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Microsoft & Metaswitch: What’s Next for Enterprises, Operators?
Back in July 2020, Microsoft completed its acquisition of Metaswitch, an important move for the Azure for Operators launch in September, as has been duly highlighted. However, publicity about how Microsoft will leverage the two companies’ resources to differentiate, accelerate growth, and potentially dominate within the rapidly growing, but highly contested UCaaS market, has been limited.
I recently spoke with Microsoft about its plans for Metaswitch’s portfolio and received some insights, which I’d like to share with the No Jitter audience in the context of key UCaaS market trends. It is important to understand the UCaaS customer and competitive environments to gauge the value of the Microsoft + Metaswitch symbiosis.
The UCaaS Market Potential
Cloud services have been in the spotlight lately with the rise of remote work and the need to keep businesses operational despite social distancing mandates and massive lockdowns. However, the cloud PBX/UCaaS market did not experience anywhere near the explosive growth that we saw in cloud meetings and messaging. This makes sense in context: Deploying enterprise telephony is no trivial matter and requires careful planning that can be challenging in a normal environment, and almost impossible when enterprise decision makers and various stakeholders are scattered, working mostly from their homes, and have no or limited access to company premises where many of their existing communications systems reside. But also important, both IT/telecom staff and remote workers quickly figured out they could use free or freemium collaboration tools for both internal and external, one-to-one, and group calling. The traditional PBX feature set matters less today to many remote, collaboration-centric workers than it did when they were all in the office and needed to park or forward calls, put clients on hold, and so on. Instead, rapid provisioning, short-term commitments, ease of use, and diversity of applications (video, screen share) surfaced as key requirements in communications services adoption during the pandemic.
However, as businesses begin to rationalize their rushed or delayed technology investments, many are likely to consider adding cloud calling to their cloud meetings and messaging services. The acutely perceived need for greater business continuity during the pandemic is likely to become a strong driver for replacing premises-based systems with much more flexible UCaaS solutions. Customer data show that IP telephony migration to the cloud is well underway. In a December 2020 Frost & Sullivan survey of global IT/telecom decision makers, 39% of respondents report having moved part or all of their enterprise IP telephony to the cloud and another 38% report plans to do so in the next two years.
Moving forward, the cloud PBX/UCaaS market will continue to prosper. There is considerable untapped potential well beyond the current enterprise telephony base. We often think of the UCaaS addressable market as comprising the PBX and Centrex installed bases. UCaaS has replaced only a small portion of the more than 400 million of these legacy enterprise telephony seats today. However, the potential for UCaaS services is greater than that. Micro-businesses and small office/home offices (SOHO), traditionally under-served with expensive and inflexible legacy business telephony solutions and often resorting to residential/consumer-type services, can benefit from professional auto attendants, business voicemail, collaboration apps, and more. In the U.S., for example, businesses with fewer than 10 employees account for over 90% of all businesses and approximately 10% of the workforce. To address the unique needs and challenges in that customer segment, UCaaS functionality needs to be available as a mobile service, which such businesses prefer over POTS lines.
The growth potential for UCaaS among frontline and field workers — traditionally not equipped with business phone numbers and business communications features and services — also is significant. Globally, non-office workers account for at least three-quarters of the workforce; this creates vast opportunities for communications providers to expand their reach. In Frost & Sullivan’s recent survey, 68% of respondents report having provided mobile/smartphones to their frontline workers and another 26% plan to do so in the next two years. Also revealing, 55% of respondents report having provided UC or collaboration tools to their frontline workers, whereas 37% plan to do so in the next two years.
All of these factors come together to a fundamental upending of the UCaaS market. The traditional voice-first PBX replacement motion of the past is giving way to holistic UC platforms that not only favor collaboration-centric users, but also give frontline workers and mobile-ready users an equal seat at the table in terms of features and usability.
Microsoft’s Approach to UCaaS
Microsoft has tried a few different paths into the business communications and collaboration space. With Teams, it finally found a differentiated approach that provides it with a competitive edge. More specifically, Teams addresses the needs of an emerging collaboration-centric customer audience that is less concerned about traditional voice-centric features. Even before the pandemic-related quarantines, many businesses were moving to a collaboration-first communications strategy, providing Teams with a unique advantage versus its voice-first and on-premises counterparts, and also positioning Microsoft to meet new demand for enhanced collaboration as knowledge workers pivoted to working from home.
