say there is little or no interest in features such as desktop call control or mobile integration, but that demand for those features is about 2.5 times less important than unified handling of voice, email and IM traffic.

And while demand for specific features is relatively unevenly distributed, the business value drivers are fairly broadly distributed. Saving money, providing better customer service, improving communication flows and saving time all are cited as key values.

At a time of very-tight information technology budgets, more than a third of respondents say they are hiking spending on hardware, servers and desktop software. About 15 percent report they are increasing spending for managed UC services.

The situation at small and medium-sized businesses and organizations is a bit different, as you might suspect. Where 83 percent of enterprises have unified communications projects in place or in progress, only about 24 percent of SMBs say that is the case at their organizations.

And about 20 percent of SMB executives surveyed say they really have no interest in UC.

And though it seems logical to many of us that SMBs remain prime candidates for hosted services that avoid major capital investments, most SMB executives say they are more interested in premises-based solutions.

When asked how interested they are in buying a managed UC solution sometime in the next 12 months, 56 percent of SMB executives say they “are not interested.”

About 21 percent say they are “somewhat” interested while four percent say they are “very interested.” About 11 percent of SMB executives surveyed by Forrester Research say they currently are using a hosted UC solution.

So it appears industry advocates have some ways yet to go in convincing SMB executives that hosted UC solutions are a better approach than premises solutions.

Recent surveys of IP telephony adoption by SMBs have suggested a similar attitude towards hosted IP telephony as well. About a quarter of SMB executives say they would consider a hosted IP telephony solution, while about three quarters still say they would be more comfortable with a premises-based solution.

Call it habit, inertia or lack of trust. SMB executives still have not embraced hosted IP telephony at rates many of us expected. Some have suggested that fear about making a mistake with a mission critical tool is compounded by fear of choosing the wrong supplier.

Extreme fragmentation of the supplier base, as also is typical of the information technology support business, means no single name generally stands out—in the service provider space—as a “logical” supplier of IP telephony or unified communications.

On the other hand, buyers seem more familiar with the brand names of the firms supplying them phone systems, which then are likely vehicles for a move to IP telephony or unified communications as well.

So far, the hosted IP telephony industry does not seem to have tipped the scales, though one might argue that 25 percent penetration of the customer base for a relatively new solution is not shabby.

Hosted IP PBX Services Will Grow 300% to 2016

U.S. spending on unified communications technologies will increase by an average of 10 percent per year, led by spending on hosted IP telephony services, which will almost triple between 2011 and 2016, estimates InfoTrack.

Separately, Infonetics Research  predicts the number of seats for hosted business VoIP and unified communications services is on track to more than double between 2012 and 2016. Note that forecast includes both hosted IP telephony and UC. 

Among U.S. enterprises, defined as firms with 500 or more employees, spending on hosted IPT will grow at an average rate of 27 percent, which is almost two times faster than the average increase among U.S. SMBs (firms with fewer than 500 employees), InfoTrack says. 

These days, though, estimating the size of the global market for business IP telephony services offered by service providers is a hard question to answer. For starters, IP telephony can include sales of IP private branch exchanges, unified communications solutions and services, hosted IP telephony services, access services such as SIP trunking and fees earned for managing premises business phone systems.

With all of this, the global business IP telephony market will reach $20.8 billion by the year 2018, according to Global Industry Analysts. The problem, of course, is that it is tough to make sense of global estimates, especially without knowing in some detail which specific products are included in that figure.

The global market for hosted PBX (hosted IP telephony) services averaged between four percent and seven percent in the largest SMB markets, Parallels noted, as recently as late 2011.

Infonetics Research separately has forecast that the global SMB VoIP services market would grow to $76.1 billion in 2015 with total subscribers of 262 million. Keep in mind that the total global telecom services business accounts for about $2 trillion in annual revenue in 2012.

So hosted IP telephony would represent about four percent of global revenue.

In the United States, it has been estimated that around 500,000 SMBs currently use a hosted PBX service, representing an $800 million market. In a U.S. telecom service business of about $336 billion in annual revenue, hosted IP telephony represents about two-tenths of one percent of total industry revenue.

However, Parallels estimates that the majority of the current in-house PBX systems will migrate to hosted mechanisms over time, representing $3.9 billion potential market for hosted PBX.

At the moment, it remains the case that most business IP telephony is supplied by premises-based solutions.

So how big is the business IP telephony? It depends on who you ask, and what the assumptions are.

"In 2011, SMBs represented 46 percent of the U.S. installed base of IPT lines, but accounted for only 30 percent of the spending on UC applications,” InfoTrack says.

But over the next five years, the growth of SMB spending on UC apps will be more than twice the rate of U.S. enterprises, which represents the mirror image of what we project happening in the hosted IPT sector," said Ken Dolsky, Senior Program Director for InfoTrack.

