How Cisco-BroadSoft Acquisition Impacts UCaaS Ecosystem

On Oct. 23, Cisco announced its impending acquisition of BroadSoft, an event marking the UCaaS industry's crossing of the Rubicon.

With its inception in 1998, BroadSoft heralded the rise of cloud/hosted services and, for almost two decades, symbolized the next generation of business communications, standing tall against the "establishment" embodied by Avaya, Cisco, and the other PBX vendors. As new cloud providers emerged, occasionally referring to BroadSoft as a provider of "legacy" hosted technology, BroadSoft stuck to its guns as an independent telco carrier enabler, avoiding direct competition with its channel. With this acquisition, BroadSoft surrendered its independent status to the powerhouse of the old guard Cisco and ended an era that forever changed the enterprise communications space. At the same time, BroadSoft's acquisition by none other than the leading premises-based UC vendor provides strong validation of the industry's move to cloud.

An examination of how this acquisition, if successfully completed, will affect the different stakeholders is important. I'll leave the analysis of the acquisition's impact on BroadSoft shareholders to the financial analysts, and will focus instead on its impact on Cisco, endpoint and technology partners, UCaaS providers, UCaaS platform vendors, and end customers.

The State of the UCaaS Industry

About a month and a half ago, I summarized the main trends in the UCaaS industry and the broader enterprise communications space in the No Jitter article, "The Search for Sustainable Growth in the UCaaS Market." Frost & Sullivan's recently published studies "North American Hosted IP Telephony and UCaaS Market" and "An End-user Perspective on Navigating Digital Transformation in IT and Communications, Global, 2017" provide additional details and thorough analysis of the growth opportunities in this rapidly evolving market.

Key highlights follow here.

High growth rates continue to attract market participants and compel providers to differentiate, scale, and develop robust growth strategies. Intensifying competition is posing challenges to everyone in the ecosystem -- including:

  • Pure-play telco platform vendors such as BroadSoft, Centile, Metaswitch, netsapiens, and Ribbon (newly formed from Genband-Sonus merger)
  • Traditional telcos such as AT&T, CenturyLink, and Verizon
  • Cable operators such as Comcast and Spectrum
  • Next-generation UCaaS providers such as 8x8, Fuze, Jive Communications, Nextiva, RingCentral, and Vonage
  • Diversified UC providers straddling premises-based and cloud worlds such as Avaya, Alcatel-Lucent Enterprise, Cisco, Microsoft, Mitel, NEC, and Unify

In an effort to adapt to evolving market trends and become more competitive, some of these participants are reaching far outside their comfort zones and launching new solutions and strategies that require significant asset and skillset realignment.

Particularly notable are Cisco's, Microsoft's, and Mitel's concerted efforts over the past few years to shift their businesses toward a more cloud-centric portfolio and market position. Premises-based UC system vendors are looking to the cloud as an opportunity to differentiate, generate new revenue streams, and deliver greater value to their installed customers. Some vendors have been slow to address this challenge successfully, thus adopting a defensive stance, whereas others have pursued it more aggressively as a growth opportunity.

Market approaches also differ in terms of the vendor's role in the hosted IP telephony and UCaaS value chain. Some UC vendors have become service providers delivering services under their own brand, while others have chosen to deliver hosted communications solutions through service provider partners. As third-party platform providers, UC vendors compete against more established service provider platform developers such as BroadSoft, and as such are compelled to develop unique value propositions for both service providers and end customers.

Accelerating mergers and acquisition in the UCaaS space demonstrate a growing provider need for faster speed to market and greater market power. Cisco's acquisition of BroadSoft is an important part of an ongoing market consolidation likely to affect various stakeholders.

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