|Issue:||Europe II 2010|
|Topic:||How cloud communications is changing today’s business|
|Organisation:||Frost & Sullivan|
Dorota Oviedo is a Research Analyst with the Frost & Sullivan Europe Information & Communication Technologies Practice. Dorota focuses on monitoring and analysing emerging trends, technologies and market dynamics in the unified communications and collaboration market in Europe. Prior to joining Frost & Sullivan, Ms Oviedo was a Research Associate at Addison Whitney and a Research Assistant at the Economics and Geography Department of the University of North Florida, Coggin College of Business. Dorota Oviedo holds a Master of Arts in Marketing from Warsaw University and an MBA degree from the University of North Florida.
Unified communications simplifies the user experience by integrating several real-time and non-real-time communication tools. Cloud-based unified communications takes this further by hosting applications as a shared service provided to end customers over a network, removing the need for on-premise equipment. Such services have great appeal during the current economic downturn and are expected to grow substantially over the next five years.
The concept of hosted enterprise IP communications services was first introduced over a decade ago, but has only started to gain mainstream acceptance in recent years as modern communications have become increasingly more sophisticated and thus difficult to manage in-house. To the majority of the business world, Unified Communications (UC) is still a new buzzword. In fact, the technology tools that form UC have been in place for several years, but it is only recently that enterprises have sought to integrate various telephony and desktop communication tools. UC allows all these different systems to work together in real time and consequently helps streamline all communication needs. There is a certain amount of market confusion around the definition of UC. Frost & Sullivan defines a UC application as an integrated set of voice, data and video communications, all of which leverage PC- and telephony-based presence information. The underlying characteristic is that UC applications are meant to simplify communications for the end user by making it easy to ‘click’ to communicate or ‘drag-and-drop’ to communicate. Organisations have several options for deploying UC technology; these include: • integrated best-of-breed on-premise applications from a variety of vendors, which could include one vendor to deliver instant messaging and PC presence, another to deliver audio/video/web conferencing and a third to deliver Voice over IP (VoIP), telephony presence and related services such as unified messaging. It is difficult to excel in every niche and so some vendors focus on certain applications; • an all-in-one application from a single vendor to deliver all presence information, chat, conferencing and voice capabilities; • a hosted or managed service including all or most UC applications; and • a hybrid implementation where some UC applications are deployed on the premise and others are hosted, but all are integrated for a unified user experience. The multiple vendor solution currently represents the most popular deployment method. The hosted and managed services market segment is relatively small right now but is expected to grow rapidly in the near future. UC focuses on simplifying the user experience by integrating several communication tools. Cloud-based UC is the seamless convergence of both real-time communication media (such as instant messaging, telephony or conferencing) and non-real-time communication media (such as email, voicemail or calendars) without the need for on-premise equipment. Cloud-based UC represents a deployment model where the application is hosted as a shared service and provided to end customers over a network. Practical implementations of UC in 2010 are based on presence capabilities and include integration of telephony, instant messaging and conferencing, with companies adding more complex communications tools over time. Most businesses still do not have a clear strategy for how UC will benefit their organisations. They need to be able to identify those UC components that will benefit the company the most and the way in which such components can improve or influence the bottom line. One of the clear benefits that cloud-based UC services offer is that they allow companies to experiment with different UC applications to determine the most beneficial elements for a specific organisation or even for user groups within the organisation. Cloud UC services in practice In December 2009 Cisco and BT made an interesting announcement regarding the launch of what they called pioneering hosted unified communications service. This was the first enterprise-class offering of this type on a global scale. Using cloud-based technology, Cisco and BT will deliver converged voice, mobile and data services, with utility-based, per user pricing and options to include endpoints and call traffic. The offering is based on Cisco’s Hosted Unified Communication Services infrastructure and a provisioning and service activation service fulfilment solution from VOSS. While it is not yet a full-blown UC solution, the service platform is designed as a basis to enable capabilities extension later on. The service could not be launched at a better time because of the current economic conditions. The general macro-economic environment has a significant impact on the cloud-based UC