I have written some earlier posts on Mitel’s and Siemens’ strategies for the hosted IP telephony/cloud UC market. But there are others that have tapped into this space previously reserved for the telcos (ILECs, CLECs), MSOs, ISPs and some ASPs. I get a lot of questions about BroadSoft, Cisco, Microsoft, IBM, etc. I have now completed my study on North American hosted IP telephony and UC services markets and have some new insights to share. Unfortunately, the individual vendor analysis is too lengthy to post here, but I will share excerpts that more broadly discuss the value proposition of these new business models.
A key new development in the hosted IP telephony and UC services market is the entry of PBX vendors with their own multi-tenant or virtualized (multi-instance) solutions designed specifically for carriers and partners or intended for service delivery out of their own data centers. Cisco’s Hosted Collaboration Solution (HCS) architecture, Mitel’s various hosted/cloud solutions and Siemens’ OpenScape cloud architecture are some examples of these new business models. These platforms are typically more feature-rich than the carrier softswitches and application servers traditionally utilized to deliver multi-tenant business telephony services, but they also offer some additional benefits. For example, Verizon’s UCaaS services based on Cisco’s HCS are positioned as most suitable for the highly demanding large enterprises who wish to integrate the hosted service with their existing Cisco premises-based infrastructure. Also, most of these new architectures are not truly multi-tenant, but are instead using shared hardware and dedicated software, thus addressing some security concerns associated with hosted services.
The new business models are likely to cause some re-alignment in the value chain, with potential advantages and disadvantages for all market participants. Their impact on end users, however, is going to be mostly beneficial as they will be able to choose from a larger number of alternative solutions. For the supply side, the key benefit is ability to focus on core competencies – vendors will be able to leverage their software expertise, data center providers will deliver the most cost-effective server hosting and management, and the diverse range of service providers will focus on customer acquisition and ongoing management, as well as the integration of typical carrier services such as SIP trunking.
- PBX vendors: PBX vendors are likely to benefit from gaining access to a customer base looking to outsource both infrastructure and infrastructure management from a third party. They will also be able to deliver greater value to their channel partners by enabling them to generate recurring revenues by either hosting the platforms themselves or reselling services hosted in a third-party data center. Potential pitfalls for PBX vendors include channel conflicts, if the vendors are also selling hosted/cloud services directly; customer mismanagement, if tiers of support and responsibilities are not clearly defined; and some loss of professional and managed services revenues. Also, customer churn is likely to be greater compared to that experienced in the premises-based business.
- Telcos: Service providers stand to benefit from the opportunity to deliver hosted/cloud services to more demanding customers using advanced telephony and UC platforms previously only available as premises-based solutions. Also, they can realize cost savings and reduce time to market, if the solution is hosted in a third-party data center, as the deployment and integration of multiple servers and software stacks is typically costly and time consuming. Virtualized solutions such as Mitel’s Virtual MCD and Cisco’s HCS also enable them to provide more secure hosted services to customers requiring their own dedicated software while leveraging the benefits of shared hardware and a hosted model. Potential challenges for service providers include the need to maintain multiple versions of vendors’ software stacks (as in the case of Verizon’s implementation of Cisco HCS), and more limited ability to customize the solution when hosted in a third-party data center. Furthermore, the new business model lowers barriers to entry thus potentially leading to increased competition.
- VARs, SIs and MSPs: For VARs, SIs, MSPs and smaller LECs this is an excellent opportunity to expand their portfolio and generate recurring revenues by introducing hosted/cloud-based services without the cost and hassle of acquiring, integrating and running the systems in their own data centers. The cost and complexity of next-generation architectures has prevented this group of market participants from exploring hosted services in earnest. Now they can more successfully compete against larger telcos and premises-based solution vendors by presenting several alternatives to their customers – from premises-based systems, managed in house, to provider-managed on-premises solutions and fully hosted services. With their strong expertise in CPE installation, integration and management and typically better customer service and support, smaller, regional interconnects will now be able to serve their customers even more effectively.
- Business customers: Business customers will benefit from increased availability and diversity of hosted/cloud solutions. As more service providers introduce hosted IP telephony or UC solutions, businesses will be able to choose a partner from a broad range of providers – from large telcos with a substantial brand-name reputation to trusted local system resellers with whom they have long-standing relationships. The increasing competition is likely to result in more competitive prices and better customer service. Also, service offerings now include a large spectrum of alternatives – from low-end basic telephony offerings to comprehensive UC bundles and packages of tightly integrated communications and business applications (e.g. CRM). Furthermore, along with the cost-effective multi-tenant services, providers are now able to address the needs of businesses with high security requirements by using virtualized solutions based on shared hardware but dedicated software.