Microsoft has also demonstrated out-of the box thinking by identifying frontline workers as an underserved portion of the workforce in most organizations. To address this gap, Microsoft has incorporated several features and capabilities within Teams that cater to these workers. Through the Teams desktop or mobile apps, those on the front lines are able to connect with the rest of the organization via chat, voice, or video; access their work schedules; clock in for shifts; and even complete assignments.
Further to Microsoft’s credit, it also recognized that, while usage of traditional voice services is less compelling to collaboration-centric users, it is still an important modality for customer interactions. Businesses at different stages of their collaboration and communication transformation journey have a variety of options to expand their technology investments with additional capabilities, including Phone System, Calling Plans, and Direct Routing. Phone System is the cloud-based PBX that adds PSTN access and call routing capabilities to Teams. Calling Plans bring Microsoft-managed PSTN calling capabilities, enabling businesses to assign quickly telephone numbers and rate plans directly from the Teams administrative portal. Direct Routing brings dial tone from carriers or third-party SIP trunking providers into the Teams environment. Direct Routing is well positioned to support large enterprises with complex telecommunications infrastructure and extensive carrier contracts, as well as customers in regions where Calling Plans are not available. In addition, Direct Routing enables telco carriers and telephony infrastructure vendors to partner with Microsoft, bringing their strength in global voice services alongside the strong collaboration-centric, frontline, and mobile-user experiences that Microsoft has developed in Teams.
Microsoft’s success in the UCaaS market has been less visible than its success in cloud meetings and messaging. It hasn’t publicly reported any specific stats that relate to Phone System users that have been enabled with Microsoft or third-party calling plans. However, I believe that Teams’s success as a meetings and messaging tool throughout the pandemic created a strong pull-through for both types of cloud calling services via Phone System. Direct Routing services, in their multiple architectural variations, are driving adoption across geographies and customer segments.
How Metaswitch Fits into Microsoft’s Vision for the UCaaS Market
Metaswitch’s portfolio and traditional go-to-market approach complement Microsoft’s portfolio and strategy in a number of ways. However, the key value that Metaswitch brings to Microsoft is related to the telco/communications service provider (CSP) channel. Microsoft has tried a few different approaches with telcos in the past, with varying success. It initially created contention with Teams and Calling Plans, which it sells primarily directly to enterprises, and thus competes directly with the telcos in the UCaaS market. Direct Routing, on the other hand, enables telcos to offer their own calling plans. Now Metaswitch provides Microsoft with a more comprehensive telco value proposition.
The first element comes from Metaswitch’s session border controller capabilities, which telcos can use to unlock PSTN services in their customers’ Teams environments via Direct Routing. In addition, while Teams has seen significant uptake in large enterprises, it is not necessarily the right fit for every business. That is where the multi-purpose MaX UC platform from Metaswitch can fill the gaps. Designed specifically for service providers, the platform enables the ability to create customized solutions tailored for different customer segments. MaX UC stands out among competitive solutions with its diversity of applications and ability to create new growth opportunities for service providers.
Another important capability for service providers is the MaX platform’s support for the telco’s existing authentication, billing, interconnect, mobility, emergency, and regulatory requirements. The telco can deliver MaX services over any access network — fixed and mobile. Metaswitch developed the platform as cloud-native software, giving service providers the opportunity to build and scale their solutions across any number of deployment models, including their own private data centers, private cloud services, or public cloud services. Providers can choose their own preferred infrastructure and quickly scale to meet customer demand.
Metaswitch also brings a contact center-as-a-service (CCaaS) solution to Microsoft’s portfolio — a gap that Microsoft currently addresses with partner solutions. The strong value proposition of integrated UCaaS and CCaaS delivers considerable provider benefits, including higher revenues per customer, greater customer satisfaction, and improved customer loyalty.
Metaswitch is well known among service providers as key performance metrics demonstrate:
- 330 operators worldwide offer business communications services based on Metaswitch technologies
- 30 million deployed business lines globally
- 7 million deployed UCaaS seats globally
Metaswitch’s strengths within telco environments complement Microsoft's value proposition in the enterprise space. More specifically, Metaswitch creates new opportunities for Microsoft to further augment the telco core, 5G, virtual networking, and intelligent edge capabilities.
