The Market Research Challenge
Ten years ago Synergy Research Group (Synergy) was founded based on the company’s initiative to quantify the then nascent voice over Internet Protocol (VoIP) market. The recent identification of an even more challenging task has focused the company’s resources on another difficult undertaking: quantifying and segmenting the worldwide Unified Communications (UC) market.
Although several attempts had been made by others to grasp the magnitude of the UC market and to identify and rank order market participants, the disparity of the results left many uncomfortable and skeptical of the underlying methodologies used in these earlier market analyses. After spending six months analyzing the marketplace, identifying the essential building blocks of a UC environment and creating and defining terms, Synergy believes we have "cracked the code" and established a significant milestone in the quantification of not only the UC sub-marketplace, but also the larger and more broad-based market for collaborative applications.
Early in the analysis cycle, Synergy realized that looking at UC as a detached element of the larger collaborative applications marketplace would not optimize our market sizing efforts and would ultimately lead to complications as the rapidly-changing UC marketplace naturally evolved. It could also overlook potential market participants and not treat all current and future vendors in the UC marketplace impartially. So we decided to take a step back and look at the bigger picture, which included understanding and sizing the market for collaboration applications in general. This would allow us to not only home in on the traditional voice telephony market participants that are driving the UC market today, but also include newer entrants in the enterprise UC market that are quickly seizing the growing opportunity for the merger of voice, video, messaging and conferencing applications at the desktop for the purposes of optimizing the synergies of collaborative productivity.
Synergy Research Group’s Definitions and Methodology
In order to view the marketplace in the proper perspective, Synergy believed it was important to view UC technologies in context with the many other related technologies that make up and complement enterprise telephony and IT solutions. Many of these related products have been sold for years as standalone solutions, e.g. unified messaging, desktop audio, video and web conferencing. Others are relatively new—e.g., presence management and instant messaging. It was the integrated convergence of these technologies at the knowledge worker desktop that gave birth to the concept of UC. Yes, UC is not a product but a concept that we believe will morph and evolve substantially as new technologies are developed and introduced.
Before going further, it is important to define a few terms that are critical to understanding Synergy’s approach to the quantification of the collaborative applications and UC industries. The following are terms that are instrumental to the market sizing rationale:
* Collaborative Applications refers to a collection of network-based applications that facilitate the working together, or collaboration, of two or more individuals regardless of physical location. In general, teams working collaboratively can achieve better results, quicker, and more consistently with network-based applications designed to increase the success of work-group tasks. This becomes critical to organizations wishing to remain competitive in a highly interconnected world, where many minds can be brought together to achieve the highest level of human synergy. For current quantitative measurements, Synergy defines Collaborative Applications as UC Desktop, Presence Management, Instant Messaging, Desktop Web/Video/Audio Conferencing, Unified Messaging, Mobile 2.0, and Email 2.0.
* UC Desktop is defined as a user workspace having the minimum requirements of access to voice telephony (PBX/KTS/dial tone) and integrated presence management and instant messaging capabilities. A UC Desktop can be made up of a tightly integrated, single vendor solution combining voice telephony and presence/IM, or a multivendor telephony and presence/IM solution integrated into a unified worker’s desktop. UC Desktops can be stratified into three levels of functionality.
--Basic UC: User workspace utilizing 1 or 2 UC sub- applications (instant messaging, unified messaging, conferencing, desktop video, etc.)
--Standard UC: Workspaces with between 3-5 sub-applications
--Advanced UC: Workspaces with 6 or more UC sub-applications
* Presence/Instant Messaging (IM) in a telecommunications/computer environment is the combination of a status indicator that conveys the ability and/or willingness of a potential communication partner or "buddy" to communicate. A user's client provides presence information (availability) via a network connection to a presence service, which is stored in what constitutes a personal availability record and can be made available for distribution to other users on a network to convey they are offline or online, and whether they are available for communication and collaborative interaction, such as instant messaging.
Figure 1 is a pictorial representation of the building blocks that make up the collaborative applications and unified communications industry as defined by Synergy.
FIGURE 1
The two biggest obstacles to sizing the market were defining what to count and how to count it. Given that collaborative applications are more commonly sold and deployed in a mixed-vendor environment than as a single-vendor solution, the overall task--to come up with a comprehensive measurement that is realistic, accurate, and fair to each player--was, to say the least, challenging. Looking at how applications are deployed as a single "unified" UC desktop or as a separate standalone network application was our first step. This led us to dividing the market into five separate segments:
* UC desktop
* Presence/IM servers
* Conferencing
* Unified messaging
* Other emerging collaboration applications (mobile, email 2.0, and others as they arrive).
All 5 pieces roll up into a single measurement of what we have defined as "Collaborative Applications."
A UC desktop is what most people think of when UC is discussed--a collection of multiple applications such as IM, Presence, Video, Conferencing, etc. on a single desktop. For counting purposes, we strictly define a UC Desktop "seat" as a single desktop platform that integrates the PC and network resources for both PBX call control and presence management. Further, we break out the UC Desktop market into Enterprise and Small/Medium Business (SMB) segments. We make this cut by separating the market into those systems that ship with more than 150 lines (Enterprise) and those systems that ship with 150 lines or fewer (SMB).
