Latest Numbers on North American Hosted IPT & UC Services Market
We've reached the "backlash" point in the Cloudverse, but that doesn't mean hosted technologies are going away anytime soon.
You know those graphics in popular magazines that track buzz, hype, and backlash? Well, we've reached the "backlash" point in the Cloudverse--suddenly, lots of people are starting to doubt the all-consuming power of hosted technologies. Like the rah-rah support that came before it, this backlash is too broad to be useful; the reality is, and has always been, that hosted services are right some of the time, for some businesses, and for some technologies. What gets deployed on a hosted basis, and when, should be a unique determination for any given organization, depending on its employee and geographic base, its existing infrastructure, its IT needs, its customer requirements, and even the industry it's in.
That said, if market indicators are anything to go on, the "cloud" isn’t going away anytime soon. My colleague Elka Popova recently completed the latest Frost & Sullivan study on the North American Hosted Services Market. In 2011, the market grew by 42.5 percent in terms of installed users and 35 percent in terms of revenue, driven by increasing service availability, technology improvements, and growing customer confidence in hosted solutions. Furthermore, we expect the North American hosted IP Telephony and UC services installed base to grow at a healthy 29.9 percent compound annual growth rate (CAGR) from 2011 to 2018.
The forecast is based on churn rates of 2 percent to 3 percent, with net-new annual additions gradually increasing over the coming years, from about 800,000 in 2011 to more than 3.2 million in 2018. By 2018, the hosted IP telephony installed base is expected to reach 17.5 million users, which will represent 15 percent of the total business telephony user base in that year. (These estimates include only business-grade, multi-tenant/multi-instance, PBX-replacement services. Consumer VoIP services such as Skype are not included even when used for business purposes.)
Still, not everyone is sold on the cloud, as the current backlash suggests. The biggest restraint to hosted IP telephony and UC services growth is the existing installed base of premises-based solutions, which currently accounts for 88.9 percent of existing user lines--a significant investment most businesses are loath to replace before their time. Most will wait until their premises-based solutions are fully amortized before they consider making the move to hosted communications.
And for larger enterprises, and businesses with fewer distributed locations, premises-based solutions almost always offer a better return on investment (ROI) and a lower total cost of ownership (TCO) over time—sometimes in as little as 18 months.
For these organizations to turn to the cloud, other factors must come into play. It will take time for businesses to start adopting hosted services for their less tangible benefits, such as the ability to focus on core competencies; help with integration and interoperability issues; and the flexibility to adjust both capacity and features according to actual demand.
The hosted IP telephony and UC services market also remains highly fragmented. The majority of market participants have smaller R&D, sales and marketing budgets, limited geographic coverage, and little brand-name recognition. Meanwhile, the incumbent carriers have been slow to develop and market their next-generation voice and UC offerings for fear of cannibalizing their legacy services. That has left many customers confused about the packages available to them, a problem that will impact market growth in the short- and mid-terms but is likely to become less relevant in the future, when technologies and business models mature.
Finally, it wasn't so long ago that premises-based solutions offered better functionality than their services counterparts. They also allow in-house IT staff to exercise a greater degree of control over the communications infrastructure and to maintain higher security levels. And vendors and their channel partners have been able to develop stronger relationships with their customers than hosted services providers. To counter those restraints, cloud-based solutions must compete with premises-based systems in terms of security and control, features and functionality, and customer service.