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World Enterprise Telephony Platforms Market: The Data is In

My colleagues Vanessa Alvarez and Krithi Rao recently completed Frost & Sullivan's annual report on the world enterprise telephony platforms market. Here, some key findings (more are available to clients at* Traditional systems made up 25% of the market by line shipment, declining at a -14% rate. NEC was the market leader, followed by Aastra (Ericsson), and Panasonic.

* IP systems (including IP converged and native-IP) accounted for 75% of the market by line shipment, growing just 1% in the base year. Cisco was the market leader, with 18% market share, followed by Avaya, with 14.2%. Overall, Cisco was the market leader by line shipments, with 13.5%, followed by Avaya with 12%; also in the top five were Nortel, Siemens, and Alcatel Lucent.

* The world enterprise telephony systems market is estimated to have generated $7.6 billion in 2008, declining at a rate of -9%. The market is projected to grow at a compound annual growth rate (CAGR, 2008-2014) of 4.2%. Traditional systems made up 22% of market revenues, declining at a rate of -16.4%. NEC was the market leader with 19% market share, followed by Panasonic with 15%. Nortel was third.

* IP systems (IP converged and native-IP) accounted for 78% of the market revenue, declining at a rate of -6.7%. Avaya was the market leader, with 16% market share, followed closely by Cisco, with 14% market share. Overall, Avaya was the leader by revenue (15%), followed by Cisco (11%). Others in the top five were Siemens, Nortel and Alcatel-Lucent.

Alvarez and Rao note that mobility is critical to the overall value proposition of IP telephony, both as a standalone application and as the foundation for unified communications. Recent technology developments have created opportunities for growth for telephony and mobile vendors. They also expect disruption from new competitors like Research In Motion and Apple, whose iPhone has penetrated into the segment of individual enterprise workers, though not the enterprise network--yet. (Cisco's enablement of WebEx Connect for iPhone is a step in the direction of acceptance.)

The small and mid-size business market represents a multibillion dollar opportunity by 2013. Of course, SMBs have their own unique challenges. Where large enterprises have fully staffed IT departments, SMBs tend to function with a one-man shop--if they have a shop at all. Many SMBs are geographically dispersed, either through remote branch offices, or completely mobile employees. They don't develop RFPs; a large percentage of SMBs, in fact, still rely on colleagues and word of mouth for technology recommendations. Because of their restricted IT budgets, SMBs tend to allow the lifecycle of old telephony systems to run their course, and then some. But eventually, all equipment must be replaced--and when that happens, the SMB market will be a fruitful one indeed.

Other key trends include the growth of open-source IP PBX, cloud computing, and a significantly changing competitive landscape (hello Microsoft and IBM; goodbye Nortel). Although IP telephony has experienced delays for a variety of reasons, its adoption has been significant, and will continue as it becomes the foundation for a number of applications.