services market. While traditional enterprise communications vendors see a significant revenue decline, economic recession generates strong interest in alternative delivery methods of communications. During an economic downturn, there are increases in cost and a decrease in the availability of capital favour solutions based on operating expense (Opex). Companies have limited capital available for investment, but, at the same time, consider UC deployment as they look for ways to cut costs and increase productivity. Deploying cloud-based UC services allows businesses to limit their upfront capital expenditure. Moreover, cost efficiencies are achieved in terms of moves, adds and changes to the system. Additionally, businesses can reduce their maintenance and support staffing requirements. An economic downturn actually creates a market opportunity in this instance. Market to grow Frost & Sullivan has recently analysed cloud-based UC services in Europe. While currently the market is estimated at 47 million Euros, it is likely to grow rapidly to reach 1.6 billion Euros in 2015. The market is expected to grow at a compound annual growth rate as high as 79 per cent from 2009 to 2015. Although increased market competition will create downward price and margin pressure, the average revenue per user is expected to gradually increase with the growing sophistication of service provided. The research shows that both small businesses and large enterprises are interested in communications delivered as a service. In the case of small businesses, lack of internal IT and telecom skills is a major factor driving market growth. Although traditional Centrex services have not gained much popularity overall in the market they present an attractive alternative for small businesses. Market drivers include economic recession and globalisation Currently, cloud-based UC services have much greater appeal to the small and medium business (SMB) segment as only a few SMBs have the resources to buy, install and manage sophisticated data centres and communications applications. Their employees, though, are just as mobile and multi-tasking as those in large enterprises. The elimination of complexities resulting from managing and integrating multiple applications and vendors, as well as testing a variety of UC applications, is attracting enterprises. While SMBs look for simple service bundles, large enterprises have very specific needs and expect a wide selection of advanced features that they can choose from. The globalisation trend is also boosting cloud-based communications services. The economic globalisation process has an immense impact on the business environment. National and regional economies are increasingly integrated into the international economy through trade, FDI, capital flows, migration and the spread of technologies. Companies are also increasingly global, with offices located all over the world. This geographical dispersion creates the need for streamlining platforms. As an alternative to complex and expensive customer premise-equipment migration, cloud-based communications services can be introduced, delivering the same capabilities to all offices around the globe. The increased availability of hosted UC solutions and both vendors’ and service providers’ marketing efforts increase customer awareness. Additionally, UC market leaders promote the software-as-a-service model in general. Cisco and Microsoft are the two leaders in the nascent UC market with their expertise in IP telephony and IT respectively. They both increase the customer awareness of cloud-based solutions and consequently accelerate customer adoption by promoting cloud-based services. Cisco had advanced into the web conferencing space when it acquired the industry leader, WebEx. WebEx Connect brings together essential collaborative applications into a single interface. Microsoft in turn promotes its hosted messaging and collaboration solutions with Microsoft Online Services. Cloud-based services offer businesses a great level of flexibility. Organisations can rapidly enhance or expand their ICT capacity by adding new services without investing in the development of new skills or deploying new hardware and software. Businesses can decide on the number of seats they need at a given moment and the locations to which they want the capacity to be delivered. They can scale up or down in real time. It enables them to rapidly adapt to sudden changes in business volumes or business strategies. On the other hand, reliability and security issues are among the main concerns of users. However, service provider brand name, service level agreements and successful deployment references are helping in winning customers over. Eventually, the cost-effective ‘pay-as-you-go’ model of cloud services will represent the determining factor, especially in the SMB sector. While the European cloud-based UC services market is still very fragmented, all major enterprise communications providers and vendors show interest in tapping into this opportunity in order to generate new revenue streams and leverage strong customer demand for Opex-based solutions. Although the on-premise model with its control and security advantages will still dominate the enterprise communications market in the nearest future, offerings such as that from Cisco and BT have great market opportunity as the cloud-based services’ share is expected to increase significantly. It will be exciting to see how the communications services market will develop.