SHARE



ABOUT THE AUTHOR


Danny   Windham
Danny Windham joined Digium in February, 2007 as CEO. In this role, Windham is responsible for setting corporate strategy and...
Read Full Bio >>
SHARE



Danny Windham | February 06, 2018 |

 
   

UC Times They Are A-Changin'

UC Times They Are A-Changin' A look at the real winners of UC market consolidation -- the customers and surviving communications vendors.

A look at the real winners of UC market consolidation -- the customers and surviving communications vendors.

In the telecom space, specifically the unified communications (UC) industry, we've seen more than our fair share of change, particularly from acquisitions and reorganizations in the past year. Increased M&A activity is a trend that's likely to continue through the next few years, to the benefit of the remaining vendors as well as customers.

While there is a long list of industry changes that occurred last year, from Avaya's bankruptcy-fueled reboot to Mitel's absorption of ShoreTel and Toshiba's UC business, there's much speculation as to how these changes impact the outlook for UC and UCaaS vendors in the near term. But there is definitely a common theme that emerged from the activity -- cloud adoption is the driving force behind these market consolidations.

Consider that more than $400 million in revenues is being generated each quarter in the UCaaS market, according to Synergy Research Group. That's approaching $2 billion each year, with an associated annualized growth rate of 29%.

portable
Why UcaaS?
For those of us in this industry, the growth in revenues toward UCaaS isn't surprising. We've watched customers invest more in cloud-based applications and services in all areas of their businesses. There are many advantages to customers, particularly small businesses. Cloud allows for a more flexible network structure that's easy to scale with growth or seasonal variants; and without having to maintain a server, it frees up your data closet and eases the strain of onsite management concerns, often reducing or eliminating the need for in-house IT support staff.

Perhaps one of the most appealing benefits of transitioning to cloud is the Opex approach to budgeting for technology, with low or no upfront capital expenditures. Even the remaining hardware that is required -- IP phones -- is usually available through inexpensive rental options. The flexible monthly pricing plans that are commonly offered by vendors under a software-as-a-service (SaaS) model provides businesses with a more predictable way to budget for common, otherwise costly, IT and communications expenses.

Customers aren't the only ones who find the SaaS model appealing. Wall Street, while initially hesitant about how to handle the deluge of cloud-based business models, now views recurring revenues from SaaS organizations very favorably. It also helps that the adoption of cloud-based technologies, which originally gained hold in small businesses, has now grown consistent across all industries and company sizes. Investors don't see this trend slowing anytime soon. And while SaaS startups initially pioneered the market for cloud-based service offerings, more established organizations are making the shift. Why? The lure of contracted and predictable revenue flows with the resulting higher multiple valuations is a tempting appeal for any management team.

The Role of Premises
With the improved visibility into future revenues, it's easy to see why Wall Street is attracted to this model, as well as investors and vendors with legacy revenue models... which brings us back to market consolidation. One hurdle of a model-shift toward providing SaaS is that many vendors have found it takes time to transition from a legacy revenue structure to a recurring model. Even a successful transition creates a temporary cash flow trough that puts pressure on the soundest of balance sheets. Thus, for those longtime UC vendors still heavily invested in hardware and on-premises communication systems, it makes sense to acquire competitors with more agile cloud-based PBX solutions that are already ahead of the game when it comes to having predictable and growing recurring revenues on the books.

With the continued emphasis on cloud and its adoption across the SMB and enterprise segments, it's tempting to discount the future role of on-premises systems. However, there are segments of the business customer base where an on-premises deployment still offers value -- either through use cases where local deployment provides improved utility or when it simply represents a lower total cost over time. In that vein, many larger organizations with significant investments in virtualized infrastructures have invested heavily in on-premises UC solutions due to the low incremental cost of deploying UC alongside other critical business applications. Abandoning that foundation, in this case, is a much broader company strategy decision, not a point decision on a particular application.

