Taking the Pulse of the Enterprise Communications Platforms Market

How is the on-premises enterprise communications platform market performing? The answer is far from optimistic.

Enterprise Communications

If you are a tech-savvy reader, you would have noticed that the enterprise communications and collaboration market has been shifting away from on-premises systems to hosted or cloud solutions. In fact, at least 90% of today’s enterprise communications articles relate to cloud trends and issues. Eight to 10 years ago, it was the other way round.

The truth is that hosted/cloud-based communications have advanced by leaps and bounds during this time. In 2015, the global hosted IP telephony and UCC services installed base grew by 36% and the market is expected to see double-digit growth rates going forward. Frost & Sullivan analysis shows that hosted IP telephony and UCC services will grow from 8% of total business users in 2015 to around 29% by 2022. Furthermore, a recent Frost & Sullivan survey, which interviewed 1,980 IT decision makers, found that while 31% of respondents have already moved their enterprise telephony infrastructure to the cloud, around 44% plan to do so within the coming one to three years.

All this leaves us with an important question in mind: How is the on-premises enterprise communications platform market performing? The answer is far from optimistic: The industry’s dramatic shift of attention towards cloud has considerably affected on-premises enterprise communications platforms sales. In 2015 total global line license shipments dropped 5.4% to 40.9 million, while total call control revenue slumped 9.4% to $4.3 billion.

Will we see any recovery within the coming years? No. After the 2009 economic crisis, IT spend on premises-based equipment has considerably decreased and will not return back to previous levels. While many businesses have been either migrating or considering migrating to hosted/cloud-based communication solutions, other organizations are delaying their move to newer models of on-premises systems by an additional three to five years due to economic uncertainties.

While the scenario is very complicated, some pockets of growth are still expected in the on-premises communications systems market. Growth opportunities exist among the remaining legacy TDM system customer base; enterprises that are still not comfortable with hosted/cloud-based deployments; businesses opting for a subscription-based OPEX model to upgrade their premises-based communications platforms; and developing regions such as Latin America, Eastern Europe, and Asia Pacific. In spite of this, however, we are projecting negative seven-year CAGR in the premises-based solutions market.

What about enterprise endpoints? First of all, we continue to maintain that desktop phones are definitely not dead. While TDM (analog and digital) phone shipments continued to decrease, IP desktop phones grew by 5.8% to 21.6 million in 2015. Proprietary IP desktop phones deployed with premises-based systems are expected to gradually decrease, but SIP phones continue their fast-paced evolution, reaching new customer segments and delivering more functionality to businesses. The number-one driver for SIP phone growth is, in fact, hosted/cloud-based communications adoption. Both proprietary and SIP-based IP desktop phones used within hosted communications environments are expected to grow considerably, positively impacting the total number of IP phone shipments.

Were IP desktop phones the only hard phones to grow in the past year? No. Indoor mobile devices, such as DECT and WiFi phones, also grew in 2015 by 5%, showing that these technologies provide suitable options for both vertical-specific industries and the carpeted office. While it is undeniable that smartphones and specialized communications applications are affecting the shipment of these types of wireless devices, many businesses are still opting to use them for security, quality, and reliability reasons.

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Finally, what are the projections for UC clients? Positive, yet less aggressive than they used to be. In 2015, IP desktop communications client license shipments grew at a much slower pace compared to previous years.

Some of the main reasons behind the drop in UC client shipments can be attributed to the “Microsoft Effect,” which refers to uncertainties related to new Skype for Business announcements; the introduction of new hosted/cloud-based communications solutions from vendors such as Microsoft and Cisco, resulting in a chilling effect on technology investment decisions; and the general trend of discontinuing premise-based UC investments.

In spite of this, Frost & Sullivan expects adoption of communications clients to accelerate again in 2016 due to increased growth of UC clients in the hosted/cloud-based communications space, the rising appeal of a new breed of collaboration clients, and extensive vendor promotions.

Enterprise communications vendors should keep a close eye on the latest software communications deployments in the market. First, new messaging-centric collaborative applications (e.g., Slack or HipChat) that offer basic peer-to-peer calling are penetrating enterprises and directly competing against telephony-centric collaborative clients (e.g., Unify’s Circuit or Cisco’s Spark), which offer additional capabilities such as PSTN connectivity and advanced PBX functionality. Second, new software communications consumption models, including cloud-based communications APIs, are gaining considerable popularity and challenging the existing commercial models based on charging for an independent UC client license. Enterprise UC vendors should pay close attention to the changes in the UC realm and adapt delivery models, pricing, and offerings, accordingly.

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