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Organizations take wait-and-see approach to UCC industry consolidation

As some UC vendors look to sell off assets and others look for acquisitions, enterprise buyers shelve purchasing decisions, as they await the outcome of industry consolidation.

The unified communications and collaboration industry is facing some uncertainty, as vendors look to merge with other providers or sell off parts of their business. As a result, organizations might wonder how their UC investments will be affected.

The recent shakeup in the UCC industry includes Siris Capital Group's plan to acquire Polycom, ShoreTel's announcement of a possible restructuring or sale, and reports that Genesys could acquire Interactive Intelligence. This type of activity is expected when few players in an industry have a lot of market share, said Robin Gareiss, research president at Nemertes Research, who added she's not surprised by the recent industry activity.    

"Many businesses are offering the same capabilities -- it sort of has to happen," she said.

Jon Arnold, principal analyst of J Arnold & Associates in Toronto, said vendors are facing two scenarios amid UCC industry consolidation. The first scenario includes vendors like Avaya that are looking to sell off assets. They are driven by an unsustainable debt load from earlier deals, he said.

"This creates crisis situations, especially where a company is struggling to transition away from legacy technology in the face of declining revenues," he said.

The second scenario is vendors looking to grow through mergers and acquisitions. "They can't grow fast enough organically, so the driver for them is to merge or acquire rivals to scale quickly and keep pace with market leaders," Arnold said.

Clearly, in the UCC industry, the market leaders are Cisco and Microsoft, as smaller vendors compete for a distant third place. 

Closing that competitive gap between Microsoft and Cisco is driving a lot of the recent market activity, Gareiss said. Organizations using Microsoft or Cisco products are integrating those services with the rest of their business, so they can rely on just one provider, she added.

Microsoft and Cisco could further their dominance

For enterprise customers, this market activity leads to uncertainty for their UC budgets, with many companies opting to take a wait-and-see approach, Arnold said. Organizations might be concerned a vendor could leave the UCC industry altogether. But most customers are concerned with what would happen if their vendor is acquired or merges with another company.

"If acquired by a competitor, there will be potential concerns about product integration and how compatible the new offering will be with existing infrastructure," Arnold said. "With an acquisition from a player outside the UC space, there will be concerns around business fit, ability to support the customer and long-term commitment to UC."

All the growth and innovation is happening with software and in the cloud.
Jon Arnoldprincipal analyst of J Arnold & Associates

This uncertainty could lead more organizations to buy services from Microsoft and Cisco, as they represent more stable options, both Gareiss and Arnold said.

Gareiss said industry consolidation is like a pendulum. As the market becomes smaller, organizations will have fewer choices, leading to a void in services they need. The pendulum will then swing the other way, and startups will emerge to address those needs.

Differentiate services to appeal to the UC buyer

In order to survive a changing market and catch up to larger players, UC vendors need to differentiate their offerings to gain new customers. At a higher level, vendors need to transition away from legacy technology, Arnold said.

"Premises-based equipment and solutions will remain in use for years to come, but all the growth and innovation is happening with software and in the cloud," he said.

That innovation also includes the development of new products, such as team chat applications and immersive collaboration workspaces, Gareiss said.

"Somebody really needs to emerge as a leader in integrating all the customer experience capabilities -- not only contact center, but the company at large, with internal communication and collaboration capabilities," she added.

UCC vendors can also stand apart from Microsoft and Cisco by showing organizations they have better return on investment and total cost of ownership. Microsoft and Cisco telephony services are more expensive than smaller vendors, so organizations must look at the total cost of a service and not just initial deployment costs, Gareiss said.

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