Innovation in UCaaS is slowing, but that’s reasonable considering what’s occurred over the past few decades. In just this century, analog and TDM-digital became IP, The PBX became a premises-based system, and cloud-delivered services emerged as a solution and business model, phones became endpoints and then apps, and communications expanded from voice to include messaging and meeting services.
The pandemic changed how enterprise comms are used and viewed, for example the stigma associated with Work-from-home disappeared. Microsoft Teams had launched in 2017, but the platform saw significant development and improvement during the pandemic. Teams has become dominant in enterprise communications and collaboration. According to Gartner’s Magic Quandrant framing, Teams is the dominant market leader in UCaaS. According to the network advisory firm the Cavell Group, approximately 20% of the world’s UCaaS users are using Teams with telephony enabled licenses, while Cisco Webex has 12% and Zoom has 7% (6 Million users). A year ago, Microsoft Teams had over 320 million users around the world.
The last dominant player in US enterprise communications was the Bell system. It had a legal monopoly, and largely created the concept of regulation that persists today.
How a Regulated Bell Was a Monopoly
Regulation works in lieu of competitive market forces to keep a provider from abusing its customers. Competition in telephone companies in the early twentieth century was a mess. Multiple firms were connecting wires to homes and businesses, and interoperability was very limited. Long story short, the US government concluded that one company made more sense and worked with the Bell Telephone Company to create regulation.
The parties agreed that Bell would offer nationwide, “universal service” without competition, and could set its prices to earn a reasonable profit. Most nations either took a similar approach or created state-run communications.
Though its overall profits were limited, Bell was able to cross-subsidize services. For example, it charged more for long distance service as a way to subsidize local services. This created problems as parts of its business opened to competition. Bell’s anti-competitive actions against MCI, a regional long-distance provider, eventually resulted in Bell’s breakup.
Prior to breakup, Bell had become the largest employer on Earth, with more than one million employees. Most believe ending the monopoly was good, and the amount of innovation that followed makes a strong case.
UCaaS Today
Modern UCaaS includes services for telephony, meetings, and messaging. UCaaS was growing quickly pre-pandemic, but the sudden need to accommodate remote work further accelerated adoption.
Teams can do all three modalities, but its native messaging and meetings services grew the fastest. Organizations are adding on Teams telephony, and growth is outpacing the market.
In the recent Gartner Magic Quadrant for UCaaS, the authors predict that over the next few years 80% of organizations will use their existing cloud office/collaboration platforms for enterprise telephony.
There are five ways to obtain PSTN services on teams. Partners offer Direct Routing, Operator Connect, and Teams Phone Mobile. Microsoft itself offers a native carrier service. All four approaches offer a similar Microsoft-controlled Teams experience. A fifth option, available from some UCaaS providers, is an integrated but separate client that runs within Teams.
Teams vs. Bell
Microsoft has become so dominant in enterprise communications that it’s hard not to compare it to the Bell System. Like Bell, Microsoft cross-subsidized development from other parts of its business. UCaaS pure plays can’t do that.
Neither Microsoft nor Teams are considered a monopoly, but its market dominance is arguably far greater than Bell's because Teams is a global solution. It’s not clear how we could regulate Teams as there is no precedent for a global carrier.
In addition to different geographic scope, the services that Teams offers are significantly different than Bell’s from both a market perspective and a technological perspective. Teams is targeted to business users, where Bell was consumer and business. Bell was voice-centric, and Teams is collaboration-centric. Most significantly, Bell built and operated its physical network, where Teams is cloud-delivered software and services.
Coincidentally, Microsoft is one of the largest companies in the world today (in terms of market cap). Though Teams is only a small part of its business.
Public Good?
From 1956, Bell Labs was obligated to license its patents royalty-free to US companies. This includes patents in radio astronomy, the transistor, the laser, the photovoltaic cell, and the Unix operation system. These technologies fostered many new companies and entirely new, US-led industries. By contrast, Microsoft is a private company that retains and benefits from its patents.
Another big difference is openness. Since 1968, third-party device makers have been free to produce equipment for the Bell network. This led to innovations and new product categories such as answering machines, fax machines, and modems. Conversely, most device makers for Teams must be invited to work with Teams, must complete ongoing certification, and are severely restricted in how they can differentiate or innovate their products. In the past, one could just pick up a compliant phone at Radio Shack. Today, there are only a handful of approved and licensed decive makers.
Antitrust
The U.S. government ultimately found that Bell was anticompetitive and its monopoly was ultimately broken up into multiple companies. Last June, the European Union determined that Microsoft had violated antitrust rules with “possibly abusive” practices by tying Teams to Office365. This is far from resolved, but the EU could fine Microsoft a hefty fine of up to 10 percent of its annual global revenues.
It was little regional carrier MCI that filed the complaint that took down Bell. MCI was acquired by WorldCom and which is now a part of Verizon. The complaint about Microsoft came from Slack back in 2020. Teams was forced-installed on millions of PCs. This meant Slack had to sell prospects to both purchase its product and to not use the Teams solution they possibly inadvertently acquired.
The young, independent company filed a complaint that Microsoft was abusing its market dominance to extinguish competition in breach of European Union competition law by tying its Teams product to its Office productivity suite.Salesforce acquired Slack in 2021 and its founders have since departed the company.
Microsoft stopped bundling Teams with new subscriptions worldwide earlier this year.
There is no clear remedy to improve competition. Many of the incumbents in messaging and video have either disappeared or been acquired. This includes brands such as Bluejeans, Cisco Spark, Lifesize, Polycom, Slack, Star Leaf, and Vidyo. Currently, most carriers and UCaaS provider-competitors now offer solutions intended to complement Teams, but their participation is limited in brand visibility to the user and in their ability to affect the user experience.
Bundling products can be simultaneously unfair and logical. While bundling products can create a barrier to entry for competitors, the features of products naturally evolve and expand. For example, word processors evolved to include spell checkers, though this did not bode well for emerging standalone spell-checkers. It’s hard to argue that the world would be better had the separation been protected.
The original Microsoft Office bundle was just Word and Excel. Neither of its original, primary competitors, WordPerfect nor Lotus, had a competitive alternative suite. The suite has expanded multiple times over its history, .
Competitive Enterprise Comms
It’s interesting that we have gone from legal monopoly creating dominant vendors to competitve practices creating natural dominant vendors in enterprise communications. Bell had a physical monopoly due to the wire connections. Teams does have or benefit from physical advantages beyond its data centers.
We saw this play out with email about 25 years ago. Today, email is dominated by Google and Microsoft, but not long ago corporations selected email solutions from dozens of vendors.
A single, dominant provider offers many advantages, including reduced user and admin training, reduced need for interoperability, and a larger end-to-end customer base. The cost is innovation. Open markets simulate investment and innovation. It appears that IT managers favor mainstream solutions over competitive choice and innovation.
Teams is a single-vendor solution. What will be the modern innovative equivalent of the answering machine or pager? Where will it come from?