Unified Communications Year-End Review
As our year-end tradition, the UCStrategies team sat down to discuss our thoughts on the status of unified communications – how far we’ve come in the past year, and what the future holds. Here is the synopsis of our observations of the UC industry in 2008.
Question: What are the top three things you would highlight for 2008?
Jim:
1. Industry consolidation started in 2007 but took shape in 2008. It takes time to integrate major acquisitions such as Cisco's acquisition of WebEx and Mitel's acquisition of Inter-Tel. It also takes time for companies that have changed their business model/ownership to reorganize, as has been the case with Avaya. By the end of this year, we have seen major changes and progress on the above examples. In 2008 we saw the Gores Group creating a joint venture/acquisition with Siemens’ Enterprise Communications group. As the market evolves, we will see more industry consolidation, which may include a few corporate failures. Nortel may be the first major casualty with a market cap under $150 million, as of this writing.
2. Vendor repositioning evolved in 2008, with vendors trying to differentiate their products and services earlier in the year. By year’s end many came to realize that this effort had confused customers and slowed down sales. And, along with the economic challenges, many have recognized that UC-U (integrating silos of communications) with its soft ROI was going to be more difficult to sell. They have started repositioning/promoting UC-B, (integrating communications into a business process) which often delivers a solid ROI in less than 12 months.
3. The success of several UC vendors during the past year is a good indication of which companies will become the market leaders. Cisco, IBM, and Microsoft all had good results in this emerging market in 2008. They are likely to become the industry leaders. But, there are others to watch. Avaya has gone through a major reorganization, and has repositioned its products and company. The new Siemens, which has always had a superior product, is now well-positioned after being acquired by the Gores group. NEC is another that should not be forgotten; the company has reorganized and placed an emphasis on providing end-user centric solutions
Marty:
1. The successes are now tangible. Hundreds of valid case studies are now published – both text and video – with solid benefits and some ROI data. A fair number of them even involve business process changes, or what we call UC-Business Process (UC-B). So, the ball is rolling and it can’t be stopped now.
2. The pricing just keeps working in favor of Unified Communications. The Unified Communications suites such as Microsoft OCS, IBM Sametime, Siemens OpenScape, or Cisco Webex Connect really lower the cost of collaborative communications and are ready for prime time in a large number of workgroup cases. Meanwhile, the PBX providers are responding by bundling UC into their PBX offers – this will make UC tools and solutions even more accessible, though the need to buy a PBX or upgrade as part of the deal works against that approach.
3. The scuttlebutt is that the major software-based UC producers are hitting their targets. If this is true, then we’re off to the races with UC as the primary vehicle for enterprise communications into the future.
Blair:
1. We’re seeing many more partnerships and alliances – vendors like IBM and Microsoft are working together to make headway toward UC interoperability, and we’re seeing more interoperability testing from many of the leading UC vendors.
2. I’m also impressed with the new uses of social networking/social software, and the integration of some of this with UC (IBM is a great example, and other companies like Alcatel-Lucent are also making headway in this area).
3. We’ve also seen more focus on the end users – UC vendors recognize that the real value of UC is in the integration with business processes (UC-Business Process, or UC-B), and many vendors are now focusing their efforts on working with end users (as opposed to just the IT managers) in order to understand how UC can improve and remove the human latency from those business processes. There’s still a lot of work to be done in this area, but in 2008 we saw many vendors start to move in this direction.
Don:
Jim, Marty, and Blair have commented about areas of substantial headway. Let me note some important beginnings – glimmerings in 2008 that I anticipate will accelerate and grow in 2009 and beyond, even with (or for some, because of) the dampening effort of the current economic climate.
1. Presence federation, aggregation, and integration. Effective presence capabilities will increasingly be at the heart of most UC applications. Yet, no single vendor is going to “own” UC throughout most enterprises, so robust presence information must be shared between components. While some vendors have promised presence openness from the start, others had developed proprietary approaches or a two-tiered approach in which more detailed data wasn’t shared. 2008 saw some important, initial steps on openness, including a) Cisco’s acquisition of Jabber, an early open leader, b) the initial agreements between IBM and Microsoft about presence information sharing, and c) the interest by other leading vendors in participating in open discussions. There is much more to be done; but these are critical first steps.
2. Increasingly, enterprises “get it”. It’s heartening to see the growing numbers of companies that are approaching their investigation of UC opportunities holistically. More and more companies understand that UC isn’t just an add-on to a PBX replacement. In 2008, we had several clients who had already convened a project team that included IT and LOB managers, with the intent of working together to discover and prioritize the best UC applications in their environment. The message is getting through, and enterprises are acting on it.