Given that on-premises appliances aren't going away tomorrow, this is yet another argument for industry consolidation. Vendors that are best equipped to serve the needs of the total market are those that can address multiple deployment alternatives. Established, hardware-based vendors need a way to extend market longevity for their legacy appliances while also affordably transitioning to a SaaS revenue model. Additionally, buying an existing recurring revenue stream helps to mitigate the effect of that cash flow trough that results from converting an existing customer base from an upfront to a recurring revenue model.

portable
Moving Forward
Where does this leave the industry going forward? Expect to see more mergers and acquisitions. But, perhaps the largest unknown factor is the role of goliath-sized industry outsiders, like Amazon and Google. These new-age conglomerates are racing to dominate cloud services and have already proven effective in crossing industries and service types to build indisputable power houses. As the demand for expanded collaboration capabilities grows, could it be that one day they own the UCaaS market as well? While it's too early to speculate on how successful they will be, expect that some of those recently consolidated UC industry leaders will have to use their newly bolstered coffers to stave off the unpredictable outside-of-industry giants.

Regardless, it's a safe bet that there are two interim winners in the industry's evolving landscape. The first clear winner is the customer. Consolidation means that the new, larger companies can theoretically benefit from increased scale, thereby lowering costs to customers. Additionally, consolidation offers the promise of enhanced efficiency, freeing funds previously used for overhead function to be redirected to improving the customer experience or enhancing product capabilities. With pressure from the likes of Amazon and Google, it's possible that we'll even see a new, completely disruptive pricing model in cloud services.

No doubt, the other winners are those companies that, through well-planned acquisitions, are among the last standing in a consolidating industry, resulting in fewer competitors, higher revenues and increased organizational stability. It's an interesting time to be part of the UC industry. And the year ahead should prove to be at least as intriguing as the past 12-18 months.

Learn more about Cloud Communications at Enterprise Connect 2018, March 12 to 15, in Orlando, Fla. Register now using the code NOJITTER to save an additional $200 off the Early Bird Pricing or get a free Expo Plus pass.

Related content:





COMMENTS




September 26, 2018

Join Kevin Kieller, Microsoft UC&C expert, along with Ribbon Communications and Polycom, for an update on Microsoft Ignite, and a focus on critical things you need to know about your voice deployme

August 29, 2018

Moving your voice services to the cloud introduces new challenges for 9-1-1 services. These include the need to serve multiple locations, and the increased mobility that comes with having a phone t

August 8, 2018

Artificial intelligence (AI) is becoming a reality for your contact center. But to turn the promise of AI into practical reality, there are a couple of prerequisites: Moving to the cloud and integr