After our unit measurement yardstick (seats) was determined for collaborative applications and UC Desktops based on a combination of vendor provided information, industry research and Synergy estimates, manufacturer revenues were estimated by applying an average price per seat. Units and revenues were estimated on a quarterly basis beginning with 1Q 2007 (the base year) and extrapolated for each quarter through 2008. These calculations were also done by vendor to determine industry market shares on a quarterly basis. The entire analysis is compiled in a 110-page report (including 85 pages of tables and charts) published by Synergy on March 27, 2009.
Overall Market Sizing Findings
Synergy estimates the 2008 worldwide sales for collaborative applications to total just over 33 million units and $4.6 billion in revenues. This represents strong annual growth from 26.8 million units and $3.8 billion on 2007, or year-over-year growth rates of 23% and 21% respectively. These totals include the sales of standalone collaborative applications as well as UC desktop application licenses representing pre-integrated UC systems. As depicted in Figure 2, during the course of the 2007/2008 timeframe, quarterly revenue growth was consistently strong for the initial three quarters of each year, with a dip in the fourth quarter. The revenue drop in 4Q 2008 shows a larger decrease than 4Q 2007 presumably due to the global economic downturn that began in that quarter, especially in North America.
FIGURE 2
The standalone collaborative application representing the largest portion of global application sales during the fourth quarter of 2008 was unified messaging (UM), comprising 62% of total collaborative application sales. The second place standalone application in terms of revenue for the final quarter of 2008 was desktop conferencing (voice/video/web), accounting for slightly under 18% of overall applications sales. Standalone presence/instant messaging systems represented 6% of overall collaborative applications sales during the same period. UC desktop accounted for 13.5% of overall collaborative application revenues during the final quarter of 2008.
Unified communications, measured in terms of UC desktops sold, also shows a consistent pattern of quarterly growth during the 2007/2008 period, although the dips in sales in the Q4 periods are not apparent as sales grew more consistently in this relatively new marketplace. Unit sales grew 19% year-over-year while revenues from UC desktops increased 24% globally. The UC desktop revenue split between enterprise and SMB was 67%/33% in favor of enterprise locations. Synergy further segmented UC desktop unit sales by level of functionality (basic/standard/advanced), and as might have been anticipated, standard UC desktops made up the largest sales segment, accounting for almost half (49%) of all UC desktop UC license sales in Q4 2008.
Market Share Leadership Analysis
There was a good deal of consistency in terms of market share leadership across markets for collaborative applications and UC desktops at the end of last year, although there were also several unexpected findings. At the collaboration market level, worldwide unit shipment market share leaders for Q4 included several traditional voice telephony vendors and a couple of desktop software vendors. As can be seen in Figure 3, Cisco was the market leader in collaboration application unit shipments, capturing 16.1% of the market. Following closely was Avaya with 15.7%. Alcatel-Lucent registered 13.1% of shipments. Microsoft and Siemens round out the top five vendors, each with a little over 12% of the market. Nortel and IBM were the only other vendors recording a unit market share above 10%.
FIGURE 3
A large variance in average selling price (ASP) for collaborative desktop applications caused the market share, measured in terms of revenues, to change significantly. Cisco’s share jumped to 31.1% based on an ASP that is substantially higher than its competition. Avaya maintained the number two position, but accounted for just under half of Cisco’s share, recording a 14.8% share. Alcatel-Lucent followed with 13.2% and Siemens captured the number four position with 12.8%. Nortel was next with 11.3% of the revenues for Q4 2008, followed by IBM and Microsoft with approximately 3.0% and 2.9% respectively, based on substantially lower ASPs derived from their lower priced, and for the most part standalone, presence/IM product offerings.
Homing in more specifically on the UC desktop Q4 performance of the leading vendors changed the findings significantly, as summarized in Figure 4a, below. Based on volumes, or the number of UC desktops shipped, Cisco edged out Avaya for the number one market share position by just under 3 percentage points, approximately 19% versus 16.5%. These two volume market leaders were followed by Alcatel-Lucent with 12.7% and Siemens with 11.8%, Aastra 9.9% and ShoreTel with a7.9% share.
FIGURE 4a
Once again, Cisco's higher ASP for UC desktop licenses (estimated to be $185 for a Cisco Unified Workspace License--CUWL--in Q4) set the company apart from the competition as it captured 24.3% of revenues associated with UC desktops in the fourth calendar quarter of 2008. Avaya followed with 16.5% and Alcatel-Lucent and Siemens filled the third and fourth place slots with 12.1% and 11.7% respectively, as depicted in Figure 4b.
FIGURE 4b
In terms of customer size, the overall UC market share positions and relative shares were consistent with the enterprise business (150 lines or greater locations) in the study in terms of both units and revenues. However, when the SMB market for UC unit shipments was isolated, there was an interesting finding. ShoreTel, a relatively small newcomer to the VoIP and UC marketplaces captured an impressive number one position in market share with 18.7% of worldwide Q4 UC desktop unit shipments (and 15.0% of the revenues). This exceeded the second place position holder Cisco (15.0%) by more than three percentage points. As depicted in Figure 5, Avaya was third in SMB UC with 13.6% and Alcatel-Lucent placed fourth with 10.1%. ShoreTel’s impressive performance in the SMB marketplace is no doubt attributable to the fact that nearly all the company’s desktop shipments are shipped UC-ready, giving it one of the highest, if not the highest, UC desktop capture rates in the industry.
