I know I have dedicated quite a bit of blog space to discussing cloud and hosted communications. I have also, however, pointed out that premises-based solutions will continue to dominate the market for a long time to come. Growth in this market will be driven primarily by the replacement of the installed TDM base with advanced IP telephony solutions.
Multiple trends are converging to drive further penetration of IP telephony into the business market. The technology has matured, and concerns over voice quality related to jitter, echo, and packet loss are rapidly dissolving. Moreover, high definition (HD) voice is now promising to give end users a superior experience compared with TDM communications. Furthermore, the cost of advanced IP telephony solutions (including platforms, endpoints, and media gateways) is continuously declining, making them an appealing investment even for the more cost-conscious customers. The available pool of professional and managed services expertise is also continuously expanding, driving down the cost of IP telephony implementation and support. Finally, SIP is quickly becoming the de-facto standard for voice communications, and its wider adoption is enabling businesses to take advantage of IP telephony’s full array of communications benefits.
The above chart shows the evolution of convergence technologies and their value to businesses over time. Over the past 10 years, IP telephony has evolved and asserted itself as the communications foundation of the future. Today, we are at a juncture where customers have acknowledged the value of network convergence and are rapidly deploying IP telephony. We are estimating that about half of all business telephony users are on IP or converged systems, though only about 30% use IP endpoints. It is important to note, however, that convergence is a gradual, stepped process for most organizations even today. Most start small and then look to grow bigger by adding more capabilities, more sites, etc.
As UC technologies mature and decision makers become more aware of the benefits of UC, forward-looking businesses are beginning to transition to the next stage of convergence – that of application integration. Yet, it will be at least 3 to 4 years before UC becomes truly mainstream and more businesses integrate communications into business processes. For customers to transition to that final stage and realize the strategic benefits of communications-enabled business processes (CEBP), technologies need to mature further and become more exposed to the larger developer community so they can develop specific applications for specific uses.
My colleague Alaa Saayed just completed our World Enterprise Telephony Platforms and Endpoints research and here below are some of his findings.
The year 2009 can be defined as a very challenging, yet interesting year, characterized by landmark events and trends that will have a long-term impact on both technology evolution and competitive dynamics. On the negative side, 2009 was marked by worsened macroeconomic conditions, rising unemployment rates and a significant reduction of technology investments. Not only did the economic turmoil cause the sales of almost all major enterprise telephony vendors to decline at double-digit rates, but it also caused the demise of the former telco giant and one of the world’s premier technology companies – Nortel.
Nonetheless, history has shown that pulling out of recession often comes on the back of innovation and continued investment in technology development. In fact, the enterprise telephony sector has been one of the fastest and most efficient sectors to quickly adapt to these new challenging market conditions. Important actions that were taken to fight back the negative impact of the recession included major acquisitions and reorganizations (e.g. HP/3Com and Avaya/Nortel), the introduction of new flexible IP telephony solutions, the implementation of very aggressive customer programs, and increased focus on channel expansion strategies. Furthermore, 2009 was also marked by a significant uptake in certain advanced technologies and innovative delivery models such as SIP trunking, virtualization, hosted communications/ Communications as a Service (CaaS) offerings, SIP and SOA-based architectures (e.g. Avaya Aura), and professional and managed services. Finally, although it slowed down the pace, the economy did not completely stop the evolution of some of the key trends of previous years including enterprise mobility, collaboration, social media and open-source telephony. Social media, for example, enabled many telephony vendors to use non-conventional marketing methods to promote and communicate the value of their products and solutions throughout the recession.
It is no surprise the market plunged in 2009, but we do expect a modest recovery in 2010, with North America and APAC leading the way out of the recession and Europe maybe experiencing some continued challenges. This year, we expect positive growth in units, but close to 0% revenue growth. In the near term, there may be some continued hesitation in investment decisions– some Nortel customers debating what route to take, others waiting for Wave 14 to prove its value, yet others looking for cloud models to mature.
