As the battle for UC market share rages on between Cisco and Microsoft, Infonetics Research reported Microsoft leads the first quarter of 2014. The Enterprise Unified Communications and Voice Equipment report looked at both telephony and UC markets to determine which vendor gained the most revenue in each market segment.
Cisco and Microsoft sales are almost equal, but thanks to Microsoft's heritage in unified communications, it's seeing sales growth while competing vendors are plateauing, according to report author Diane Myers, principal analyst at Campbell, California-based Infonetics. TechTarget spoke with Myers to determine what the report's revenue numbers mean overall, and what the statistics might indicate about each vendors' strategy.
How does your report break down the UC market?
Diane Myers: We have UC being everything but the telephony piece, [i.e.] the PBX piece. We break that up separately because it has a long history and legacy.
The report says Microsoft leads the UC market. How far behind is Cisco?
Myers: Cisco isn't that far behind. They're very close when you look at shipments. Revenue is a little bit different. Here's the challenge … [the] vendors come from [different] heritages. So in the case of Cisco, it's all around the PBX. With Microsoft, it's around UC. Now what we see is that most vendors have really bundled licensing. So if I'm buying a PBX and that's where I'm putting my dollars, I'm getting a lot of those UC features for very little money. It's a smaller up sale to get those UC pieces. So, [in this way], Cisco's UC revenue looks relatively smaller compared to its PBX sales. Now, with Microsoft, they come from a heritage on the UC side and then later added on the telephony. They say, 'You [bought our UC solution] … now you can also get the telephony license.' So most of their revenue goes into that UC bucket, and their PBX revenue looks very low compared to the UC side. It's a little bit complicated because we look at [the UC industry] in two separate buckets.
When we think about licenses -- forget the revenue -- Cisco and Microsoft license shipments are very close in terms of market share. In some quarters, they're completely neck-and-neck. In the fourth quarter of 2013, they are literally separated by a few thousand licenses, and Cisco led in terms of the shipments. But Microsoft is getting a lot more revenue because [for] Cisco, [UC] is a less expensive add-on compared to Microsoft, where telephony is an add-on. So from a revenue perspective, Microsoft dominates.
Which vendor is ahead when you combine revenue from the telephony and UC markets?
Myers: If you add the UC and telephony pieces together, actually, Cisco leads. So to create a better apples-to-apples comparison between those two vendors, Microsoft is not even a Top 3 vendor. If I combine the telephony and UC total revenues in the first quarter of 2014, and I look at market share, [the top UC and telephony vendors are] actually:
Which vendor is growing strongest quarter-over-quarter?
Myers: So here's the kicker: The UC piece has the momentum. It is the piece of the market that is growing. Microsoft is basically the only vendor that is significantly growing every quarter in their revenue. They're still smaller compared to the other vendors, because UC is still a relatively smaller bucket -- but they are growing. Everyone else has either flat or declining revenues. It's not every quarter that someone is declining, but, generally, most of the vendors are more flat or are having declines. Microsoft has been the one vendor that has been consistently growing and really hasn't stopped.
Is Microsoft still seeing growth because it started with UC as its heritage?
Myers: Yeah, and because [it has] a lot of momentum behind [it]. Years ago, in a not-so-distant past, the IT houses were split: You had vendors making decisions based on applications and data equipment, and then you had another group that was in charge of all the voice circuits and the PBXs. As the world merged to IP, those two very separate groups combined. Now you don't have very separate people managing different things. It all tends to be one organization in one group inside of a larger enterprise. What then ends up happening is when it comes down to making the UC decision, [it's a question of] who makes that decision? Is it someone who is coming more from a PBX and telephony [background]? In that case, they would probably lean towards that traditional vendor that they are used to, [namely, Cisco]. Or, is it the side of the house that was managing applications and email? They would probably lean more towards Microsoft.
Microsoft … is leading and out ahead in terms of UC. [Microsoft] did it well before Lync. They had a product called OCS [Office Communications Server]. So they've been doing UC and integrated email … for a long time. They've had a lot of catch-up on the telephony side, [though]. And many would argue they're still not on par on the PBX front with [Lync] PBX features. But some businesses don't care as much. They're not as concerned about some of those capabilities, and they make the choice on the UC front, where Microsoft has really led.
Jabber or Lync? Choosing a UC vendor doesn't have to be a battle
Microsoft's Lync-Skype integration can upend UC if the vendor plays it right