In summer of discontent, UC vendor consolidation ruffles customers

Following an uncertain summer, unified communications vendor consolidation has made some customers postpone purchases, while others expect price drops and market innovation.

It's been a summer of uncertainty for unified communications vendors and customers alike. Acquisitions and talks of asset sales have rippled through the market, leaving both sides wary of what's to come.

Let's recap the UC vendor consolidation and other moves: Mitel nearly acquired Polycom for $1.96 billion, but Siris Capital stepped in with a sweeter deal in July. In August, Genesys, a contact center software provider, said it would acquire Interactive Intelligence, a UC player with a focus on cloud services.

News reports swirled through the summer about possible asset sales by Avaya and ShoreTel. Avaya's revenue tumbled last month, while ShoreTel reported a small quarterly net loss. Both vendors have been bit by the transition from UC hardware to UC cloud services, even as ShoreTel's hosted revenues start to outpace its product revenues. But were both vendors too late to the cloud party?

Not to be outdone, the two biggest UC players also grabbed headlines. Microsoft announced in late spring it would acquire LinkedIn for $26.2 billion. Cisco made news last month with its plan to cut 5,500 jobs as the vendor shifts to software and cloud services. To be fair, in more upbeat Cisco news, the vendor also announced an IBM partnership in June to further collaboration services.

So what does all this mean for the enterprise UC buyer? Some analysts say this vendor consolidation should benefit buyers via competitive pricing as vendors look to keep and lure business. And yet, some customers may take a wait-and-see approach to see how things shake out.

Vendors hawking, buyers balking

Roberta Fox, chief innovation officer at FOX GROUP, a technology consulting firm based in Toronto, said she's never quite seen so much confusion and concern from both UC customers and vendors. She estimates that her clients currently have $75 million worth of potential purchases on hold. These approved tech projects are ready to be signed and implemented, but customers are cagey.

"The wallets have closed," Fox said, adding that her perspective leans toward the Canadian market, but her clients are also divisions of U.S. multinational companies. Many buyers are "going to wait until things settle down" before committing to a purchase, she said. "It puts a lot of FUD on both sides."

For customers, Fox said, the buying decision is becoming more about the vendor's people, support and expertise rather than the technology. Buyers want to determine if vendors have enough experienced system engineers, for example, for short- and long-term tech support.     

"More and more customers are looking at the people side of the decision," she said.

Vendor consolidation breeds innovation

While this market flux is not unique to UC, the technology does require widespread expertise in IT, networking, applications and telecom. So, Fox said, UC vendors with these characteristics and in-depth knowledge are more likely to survive market consolidation. Fox anticipates more manufacturers will buy integrators so they can acquire expert personnel.

UC customers should take advantage of the current competitive market conditions, said Gartner analyst Bern Elliot. Customers "have gotten really good deals," he said, because vendors know a consolidating market is rife with risk. To help customers mitigate that risk, vendors usually drop prices. 

Market and vendor consolidation can also breed innovation and new capabilities. Elliot cited another summer story -- Twilio's IPO -- as an example of newer technologies emerging in the UC market.  

"This is a market where there's a tremendous amount of activity," he said. "While there's consolidation in some segments, there's innovation in others."

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