Over the next 5 to 6 years, however, we are projecting about 1% growth in revenues and about 3% to 4% growth in unit shipments. We expect customers with TDM systems to pursue IP telephony for both cost savings and productivity benefits, laying the foundation for advanced IP apps and future UC implementations. Infrastructure consolidation through SIP and SOA will be the other two drivers for IP telephony migration and further investments in this space. Towards the end of the forecast period, the user base should be almost all converted to IP , barring the impact of some unforeseen disruptive events. Cloud technologies may begin to have a larger impact in the long term restraining PBX line shipments towards 2014 and 2015.
Avaya-Nortel: SIP Architecture Becomes Foundation for New Product Roadmap
As I listened to Avaya’s new roadmap announcement on January 19th and wondered if they made all the right decisions, I couldn’t help thinking about the complexity of an M&A process and its implications for everyone involved. This article is not about the specific product choices Avaya made, although I thought they did a good job taking multiple factors into consideration including product features and capabilities, customer and partner investment protection concerns, and vision for the evolution of the total portfolio and architecture. Extending the life of most Nortel products for another 18 to 30 months and continued support for Nortel’s more advanced and unique products such as Nortel’s AS5300 were good calls. I was surprised to see so many end users inquire about the fate of the Call Pilot and I am glad Avaya had some good news for these customers. I also thought Avaya’s decision to keep and evolve ACE was the right one as I believe ACE and application enablement will be key for its competitive positioning going forward.
It is only natural that Avaya intends to eventually merge and integrate all products and solutions into the Aura architecture. Aura is a technological framework (and not just packaging or a marketing term) based on SIP and SOA, and it makes sense for Avaya to look to integrate its now extended product line into the same vision or framework. It will be critical for Avaya to continue evolving this framework with an eye on new technological developments and customer and partner needs.
Application Enablement and Openness Drive New Competitive Dynamics
I think we should, however, look at the Avaya-Nortel acquisition from another angle as well. It provides an example of portfolio integration challenges and possibilities in the context of current technology trends towards greater openness and interoperability.
The shift to open standards, SIP and SOA is now making such acquisitions less painful than they used to be in the past – for the merging vendors, the channel partners, and their business customers. It will take Avaya less time and effort to integrate the best-of-breed applications of both vendors into its Aura framework because of the greater openness and interoperability of both vendors’ advanced communications solutions. Customers can more cost-efficiently mix and match platforms and aplications, not only from these two vendors, but from other vendors as well, since communications are becoming more software-centric and standards-based. Overall, today, customer investments are better protected and less vulnerable in case of abrupt changes in competitive dynamics.
In Avaya’s case, SIP, Aura and ACE will play key roles in delivering a more flexible and cost-effective migration path to its customers. Other vendors have their own next-generation architectures and application enablement environments that allow them to integrate with competitors’ platforms and applications. The capabilities of each vendor’s application enablement technologies vary from a more limited set designed to integrate communications with messaging and presence platforms (e.g. Avaya’s AES) to a broad range of capabilities including integrations with messaging, presence, business process, Web 2.0, mobile, and contact center applications, TV and video broadcasting, etc (e.g. Nortel’s ACE).
As unified communications become further integrated with digital content, business process applications and other, non-communication technologies enabling “contextually-rich communications” and “communications-enabled business processes (CEBP)”, vendors will need to open their solutions and create tools for customers, partners or their professional services arms to develop custom solutions addressing specific customer needs. Such tools and application enablement environments can be made available to large communities in the cloud so that multiple parties can contribute to the process of creating new applications and mashups. Some of these new mashed-up applications that can be deployed out of the box can eventually become productized to provide a more cost-efficient alternative to SMBs and a new revenue stream for vendors.
Application enablement capabilities will be key for all communications vendors going forward, but they will be even more critical for vendors providing best-of-breed solutions designed to operate in multi-vendor environments.
