Cost cutting and tsunamis stunt UC market communication innovations

Held back by cautious vendors and deep recession, enterprise telephony isn’t likely to heat up soon. Find out where change will come from.

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What happened to communication innovations in the enterprise market?

In 2007 Cisco demonstrated the future of unified communications by beaming two vice presidents into a holographic conference call in Bangalore. Five years later, users typically tap a sequence of 20 digits into their phones to dial into a conference call using Cisco’s WebEx platform, but one mistype can throw a whole meeting off schedule.

In the enterprise unified communications (UC) market, innovation takes a back seat to more practical business considerations, such as offering a clear migration path to customers, demonstrating a healthy corporate outlook and being lucky enough not to have a primary market be hit by a recession or natural disaster.

If you own a fleet of vehicles, and there are new hybrid vehicles coming along, you want to bring them in, but dumping your current fleet is out of the question.

Bern Elliot, Gartner analyst

As a result, even as consumer communication tools flash forward -- Apple's FaceTime has entered the popular lexicon and cloud collaboration has become a way of life for millions of Google fans -- enterprise communications has remained a relatively conservative field that vendors playing it safe dominate.

"I think vendors are really trying to bide their time and maximize their install base," said Alan Weckel, director at market research firm Dell'Oro Group. "Moves toward Software as a Service are disruptive to a lot of revenue streams that are in place, both to the vendor and the channel."

Lackluster offerings have meant that for many businesses, unified communications has become a sleepy suburb in IT. Last year's Gartner Magic Quadrant Report on the UC industry noted "actual penetration as a percentage of market, and in some cases, usage rates across an enterprise, remain low."

Bern Elliot, a Gartner analyst and the co-author of the Magic Quadrant, said the UC market is reticent because of the critical nature and slow, long-term return of communications spending.

"[Enterprises] have big investments that they're not going to get away from," he said. "If you own a fleet of vehicles, and there are new hybrid vehicles coming along, you want to bring them in, but dumping your current fleet is out of the question."

Similarly, dumping relatively ancient desktop phones, which tend to last for years and even decades, doesn't make sense as long as lifting the receiver prompts a dial tone.

Communication innovations trumped by tsunami, recession

It doesn't help the unified communications spending case that so much of the technology's benefit is in soft returns that are hard to quantify: Improved efficiency and better collaboration are nice, but often the first priorities to go when budgets are tight. And in 2012, budgets are still tight.

"We're still in an overall wait-and-see mode with a lot of companies," said Weckel, who tracks IP telephony market share. "Growth has been a little outside their control, at least until 2013 when we get out of the Euro Crisis and the financial crisis either goes over the cliff or gets solved or is punted down the road."

Weckel added that recent market-share gains by some vendors over others are more a function of geography than innovation.

For example, Siemens recently touted a Dell’Oro report that noted the company's 52 percent growth in IP line shipments globally as evidence of "customer-centric approach to delivering true UC."

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While Siemens had done well, other factors were at play, Weckel said.

"We're seeing a lot of external factors affect market share instead of competitive shifts," he said. "Siemens did grow in the first quarter, but a lot of that is coming from Latin America and Asia."

Since the recession impacted those traditional Siemens strongholds less than in Europe and North America, the company was able to gain markets share, but those gains might be erased when North America's and Europe's economic situations improve.

Geography was at play with a recent surge by NEC, too. When one of its core markets, Japan, suffered a tsunami recently, many enterprises needed to replace lost infrastructure: As the country's economy rebuilt through late 2011 and early 2012, Japanese-based NEC rebounded with it, growing 14.2% while the enterprise telephony market as a whole grew only 6.2%.

Bring your own device: A back door for innovation

There's a silver lining for those looking for more excitement and innovation in unified communications, although it comes with a caveat. Both competing with and complementing communications innovation is the rise of bring your own device (BYOD), which includes workers flooding the office with a variety of the latest phones, tablets and software.

Whether it's Apple's FaceTime and iMessage or Google's collaborative Docs or Hangouts, workers are setting their own communications pace in a way that has some IT departments racing to keep up.

Even as vendors offer ways to manage and support BYOD environments, it has helped spur some healthy competition in communications offerings, such as the ill-fated Cisco Cius that took on the iPad.

This trend will continue, with traditional telephony vendors seeking out new services that can better meet enterprise needs even as they play catch up with nimbler consumer-oriented companies, Weckel said.

One possible answer is better integration with the tools corporate employees rely on every day, from Outlook and Lotus Notes to Salesforce.com.

"Integration into your business processes can move the needle for your business," he said.

Even with that imperative, enterprise telephony offerings are likely to remain relatively quiet for a few years yet.

"The decision-maker of a corporation has grown up with a desk phone their entire life and is not as comfortable with social media and cell phones as new employees," Weckel said. "We're a long way from IT being replaced by the social networking generation."

In the meantime, any true disruptions are likely to come from outside the field.

"A lot of vendors, past the top eight or 10, don't really have an R&D budget to drive initiatives," Weckel said. "We really need a startup mentality to be disruptive and change the way we use voice. In theory, that'd be Skype, but eBay and then Microsoft bought them. There needs to be a game changer around the way we do VoIP, but until we see that, the voice market will be a mature replacement market."

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