The hosted PBX market launched about a decade ago on an appeal to cash-strapped small businesses: Get a new PBX for $10 a month, per seat, compared to a new premises-based PBX at $800 for the same seat. That hosted promise has never evaporated. Nor have UCaaS vendors failed to deliver as advertised. And now the hosted PBX market will close out 2017 having captured 18% of all PBX sales for the year.
Eastern Management Group research analysts recently finished a four-year study of the hosted market and published the research in a new report, "Worldwide Hosted PBX Market 2017-2022." We present some of our market size findings in this post, third in an ongoing series.
Hosted PBX sales have rocketed from 4% of the total PBX market in 2010, to 18% this year. And our research shows the market is still young. Here's why. Looking at the numbers, in 2017 new hosted PBX sales were $5 billion. That's only 3% of the dollar value of all installed PBXs. Today, customers replace PBXs with predictable frequency, which means there's decades of sales opportunity in front of all hosted UC vendors in just selling PBX replacements. These are mouth-watering numbers for prospective and established UCaaS vendors.
And this raises the point of attracting competitors and how this will affect the UCaaS market. Eastern Management Group analysts follow more than 180 hosted PBX providers. That is the tip of the iceberg. The number of UCaaS suppliers is growing exponentially. Seemingly everyone wants a bite at this apple. We estimate 3,000 to 4,000 service providers will be in the hosted PBX market in the next decade. This is no exaggeration.
Three things will drive the market upswing. First is enterprise customer behavior. Second is UC features (e.g., collaboration), integrations, and APIs that will double or triple the average revenue per user (ARPU). Third is the arrival of thousands of service providers. We will describe all three.
Enterprises -- Enterprises make up a small share of the hosted PBX market today. About 10% of large businesses have UCaaS. Those that do, by and large, already use cloud computing. For them adding voice is just one more application, and so they do it. As cloud computing grows so too will the enterprise market for hosted PBX.
Features -- Integrations and APIs aren't only demanded by businesses that need CRM and other applications to improve productivity, they are a means of growing ARPU. Vendors can bundle suites of integrations for $10 to $50 per month per seat. At the same time they're delivering what the customer wants. The table below shows some common integrations by application classification.
Service providers - Service providers can't enter the market just delivering the same 80 or so common features provided by all other UCaaS vendors. And they won't. As the number of competitors increases, new entrants come with unique vertical market features, enhanced functionality for existing features, new services, custom applications, and network capabilities. This is differentiation in spades.
Can the market support 3,000 to 4,000 service providers? Our research suggests that it can and will.
This is the third in an eight-part biweekly series featuring research from Eastern Management Group's exhaustive "Worldwide Hosted PBX Market 2017-2022" report. For questions about the hosted PBX study please ask Eastern Management Group researchers.
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