The Joint UCaaS Roadmap
Acquisitions often result in significant portfolio and strategy adjustments for the acquired entity. The best news in the case of Microsoft and Metaswitch is that Microsoft is reporting commitment to preserve Metaswitch’s assets and continue to serve CSPs with UCaaS solutions that they can deploy on their own networks and fully manage the customer experience, as well as better control the profitability margins by determining their own price levels. The MaX portfolio opens new opportunities for Microsoft to enable both mobile and wireline operators to deliver a broad spectrum of consumer, SOHO, SMB, and enterprise communications and collaboration services. With Cisco shifting away from the telco “build” model and focusing on Webex resale options for service providers, Microsoft, via the MaX platform, is among few technology providers that allow telcos that greater level of control over their UCaaS and other VoIP services.
Native mobile UCaaS fills yet another portfolio gap for Microsoft, which has historically provided app-based and browser-based options for mobile users on its own, prior to the acquisition. The combined capabilities also enable Microsoft to serve hybrid enterprises — more specifically those with Metaswitch and Teams seats. For example, Metaswitch providers can leverage MaX services to better enable highly mobile users, as well as analog devices and basic phone lines not requiring any collaboration features; they can use Direct Routing to enable calling for Teams users — managing all endpoints as a single enterprise deployment. Furthermore, with its foot in the door within over 300 operators globally already using Metaswitch, Microsoft gains a new channel to resell Teams and accelerate cloud calling adoption via Direct Routing services.
Microsoft and Metaswitch have considerable additional opportunities to create an even more symbiotic technology roadmap. Teams can become a native user experience within the MaX portfolio. Similarly, Metaswitch can enhance the Phone System feature set in the future.
Microsoft and Metaswitch came together from very different backgrounds. Microsoft’s highly-successful Teams platform has already proven its value among collaboration-centric users, sold primarily through Microsoft’s traditional resellers. Metaswitch’s MaX platform, on the other hand, has enabled multiple service providers to deliver innovative cloud communications services to businesses and consumers. As a single entity with an enhanced portfolio, Microsoft will be able to leverage these complementary solution sets and more diverse channels to better capitalize on global UCaaS growth opportunities.
Microsoft’s acquisition of Metaswitch is likely to have lasting implications for multiple parties, beyond Microsoft itself. It is likely to impact market participants in different ways:
- Positive impact, for businesses looking for UCaaS services that address diverse user needs — a robust PBX feature set for in-office, voice-centric users; mobile PBX functionality for mobile professionals, frontline workers, or field workers; and/or a highly-collaborative user experience for users collaborating extensively with co-workers. Potential challenges may be related to how technology is purchased — from a single telco versus multiple parties, including Microsoft, traditional Microsoft resellers, and telcos. Multi-vendor environments can increase costs and create technology roadmap confusion, so businesses must carefully select an experienced service provider or another partner that has the right admin tools, monitoring and reporting for applications, infrastructure, and devices integrated with Teams.
- Positive impact, for service providers looking to straddle consumer and business markets, as well as voice-centric and collaboration-centric users within businesses. Such providers can capitalize on the explosive adoption of Teams while also maintaining a certain degree of control over a (more voice-centric) UCaaS portfolio that they manage internally for the benefits of greater profitability and brand equity. Future integrations between MaX and Teams may provide additional benefits to providers with a Microsoft/Metaswitch partnership. Metaswitch partners must work with Microsoft to build the right capabilities to effectively manage mixed environments.
- Negative impact, for both technology developers providing UCaaS platforms to telecom operators to build their own UCaaS offerings and UCaaS providers pursuing the telco channel as potential resellers. With the combined portfolio and a stronger position within the telco channel, Microsoft is now a more formidable competitor than it was prior to the Metaswitch acquisition. However, nimble and innovative platform vendors and service providers may continue to provide differentiated capabilities (ecommerce, APIs/integrations, etc.) and often launch new services faster than Microsoft, which may also help such competitors win in the telco channel.
The recent announcement of more than 50 Metaswitch providers now delivering Direct Routing for Microsoft Teams demonstrates Microsoft’s commitment to leverage the combined Microsoft and Metaswitch capabilities to deliver a stronger value proposition to telcos and other service providers. Throughout 2021 we are likely to see more investment in an aligned roadmap for Teams and Metaswitch’s portfolio of solutions for telecom operators.