Enterprise Voice Market: Observations from the Third Quarter, 2012
BYOD continues to take hold, and Cisco makes significant gains in the SMB market.
Each quarter, Dell'Oro Group tracks changes in the enterprise voice market, including telephony and unified communications. The chart below shows historical trends and future projections as of our latest report (3Q2012).
In addition to the overall data shown in the chart, there are two additional specific takeaways from 3Q2012 that we believe will impact both the longer term growth of the overall market, and the relative success of various vendors with offerings in this space.
1. Bring Your Own Device (BYOD) Changing Buying Habits in the Enterprise Voice Market
In unified communications areas, we anticipate that it will become more challenging for enterprises to integrate products across vendors. At the same time, we believe that devices such as Apple's iPhone and iPad and Android-based smartphones, as well as PBX vendors' mobile offerings, will make it easier for vendors to counteract Microsoft's push into the enterprise voice market.
In 2013, it is expected that worldwide smartphone sales will out-ship regular cell phones; in addition, over 100 million tablets were sold in 2012, while PC shipments declined. With end users increasingly demanding the ability to choose their personal phones and tablets, IT managers may not be able to standardize any single vendor solution for end-to-end voice. Instead, they will have to select products to better serve user demands.
It will be crucial to watch how end-user demand and customer integration unfold in the first half of 2013, as the imperatives of end user preference and individual choice may quickly become the key market drivers.
Our view is that the calculation for enterprises has changed, thanks to BYOD and a younger generation of employees comfortable with social media and communicating without a desk phone. As a result of this shift, many premise-based customers may adopt Voice as a SaaS solution in a hosted/cloud infrastructure in the near future. Businesses' increased adoption of Google Voice, Microsoft Skype, and voice/video-integrated Facebook has the potential to permanently move end-user demand in this direction.
In addition, hosted voice is a small part of the market today with minimal impact on the equipment vendors, but we expect it to grow and eventually impact the equipment market.
2. Cisco Begins Encroaching in the Small Business Space
At the same time that IT managers are architecting how they will provide voice across myriad devices, Cisco has slowly and consistently been gaining share in the Small and Medium Business (SMB) over the past several quarters. Cisco's share of line shipments grew approximately 4 percentage points between 1Q12 and 3Q12. While seasonality contributed to the growth, we believe we are seeing share gain in a previously weak business area for Cisco, SMB.
Cisco's share in large enterprise line shipments (IP PBX-Large, Hybrid-Network, Hybrid Chassis, and Traditional PBX) has averaged in the mid-20s since early 2010, reaching that point roughly around the time of the Nortel bankruptcy and subsequent sale of Nortel's PBX business to Avaya.
Historically, Cisco had leveraged its strong market presence in Ethernet switching to gain access to enterprise RFPs, while also using its strong channel and complete portfolio presence to leverage pricing in order to win deals. With over 50% market share in the enterprise portion of the Ethernet switch market in 2011, Cisco was able to garner over 25% market share in the enterprise portion of the enterprise telephony market in the same timeframe.
Meanwhile, Cisco's success in SMB line shipments (IP PBX-Small, Hybrid-Small, and Traditional Key) never exceeded 5% until 3Q11. Historically, the company had never focused on this space of the voice market outside of winning branch offices and a moderately successful attempt with the UC500 series. This left the door open for competitors with more established SMB channels to carve out business in the voice market without competing directly with Cisco's more established switching and routing channels. The SMB channel space also tends to be more relationship-driven between the end user and the channel, and is also more geographically diverse.
Now, however, Cisco appears to be gaining in the SMB. In 3Q12, Cisco achieved 7% share of SMB line shipments, its sixth consecutive quarter of Y/Y growth. During these six quarters, Cisco's growth outpaced the overall market by at least 11 points.
We believe this growth has primarily been driven by two factors. First, Cisco's update of the ISR router has enabled the vendor to re-enter the ISR installed base with the refreshed product, in the process also including additional offerings such as voice back in these new deals. Furthermore, the ISR now includes the option of putting compute resources directly on the routing platform, an additional incentive to include voice in the deal--the ISR really functions as a services platform for many SMBs, and voice is being treated as a service.
The second factor, we believe, is that Cisco's reemphasis and refocus on its core businesses have also led to a refocus and increased effort in the SMB voice market.
We believe that Cisco's push for voice to become a router-based service that does not require additional hardware for call control may be a trend that other vendors and new entrants to the SMB channel space will follow.
With almost all large enterprise call control already transitioned to software, we believe BYOD and the SMB space are ready to benefit from the additional features and benefits that software-only call control can offer, and that the market will make significant strides in this direction over the next several years.
Alan Weckel is Vice President, Enterprise Telephony Research at Dell'Oro Group.