As always, one has to keep the size of the installed base in mind when pondering such forecasts. Other researchers, including Parallels, have estimated that small and medium business hosted IP telephony penetration is still relatively small.

The global market for hosted PBX (hosted IP telephony) services averaged between four percent and seven percent in the largest SMB markets, Parallels noted, as recently as late 2011.

Infonetics Research separately has forecast that the global SMB VoIP services market would grow to $76.1 billion in 2015 with total subscribers of 262 million. Keep in mind that the total global telecom services business accounts for about $2 trillion in annual revenue in 2012.

So hosted IP telephony would represent about four percent of global revenues.

In the United States, it has been estimated that around 500,000 SMBs currently use a hosted PBX service, representing an $800 million market. In a U.S. telecom service business of about $336 billion in annual revenue, hosted IP telephony represents about two-tenths of one percent of total industry revenue.

However, Parallels estimates that the majority of the current in-house PBX systems will migrate to hosted mechanisms over time, representing $3.9 billion potential market for hosted PBX. 

US Hosted PBX Market – Source: Parallels SMB Cloud Insights Report, 2011

IP Communications "Crossing the Chasm?"

IP communications finally has “crossed the chasm” from early adopters to majority markets, argues John Macario, Edgewater Networks marketing VP.

If that is true, the “hockey stick” part of the sales growth curve is about to happen.

And though “economics” (cost-benefit) always is important, SMB decision makers increasingly indicate that “who they buy from” also is a key issue.

In part, that is because SMBs tend to prefer the “one stop shop, rather than best in breed” approaches to buying technology.

So success might be greatest for suppliers who “get the offer right” and become viewed as “one stop shops.”

The study suggests cable TV operators and telcos are “neck and neck” in sales to firms with 20 or fewer employees.

At larger SMB locations, channel partners represent 43 percent of sales.

That, one might argue, is a classic difference between early adopter and early mainstream buyers. Early adopters care lots more about raw features and capabilities, are are willing to tolerate some less than fully polished offers.

Mainstream buyers want fully-integrated, easy to use solutions. They also arguably care more about support from their suppliers. That might be the significance of growing buyer interest in support from their suppliers.

In about 30 percent of cases, small enterprises (20 or fewer employees) don’t actually “manage” their communication systems. “They just hope it works,” said Macario.

In other words, that portion of the market sees the buying of communications capabilities as a business decision, not a technology decision. “Easy to use,” “affordable” and “does what I want” therefore are important attributes.

In other words, the value, compared to price, while still important, is trailed only by the importance of trusted suppliers.

All prior predictions of when the IP communications business might cross the chasm have proven to be false.

Although IP adoption rates have increased over the last decade, the new survey sponsored by Edgewater Networks and Metaswitch Networks clearly shows that a large percentage of the small and medium business (SMB) market in the United States, “perhaps more than expected,” still uses TDM systems and services.

While adoption rates are higher in larger organizations, as high as 36 percent for organizations with 500 or more employees, adoption for smaller SMBs (less than 100 employees) is less than 25 percent.

So what is different now?

The majority of SMBs today are using aging TDM phone systems with an average age of about six years.

Traditional rules of thumb suggest a replacement is coming. Large private branch exchange (enterprise phone systems) systems could be used for perhaps a decade.

Still, typical system “end of life” has ranged between seven and 10 years.

But in today’s IP market, obsolescence comes faster, as soon as every four years, some argue. Consider the mobile phone analogy: nobody would think a three-year-old mobile device has up-to-date features and capabilities.

“More than 50 percent of phone systems are more than six years old,” Macario noted. That suggests the timing is right for major replacement activity.

So the gap between legacy voice systems and modern IP business communications therefore is widening faster.

Of course, there are other changes. Until recently, the IP communications distribution system has been highly fragmented. But there are signs of a major change, namely the entry of cable TV operators as serious players in the SMB hosted IP communications business.

As has been the case in voice, high speed access and now business communications, entry by cable TV operators has reshaped markets. And there now are signs that market push by cable operators is having an impact.

That has been the case, you might recall, in SMB high speed access markets, where ever-more-significant cable TV sales efforts have taken share from all other competitors, including other competitive local exchange carriers, resellers, integrators and distributors.

Ubiquitous use of mobile devices and reliance on messaging arguably also has helped to change the buying context. The old issue was “voice.” The new issue is messaging.

The other possible change is simply “time.” It often is the case that even important technologies take a decade or more to reach ubiquity.

And that might doubly be the case for technologies that simultaneously restructure existing older businesses and create new markets.

So IP communications “crossing the chasm,” if true, means rapid change. Not only adoption rates and revenue, but sales strategies and channels will change.

Also, the value of incrementally-valuable new services (storage, security, backup for example) should grow as mainstream adopters look for easy to use, comprehensive support for a variety of business problems.

And the survey suggests storage and backup is the next place to add features.