FIGURE 5
Summary and Conclusions
The worldwide market for collaborative applications in 2008 amounted to $4.6 billion in sales. The top 5 vendors for collaborative application, measured in seat license shipments, in Q4 2008 included Cisco (16.1%), Avaya (15.7%), Alcatel-Lucent (13.1%), Microsoft (12.1%), and Siemens (12.0%). IBM accounted for a smaller share of 10.5% for collaborative application seat license shipments. However, due to IBM’s higher ASP per seat for Sametime vs. Microsoft’s OCS ASP, IBM was ranked number one in the standalone presence/IM server market in terms of revenue for 2008, with a share of 49.4% versus Microsoft’s market share of 46.1%. The largest market segment of collaborative applications in 2008 was unified messaging, which generated $2.3 billion worldwide, representing 65% of total collaborative application sales.
The largest potential growth market in collaborative applications is the segment Synergy has defined as UC Desktops--a user workspace having the minimum requirements of access to voice telephony (PBX/KTS/dial tone) and integrated presence management and instant messaging capabilities. The market for UC Enterprise Desktops (systems that ship with more than 150 lines) in 2008 amounted to $377 million in worldwide sales. The top 5 vendors for UC Enterprise Desktop seat license shipments in Q4 2008 included Cisco (21.2%), Avaya (18.2%), ALU (14.1%), Siemens (13.1%), and Aastra (11.4%).
The worldwide market for UC SMB Desktops ( Cisco appears to be commanding a premium ASP per UC Desktop seat. It is unclear from our research how Cisco is commanding such a higher price. As a point of comparison, everyone except Cisco had ASPs of under $150 per UC seat, while Cisco’s was closer to $200 per seat. Despite the premium pricing, Cisco announced shipping its 1 millionth CUWL license (Cisco Unified Workspace License) in the first quarter of this year.
Not surprisingly, those PBX vendors having the largest IP PBX installed base garnered significantly more market share in UC than those PBX vendors with large TDM PBX installed bases. For example, Cisco's share of worldwide installed IP PBXs is 18% and Avaya’s is 17.2%, in comparison to Alcatel-Lucent and Siemens IP PBX shares, which are just under 13%.
This fits a trend we spotted, and have had confirmed, among end users who have told us they see UC as a post-migration strategy after first migrating to IP from TDM. In other words, we were not been able to find anyone who was looking to incorporate UC applications onto their existing TDM PBX network. Most viewed UC as a second phase of their voice migration, after the transition to IP took place.
Another interesting by-product of our research was Synergy’s ability to measure the actual size of Microsoft's OCS voice deployments. While Microsoft has done well in presence/IM deployments, the company’s success, while promising for OCS voice, is still far behind that of the traditional PBX vendors. As a point of comparison, Synergy estimates Microsoft is shipping fewer than 50,000 voice lines per quarter in comparison to the top PBX vendors shipping over 1 million lines per quarter. We believe if Microsoft wants to be a leader in enterprise voice, the company will need to make an acquisition to do so. However, the reality that we are seeing is that Microsoft and IBM are enjoying very healthy partner relationships with the PBX vendors, incorporating their presence/IM servers into multivendor UC deployments.
Jeremy Duke is President & CEO of Synergy Research Group and Ken Landoline is Vice President-Research at Synergy.
Not surprisingly, those PBX vendors having the largest IP PBX installed base garnered significantly more market share in UC than those PBX vendors with large TDM PBX installed bases. For example, Cisco's share of worldwide installed IP PBXs is 18% and Avaya’s is 17.2%, in comparison to Alcatel-Lucent and Siemens IP PBX shares, which are just under 13%.
This fits a trend we spotted, and have had confirmed, among end users who have told us they see UC as a post-migration strategy after first migrating to IP from TDM. In other words, we were not been able to find anyone who was looking to incorporate UC applications onto their existing TDM PBX network. Most viewed UC as a second phase of their voice migration, after the transition to IP took place.
Another interesting by-product of our research was Synergy’s ability to measure the actual size of Microsoft's OCS voice deployments. While Microsoft has done well in presence/IM deployments, the company’s success, while promising for OCS voice, is still far behind that of the traditional PBX vendors. As a point of comparison, Synergy estimates Microsoft is shipping fewer than 50,000 voice lines per quarter in comparison to the top PBX vendors shipping over 1 million lines per quarter. We believe if Microsoft wants to be a leader in enterprise voice, the company will need to make an acquisition to do so. However, the reality that we are seeing is that Microsoft and IBM are enjoying very healthy partner relationships with the PBX vendors, incorporating their presence/IM servers into multivendor UC deployments.
Jeremy Duke is President & CEO of Synergy Research Group and Ken Landoline is Vice President-Research at Synergy.