Today, XO Communications launched the XO Enterprise Cloud Communications services. XO Enterprise Cloud Communications integrates a wide range of IP telephony features, local and long distance calling, enterprise-wide HD voice and video, network services, and IP phone sets in a communications as a service, per-user pricing model. Features of XO Enterprise Cloud Communications include:
- IP Telephony and unified communications applications
- Free local and site-to-site calling within the enterprise
- Long distance calling plans
- Enterprise-wide HD voice and HD video
- Choices of IP phone sets from Cisco and Polycom
- Web portal for managing service for each location and employees
- Quality of Service monitoring
- MPLS IP-VPN network services
- Robust Service Level Agreements for all services
- Business continuity capabilities
XO is looking to target businesses of 50 to 1,000 seats per enterprise, primarily in the education, healthcare, professional services and retail verticals.
What I like about the new offering:
XO has been tremendously successful with its XO IP Flex (also available with a VPN feature), XO SIP and XO Enterprise SIP offerings. The new offering nicely rounds up its SIP/cloud portfolio adding hosted PBX functionality for businesses choosing to outsource their voice communications infrastructure. Leveraging its SIP expertise, intimate knowledge of the BroadSoft platform and MPLS capabilities, XO will be able to deliver a highly reliable cloud-based voice service with managed bandwidth and QoS and carrier-grade SLAs. The option to include phone set costs in monthly recurring charges is likely to appeal to businesses concerned about the upfront costs of replacing existing phone instruments. XO has broad geographic reach and therefore the ability to address the needs of larger, multi-site customers migrating to hosted services. A web portal will allow customers to monitor and manage their cloud services.
XO appears to be a late-comer to the hosted telephony space. Several dozens of service providers have launched hosted IP telephony in the U.S. over the past eight years. However, its cautious approach may prove more successful as it has had the time to master SIP and develop the right capabilities for its target audience. Also, larger businesses are only now beginning to fully understand and appreciate the benefits of hosted/cloud communications which creates more favorable conditions for the delayed launch. Furthermore, XO is looking to position this new offering with a TCO improvement value, rather than the more traditional value proposition of inexpensive long distance or in-house staff replacement of early hosted offerings targeted at smaller businesses of less than 50 users.
Points to be addressed by XO:
Service providers that have been offering hosted voice for some years now are already looking to enhance their solutions with other communications and collaboration application such as conferencing, contact center, messaging, presence and collaboration. XO has contact center capabilities, as well as OCS, Exchange and SharePoint integrations on its roadmap, but immediate comparisons may tip the scales in favor of a competitor. I need to point out that not everyone (in fact, maybe few) larger businesses are looking to immediately outsource their entire communications infrastructure from voice to messaging from a third party. However, the sooner XO announces the ability to deliver a more complete UC package, the greater its competitive advantage is going to be. Also, service providers are increasingly looking to integrate communications with business applications (CRM being the typical low-hanging fruit) based on customer demand, which is something XO will need to explore in the future.
XO claims it has the tools and partnerships in place to manage this service all the way to the desktop. In fact, it offers on-premises probe, usage, network and support services. Hopefully, it handles this aspect properly, because many a service provider have failed associating cloud and hosted with a complete hands-off approach as far as the customer premises are concerned. But a reliable hosted communications service, especially when larger businesses are involved, requires a significant involvement in customer LAN, WAN and CPE upfront assessment and ongoing management.
Global Crossing announced Global Crossing® Communications as a Service (CaaS), which it refers to as “the first phase of its network-centric, cloud-based solution set.” It is positioned as combining Global Crossing IP Virtual Private Network (IP VPN), Session Initiated Protocol (SIP) Trunking, and Global Crossing Ready Access® hosted audio conferencing services to provide “a tailor-made collaboration experience”. These combined capabilities also support the functionality of Global Crossing Connect Mobile, which enables users to join or host an audio conference from popular mobile devices by clicking on an icon and also syncs meetings with users’ calendars.
What I like about the new offering:
Global Crossing has a long and successful track record in network management and delivering network-based services to both service provider partners (using a wholesale business model) and directly to enterprise customers. Its expertise in IP VPN and SIP trunking technologies offers a solid foundation for the delivery of cloud-based communications applications. Also, the new shared-seat billing model (with monthly fees replacing per-minute plans) is likely to appeal to customers as it makes communications costs more predictable and easier to manage. Finally, the offering is integrated with the uCommand customer portal, which empowers in-house IT staff to closely monitor and manage the organization’s use of cloud services.