Of course, vendors have a long way to go before standards become truly open and customers can seamlessly, quickly and easily integrate multi-vendor applications. SIP, though touted as the communications standard of the future, in its pure form offers only a limited set of features. Entirely or partially proprietary solutions still offer better features and capabilities than most open-standard ones. Therefore, although most vendors claim SIP support, the different versions of SIP used along with the proprietary enhancements are not entirely interoperable.
Most likely, the cloud and cloud-based communications will help push further the frontiers of openness and interoperability. Instead of connecting multi-vendor applications and platforms individually at each customer’s premises, vendors can integrate more economically and on a larger scale in the cloud, delivering choice and flexibility to their customers unmatched in the premises-based world. In the beginning, many of these cloud-based services will be simple and will only offer some lowest common-denominator capabilities, but will enable some integrations out of the box, sparing customers the hassle and the cost of complex integration processes taking place in premises-based installations.
Partnerships, Alliances and M&A in a More Open Communications World
Customer demand for application integration will drive vendor efforts towards greater interoperability and co-opetition. Improving standardization and openness in communications technologies, in turn, will enable vendors to more easily engage in partnerships and alliances in order to deliver greater value to their customers.
There are multiple reasons why companies wish to merge. Most often, they are looking for new revenues streams, but also – for opportunities to more tightly integrate their technologies and deliver a one-stop shop value proposition to customers. Will more open architectures reduce the appeal of complex M&A processes in favor of partnerships and alliances? Should we expect further market concentration or the proliferation of more innovative and nimble market participants providing business customers with a wide array of options?
Power in the top tier has become concentrated, but the SMB market remains quite fragmented. While it will become less appealing to go through an M&A for the purposes of ensuring technology integration, it will also become less challenging to integrate portfolios in case of an M&A. M&A will likely take place for the purposes of acquiring installed bases, skill sets and business models (e.g. professional/managed services), simply eliminating a competitor, or for geographic expansion. I believe both trends (consolidation and fragmentation) will persist, but the drivers behind vendors’ business model decisions will change. What do you think?
Picture above: IMS architecture; Source: Wikipedia, March 30, 2009
Avaya’s new Aura solution marks a major step in the evolution of business communications. The Avaya Aura architecture with the Aura Session Manager changes the way business users communicate and collaborate by de-coupling the network from the applications. The centralized management of applications across multi-vendor platforms and the ability to propagate features and capabilities based on user profiles and business functions provides businesses with a greater flexibility and cost efficiencies.
The Avaya Aura architecture includes the Avaya Communication Manager, Presence Services, and Application Enablement Services with Integrated Manager. The key element of the new architecture is the Aura Session Manager based on the Ubiquity SIP application server acquired by Avaya in 2007. Packaging all elements together makes it more convenient for businesses to implement the solution and leverage all of its benefits.
The concept of separating the network from the applications is not new as it has been pursued by service providers and carrier infrastructure vendors (such as Ubiquity) for some time now as part of the IMS (IP Multimedia Subsystem) trend; however, it has mostly been associated with the service provider space. This is not the first time when a service provider solution has been brought into the enterprise world, either – Siemens’ OpenScape Voice (former HiPath 8000), originally a service provider softswitch later converted into an enterprise IP telephony platform – is a great example. This announcement is significant, however, because it shows Avaya is on the right track, further breaking away from its proprietary-system, legacy-vendor past.
Overall, the Avaya Aura product release is very good news to the industry as it clearly demonstrates that vendors are still innovating in spite of the recession and the consolidation in the enterprise communications market. It is great news that Avaya is looking to modernize its portfolio and dramatically change its approach to business communications, and that it can do so (i.e. has the financial capabilities and a clear vision) under its new ownership and management. We would be remiss, though, if we did not mention the challenges. The economy aside, Avaya’s competitors are not sitting idly. Flexible and economical Cloud Computing and Communications as a Service (CaaS) offerings, on one hand, and all-in-one platforms such as OCS, reducing endpoint and server costs, on the other, are probably the two biggest threats Avaya should worry about. Hopefully, Avaya’s loyal customer base and expanding channel will help this new solution gain rapid traction in spite of the challenges.