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Cisco vs. Microsoft: The Collaboration Battle Continues

This past September I shared research from Synergy Research Group detailing Q2 2014 data showing that Cisco had regained a narrow lead in market share in the collaboration space, after it had briefly slipped below Microsoft in Q1. Well, Q3 data for 2014 is now in, so I reconnected with Synergy Research Group founder and chief analyst Jeremy Duke to get his insight on what has been happening in the market.

Let's take a look at how the third quarter shook out:

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The data shows that after two quarters in which Microsoft and Cisco were nearly even, in Q3 Cisco pulled away from Microsoft once more, growing its revenues while Microsoft's revenues simultaneously declined. To clarify, when calculating revenues from collaboration, Synergy counts enterprise voice, UC applications, telepresence, email software, enterprise content management, enterprise social networks and hosted communications and applications.

The market's total Q3 collaboration revenues amounted to $7.8 billion, with Cisco holding onto more than 16% market share and Microsoft hovering closer to 14%. Hosted voice and UCaaS as well as enterprise social networking segments showed strong growth, with declines in enterprise voice and telepresence segments. Specifically, premise-based solutions revenues declined by 1% over last year, while cloud/hosted solutions revenues increased by 13%.

"I would say that a move in a single quarter is not a trend, specific to Cisco and Microsoft," Jeremy Duke explained. "But we can conclude that the trend of the top vendors competing intensely for the share of enterprise spending will continue unabated."

"Also to consider are all of the moving pieces that comprise the total collaboration market," Duke continued. "Synergy tracks 19 different collaboration related markets each quarter, from hardware to software to hosted/cloud services. Movements in spending in each of these markets on a quarterly basis have a direct impact on the vendors' overall share of the collaboration market for any quarter. A great example in point, is that premises email sales for Microsoft were down in the quarter, which impacted their dip as seen in the market share graph for 3Q14."

UC Applications and Enterprise Telephony
Enterprise Telephony and Enterprise UC Applications both factor into the total collaboration market measured, but much of the most notable activity came from vendors other than Cisco and Microsoft. As displayed in the graphs below, Cisco actually saw a decline in its enterprise telephony revenues, while Avaya saw significant success. But as you'll notice, Microsoft doesn't even show up in the top contenders list for the enterprise telephony segment, which shouldn't really come as too much of a surprise, given the fact that Lync is still a very recent entrant into the voice marketplace.

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"Avaya had a strong quarter for its products tracked in UC applications and enterprise telephony, which feeds through to a nice increase we measured for them in collaboration market share," Duke said. "Avaya saw particular strength in its North American sales in the quarter; as an example, their Enterprise Telephony sales grew over 30% quarter-over-quarter, making up for some lost ground throughout the year."

Given Avaya's notable success in these segments, maybe it really is time to take another look at Avaya...

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Duke also noted that Mitel has gained a stronger market position with its acquisition of Aastra, enabling it to expand its business in the EMEA market. He added, "Cisco continues to execute on its strategy of addressing the collaboration market from all angles – from premises-based equipment to hosted/cloud solutions to new innovative video SaaS services and products."

Duke pointed to ongoing major shifts in the structure of the collaboration market as evidence that competition should only continue to intensify moving forward.

"Increasing the competitive intensity of this market is the disruption that has been steadily building with the developments of new cloud technologies and deployments," he said. "There are many new entrants to the collaboration market that were not in any meaningful existence 3 or 5 years ago, [and] now are growing at an accelerated rate."

Microsoft's Busted Branding?
One of the data points that stood out to me was Microsoft's decline in collaboration revenues. Duke explained that the company's drop was mostly due to weaknesses in its large enterprise email revenue stream, noting that Microsoft saw growth in almost all of its other collaboration segments.

Still, Duke cautioned that Microsoft could encounter trouble due to its recent decision to abandon the Lync brand. "It is our opinion that Microsoft's rebranding of Lync to 'Skype for Business' couldn't have happened at a worse possible time – a vulnerability that their competitors will be sure to hammer on in this highly competitive market," he said. "It is our opinion, Lync has become a trusted, well established, well branded enterprise solution. To switch the naming to a consumer-recognized branded app, Skype, will open up a lot of problems for them and throw away a great recognized brand name. But on a more seasonally cheerful note, a great end-of-year holiday present to all of the marketing departments of their top competitors!"

Duke's comments around Microsoft's rebranding of Lync fit with much of the industry chatter that has erupted since the announcement was made. No Jitter contributor Phil Edholm explored the rebranding in a recent post, and he recently followed up with a suggestion that the enterprise UC industry as a whole start referring to the Skype for Business product as "SkypeB" and the Skype for Consumer version as "SkypeC."

"I hope Microsoft will be comfortable with this naming and adopt it as well," Edholm said. "It will make things much easier for all of us that write about Skype and Skype for Business, and will further their goal of having the Skype name as an umbrella for both offers."

The fact that industry pundits are still having conversations about this issue may reinforce the notion that the rebrand was a mistake. Perhaps future reports from Synergy Research Group will shed more light on how Microsoft's collaboration market revenues correlate with the announcement of the rebrand, and paint a clearer picture of its success or decline relative to its biggest competition – Cisco.

Top names from Cisco, Microsoft and Avaya will be among the keynote speakers at Enterprise Connect Orlando 2015. Register today to attend and stay up on all the big industry developments.

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