What begs further investigation:
It is not clear from the press release exactly how Global Crossing’s IP VPN, SIP Trunking and hosted audio conferencing services are coming together. Since these services have been around for a while, it is not clear what has changed, except for the new billing model. I am intrigued by the pending addition of telephony, video, messaging and presence services to the CaaS suite, which will mark Global Crossing’s foray into the world of cloud-based Unified Communications (UC). What makes this potential move especially interesting is the fact that Global Crossing’s customer base consists of mostly large enterprises. Since, so far, most hosted telephony and UC services have been targeted at SMBs, Global Crossing has an opportunity to differentiate and offer unique value in an untapped (from a CaaS point of view) market segment.
Today we woke up to multiple “cloud” announcements at Enterprise Connect, including those by Global Crossing, Siemens Enterprise Communications, Verizon and XO Communications. I am sure I missed some. This proves that cloud is top of mind for many industry participants and we are bound to see a proliferation of cloud offerings throughout the year and going forward.
I understand there was also a cloud panel discussion that took place this morning. Since I am not attending the event, all I can tell (judging by various tweets) is that the definition of cloud is only getting cloudier. While customer awareness of the benefits of cloud services is increasing and is likely to drive demand, it is too early for vendors and service providers to sit and watch their R&D efforts bear fruit. Education and continued focus on understanding customer needs and developing viable go-to-market strategies will be needed for cloud services to live up to their hype.
I intend to follow up with some brief comments on the key announcements mentioned above.
Are you at VoiceCon? If you are, make sure you visit Siemens’ booth for a demo of a potential CaaS offering residing in Amazon’s EC2 environment. Unfortunately, I cannot make it to Orlando this year, but I can’t wait to hear/see more details. (And no, the picture above is not part of the demo :))
Not only does this eventual partnership bring Siemens to the forefront of UC innovation once again, but it can also give a boost to hosted UC and Communications as a Service (CaaS), as well as to UC, in general. Such a partnership marks a trend that will grow over the next few years and will be eagerly pursued by all leading communication and business application vendors. Time to market is a critical factor, though, and the trend-setters can both gain a competitive advantage and/or suffer the consequences of market immaturity. For the sake of Siemens, their customers and even their competitors, I hope they do it right from the start!
A potential OpenScape deployment in the Amazon cloud is significant, because it opens up a whole new growth opportunity for UC. As a hosted (CaaS, cloud) offering, it provides flexibility and a less risky entry point for customers that are willing to trial UC but have limited capital budgets. By leveraging a partner that already has an enormous brand recognition and marketing abilities, Siemens has just created a channel for its UC solution, that expands its addressable market well beyond the reach of its direct sales force.
It is too early to predict exactly how successful this partnership is going to be, but we can speculate. Although demand for CaaS and UC in general is growing, even a joint endeavor of this magnitude cannot overcome the numerous barriers to adoption including the general economic climate, availability of legacy infrastructure and customer hesitation about which vendors and platforms to choose. Further, while this partnership creates marketing and sales opportunities, how will services be handled? Which party will businesses turn to for CPE (phones, gateways, etc.) installation, maintenance and evolution/migration? If the entire premise-based infrastructure is up-to-date and all that’s needed is a hosted presence component, it may be a favorable scenario for this kind of solution. But if the CPE needs to be upgraded, will customers handle the migration and the new integration with the hosted service or will they call someone and who would that be?
There are a lot of further implications from that announcement. For example, this CaaS solution threatens hosted UC providers that are dependent upon their hosted telephony business to grow. Given the larger CPE base, a hosted UC platform that integrates with premise-based solutions has a greater potential than end-to-end hosted services. With Siemens’ superior OpenScape voice capabilities, a fully hosted package, if properly delivered (from sales to installation to management) can dramatically impact the hosted telephony and hosted UC markets, which are currently very fragmented and populated by multiple small providers with limited technology capabilities and sales resources.
Overall, a potential OpenScape UC in the cloud is good news for the industry and worth monitoring closely going forward. The concept is great, but let’s see how Siemens handles the execution.
Do you think soon we will be shopping for communication services like we do for books and CDs? Will we trust what we see on the Internet? Won’t businesses still look for a more direct touch, e.g. a call/visit by a knowledgeable consultant? Is the Amazon brand as popular with businesses for business solution shopping as it is with consumers? I have many questions. Let me know if you have the answers.
As we tried to (re)define SaaS and evaluate how different enterprise applications fit into this model, we assessed the different UC platforms from a SaaS point of view.
As I have previosuly stated, given the interoperability challenges when integrating disparate applications into an end-to-end unified communications solution, a pre-integrated service package offered on a hosted/SaaS basis provides great value to business users. But how flexible are service provider application platforms for a SaaS model given that most businesses have some existing premise-based infrastructure? And is SaaS really a panacea for the ailing communications market?