March 12, 2018
An effective E-911 implementation doesn't just happen; it takes a solid strategy. Tune in for tips from IT expert Irwin Lazar, of Nemertes Research.
March 9, 2018
IT consultant Steve Leaden lays out the whys and how-tos of getting the green light for your convergence strategy.
March 7, 2018
In advance of his speech tech tutorial at EC18, communications analyst Jon Arnold explores what voice means in a post-PBX world.
February 28, 2018
Voice engagement isn't about a simple phone call any longer, but rather a conversational experience that crosses from one channel to the next, as Daniel Hong, a VP and research director with Forrester....
February 16, 2018
What trends and technologies should you be up on for your contact center? Sheila McGee-Smith, Contact Center & Customer Experience track chair for Enterprise Connect 2018, gives us the lowdown.
February 9, 2018
Melanie Turek, VP of connected work research at Frost & Sullivan, walks us through key components -- and sticking points -- of customer-oriented digital transformation projects.
February 2, 2018
UC consultant Marty Parker has crunched lots of numbers evaluating UC options; tune in for what he's learned and tips for your own analysis.
January 26, 2018
Don't miss out on the fun! Organizer Alan Quayle shares details of his pre-Enterprise Connect hackathon, TADHack-mini '18, showcasing programmable communications.
December 20, 2017
Kevin Kieller, partner with enableUC, provides advice on how to move forward with your Skype for Business and Teams deployments.
December 20, 2017
Zeus Kerravala, principal analyst with ZK Research, shares his perspective on artificial intelligence and the future of team collaboration.
December 20, 2017
Delanda Coleman, Microsoft senior marketing manager, explains the Teams vision and shares use case examples.
November 30, 2017
With a ruling on the FCC's proposed order to dismantle the Open Internet Order expected this month, communications technology attorney Martha Buyer walks us through what's at stake.
October 23, 2017
Wondering which Office 365 collaboration tool to use when? Get quick pointers from CBT Nuggets instructor Simona Millham.
September 22, 2017
In this podcast, we explore the future of work with Robert Brown, AVP of the Cognizant Center for the Future of Work, who helps us answer the question, "What do we do when machines do everything?"
September 8, 2017
Greg Collins, a technology analyst and strategist with Exact Ventures, delivers a status report on 5G implementation plans and tells enterprises why they shouldn't wait to move ahead on potential use ....
August 25, 2017
Find out what business considerations are driving the SIP trunking market today, and learn a bit about how satisfied enterprises are with their providers. We talk with John Malone, president of The Ea....
August 16, 2017
World Vision U.S. is finding lots of goodness in RingCentral's cloud communications service, but as Randy Boyd, infrastructure architect at the global humanitarian nonprofit, tells us, he and his team....
August 11, 2017
Alicia Gee, director of unified communications at Sutter Physician Services, oversees the technical team supporting a 1,000-agent contact center running on Genesys PureConnect. She catches us up on th....
August 4, 2017
Andrew Prokop, communications evangelist with Arrow Systems Integration, has lately been working on integrating enterprise communications into Internet of Things ecosystems. He shares examples and off....
July 27, 2017
Industry watcher Elka Popova, a Frost & Sullivan program director, shares her perspective on this acquisition, discussing Mitel's market positioning, why the move makes sense, and more.
July 14, 2017
Lantre Barr, founder and CEO of Blacc Spot Media, urges any enterprise that's been on the fence about integrating real-time communications into business workflows to jump off and get started. Tune and....
June 28, 2017
Communications expert Tsahi Levent-Levi, author of the popular BlogGeek.me blog, keeps a running tally and comprehensive overview of communications platform-as-a-service offerings in his "Choosing a W....
June 9, 2017
If you think telecom expense management applies to nothing more than business phone lines, think again. Hyoun Park, founder and principal investigator with technology advisory Amalgam Insights, tells ....
June 2, 2017
Enterprises strategizing on mobility today, including for internal collaboration, don't have the luxury of learning as they go. Tony Rizzo, enterprise mobility specialist with Blue Hill Research, expl....
May 24, 2017
Mark Winther, head of IDC's global telecom consulting practice, gives us his take on how CPaaS providers evolve beyond the basic building blocks and address maturing enterprise needs.
May 18, 2017
Diane Myers, senior research director at IHS Markit, walks us through her 2017 UC-as-a-service report... and shares what might be to come in 2018.
April 28, 2017
Change isn't easy, but it is necessary. Tune in for advice and perspective from Zeus Kerravala, co-author of a "Digital Transformation for Dummies" special edition.
April 20, 2017
Robin Gareiss, president of Nemertes Research, shares insight gleaned from the firm's 12th annual UCC Total Cost of Operations study.
March 23, 2017
Tim Banting, of Current Analysis, gives us a peek into what the next three years will bring in advance of his Enterprise Connect session exploring the question: Will there be a new model for enterpris....
March 15, 2017
Andrew Prokop, communications evangelist with Arrow Systems Integration, discusses the evolving role of the all-important session border controller.
March 9, 2017
Organizer Alan Quayle gives us the lowdown on programmable communications and all you need to know about participating in this pre-Enterprise Connect hackathon.
March 3, 2017
From protecting against new vulnerabilities to keeping security assessments up to date, security consultant Mark Collier shares tips on how best to protect your UC systems.
February 24, 2017
UC analyst Blair Pleasant sorts through the myriad cloud architectural models underlying UCaaS and CCaaS offerings, and explains why knowing the differences matter.
February 17, 2017
From the most basics of basics to the hidden gotchas, UC consultant Melissa Swartz helps demystify the complex world of SIP trunking.
February 7, 2017
UC&C consultant Kevin Kieller, a partner at enableUC, shares pointers for making the right architectural choices for your Skype for Business deployment.
February 1, 2017
Elka Popova, a Frost & Sullivan program director, shares a status report on the UCaaS market today and offers her perspective on what large enterprises need before committing to UC in the cloud.
January 26, 2017
Andrew Davis, co-founder of Wainhouse Research and chair of the Video track at Enterprise Connect 2017, sorts through the myriad cloud video service options and shares how to tell if your choice is en....
January 23, 2017
Sheila McGee-Smith, Contact Center/Customer Experience track chair for Enterprise Connect 2017, tells us what we need to know about the role cloud software is playing in contact centers today.