Let’s start by saying that, according to my colleague Melanie Turek (please see her post on SaaS – Enterprise 2.0 Blog » Melanie Turek, as well as Software as a Service: Everything Old is New Again), the SaaS story actually dates back to the dot.com era and the hype around the ASP model. In the old days, most hosted platforms were as monolithic as premise-based solutions which gave little chance to service providers to add more value to the service or differentiate. Today, it is still difficult to figure out to what extent different hosted IP services can also be considered SaaS. SaaS and hosted services bear a lot of similarities; yet, SaaS implies Web-based applications and also the ability of the service provider to manipulate, manage, upgrade, etc. the applications and fully control the back end of the platform in order to provide flexible services to its customers.
Open (understandably, somewhat of an arbitrary term), SIP-based platforms are opening up new opportunities for service providers today. Looking at the IP hosted telephony space, we can see that several of the service providers deploying a BroadSoft platform (including former General Bandwidth/Tekelec/VocalData and Sylantro solutions) have enhanced their service offerings by adding their own applications and improving the backend capabilities for faster and easier quotes, provisioning and service management. Some of the hosted IP telephony providers such as CallTower, Cypress Communications, Engage Incorporated, M5, Smoothstone, Vantage Communications and others have sought to deliver various communication and business applications (telephony, call control/contact center applications, chat/presence, etc., CRM) packaged in a SaaS/CaaS (Communications as a Service) manner.
BroadSoft is opening up its APIs for mashups and the potential integration of its voice communication platform with other applications for the delivery of more comprehensive service packages from the “cloud”. Not long ago it enabled the integration of services delivered on the BroadWorks platfrom with salesforce.com. More recently, LightEdge introduced a hosted UC package based on BroadSoft’s telephony platform and OCS, which shows that there exists a viable opportunity for service providers deploying BroadSoft solutions to expand their offerings with UC capabilities.
As mentioned in a previous post, UC platforms such as OCS and MCS currently used by CallTower and Cypress Communications, the two hosted UC leaders today, do not scale easily to multi-vendor PBX environments, which has pre-determined these providers’ business models whereby they offer a full package of telephony, VM/UM + chat/presence/UC + conferencing capabilities to their customers. This model certainly has its value and benefits to both the providers and their customers, however, it limits the overall target audience to those customers that do not have PBXs.
Cypress Communications, well ahead of everyone else with over 10,000 hosted UC seats today, claims that its Nortel infrastructure – MCS5200 and CS2000 – is one of the best solutions for delivering hosted communications to businesses. CS2000 is a scalable, robust, feature-rich platform that provides all the enterprise telephony capabilities required by business users. MCS52000, on the other hand, is one of the leading UC platforms available on the market today. I would like to point out, however, that Cypress Communications has been able to successfully leverage the capabilities of these platforms to grow its hosted UC base because of its ability to support the service all the way to the desktop including the router and the LAN switch.
CallTower, on the other hand, has experienced slower growth with its hosted telephony offering based on a Cisco UC Manager, but is looking to accelerate sales with a more comprehensive hosted UC package including network-based OCS. Going forward, CallTower is planning to leverage OCS for telephony as well.
There is a third company offering hosted UC and it’s probably the very first company that tapped into this opportunity four years ago – Engage Incorporated. Engage uses Siemens’ OpenScape to deliver voice as well as a number of other communication applications to its customers on a SaaS basis. Engage has had somewhat of a limited success as it has so far tried to bundle communications with other business applications – CRM, ERP, etc. – delivered as SaaS. OpenScape provides it with a unique competitive advantage, however, as it integrates with any PBX, any IM/chat client and any other vendor’s applications. It is one of the most open technologies available on the market today and is uniquely positioned as it does not seek to replace existing telephony or IM solutions but rather acts as the glue that converts disparate applications into a comprehensive unified communications environment.
While most service providers currently involved or considering hosted UC options already have some hosted/SaaS offerings – some started with email, others with telephony, yet others with CRM, etc. – going forward, hosted UC will provide an attractive revenue opportunity for telcos, VARs, etc., that do not yet have any hosted apps in their portfolio. Such providers may wish to consider OpenScape UC as it can enable them to integrate with multiple different premise-based infrastructure environments. Further, HiPath 8000 (OpenScape Voice) can enhance such service provider offerings with a telephony option as well. Developed from a softswitch and providing a robust PBX feature set, it provides a competitive alternative to existing hosted telephony platforms.
Siemens has long claimed to be striving to become a services company and with its open communications approach it seems well positioned to become one of the leading CaaS providers. Partnerships are going to be critical for its success in that space.
SaaS, and communications as a service, in particular, is not a panacea, neither today in the economic downturn, nor in the long term. It does offer a growth opportunity for service providers, however, and a viable option for businesses to test and trial new technologies and applications. Selecting the right platform from the start is going to determine each provider’s success in this space. Therefore, decision makers need to evaluate not only the existing platforms and their capabilities, but also each vendor’s vision and roadmap in order to make the right choice.