3. Understanding UC. Despite the fact that vendors need to sell products, and appropriation requests center on the box that is purchased, UC isn’t a product or a system or a technology. Increasingly, vendor managers and enterprise architects are understanding that UC is a way of thinking about how communications fits into getting work accomplished. It’s similar to the internet, which has become a new way of a) interacting with others, b) getting information, c) having fun, d) and more. Another example is CTI, which at the time it came out in the mid- to late-1980s was a similar “hot” industry. Back then, I wrote that “CTI will be successful when it disappears from view. It will be there, but won’t be noticed, because it will just be part of how things work.” Twenty years later, that’s pretty much how CTI has developed. Industry thought leaders are starting to see unified communications in a similar light. It will be embedded into all sorts of applications, software solutions, operating systems, and devices. It’s not something that businesses will think about or even justify. UC will just be there as part of the fabric of how things get done.
Question: What were your biggest disappointments related to UC for 2008?
Marty: Three things struck me as mixed results in 2008:
1. Pricing of UC by IP PBX producers. The good news, as forecasted, is that the prices for IP Telephony are coming down, since IP Telephony volumes are allowing an averaging of software investments across more buyers/endpoints, since standards (such as SIP) are allowing more competition for devices and servers, and since the software-based solutions are reducing customer time and expense vs. installing hardware-based products. But the disappointment is that UC application software is now being bundled with the new releases of the IP PBX products, both to sustain the price points of “IP Telephony” and to add value to the IP Telephony sales proposition. This reduces the availability of UC solutions for the installed customer base (comprising about 9x more end users than are sold a new IP PBX endpoint in any year), and raises the cost of adopting UC applications, since the IP telephony prices are included. I won’t go vendor by vendor, but the pattern is clear.
2. Channel Adoption of UC Initiatives. The good news is that some Systems Integrators and VARs have announced major programs for UC, as we have commented on in UC eWeekly articles this year. However, this is not yet widespread and some VARs and SIs seem to just “have UC as an option” rather than learning about how to “lead with UC”. Since UC delivers many multiples of value over and above basic IP Telephony or Unified Messaging, it would be good to see more UC commitments. Unfortunately, some will further postpone their UC investments during this recessionary cycle.
3. Customer Priorities. The good news, as mentioned elsewhere in this article, in our UC eWeeklies and at VoiceCon, is that customers are moving forward. The disappointment is that more customers are not making those moves or are planning to invest in UC after getting their IP Telephony projects completed. These latter customers are very likely to waste both time and money migrating phones when they could have spent the resources on the business process improvements (UC-B) and user productivity (UC-U) gains that are already available with UC. In addition, it is often the case that a well-done UC program will reduce the scope of the IP PBX investment, so there’s potential for eliminating [or reducing] duplicate or unnecessary spending.
Jim: Like Marty, three things struck me – but from a different perspective.
1. Market confusion on the definition of UC is my single biggest disappointment. Vendors have tried to differentiate their offerings by using inappropriate definitions of UC. Many have rebranded existing products and added “UC” to the product description when they do not integrate with other UC components.
2. The industry has not focused on UC-Business Process - integrating communications into a business process. Vendors, the channel, and many consultants and analysts do not appear to have the knowledge to promote the most important part of UC - the part that provides the best ROI and can provide the enterprise with many other “hard” advantages, like improved customer service, competitive advantages and improved employee productivity.
3. The channel is slow to evolve from selling “boxes” to consultative selling. This is one of the biggest challenges for our industry and the vendors that can transition their channel first will become market leaders.
Don: While Marty notes a growing number of great case studies and I commented about companies “getting it”, I feel that the majority of enterprises still don’t understand the potential of UC, or know how to figure out what makes sense for their company. There are a number of causes:
• The trade pubs are STILL awash with “What is it?” opinion pieces. And, there is still head-scratching about UC = UM, or UC = VoIP, or UC = IP PBX. Part of this is vendor-caused confusion as each jockeys for position with their current product line; part of it is that anyone can post anything on the Internet, and thus there is a lot of misguided “information” afoot.
• Too frequently, UC is viewed as an add-on to a PBX replacement purchase, rather than a stand-alone opportunity to dramatically change how business is accomplished. While UC can certainly enhance the user value of a replacement for an end-of-life system, it can do much more than that, too.
• Too often, the UC implementation is solely an IT initiative. It’s in the bowels of the business units where communications bottlenecks are most disruptive – not in IT. A pilot based solely in the IT shop will find some individual user (UC-U) improvements, but much less frequently the opportunities to change business processes (UC-B), where the real ROI exists.
• An IT initiative often means that the LOB management isn’t involved with their insights about opportunities. And if the end users aren’t brought into the picture, then it’s more difficult to introduce good change leadership practices, which are frequently an important component in introducing new ways of oing things.
• Finally, apart from some innovative SIs and VARs, the sales channels generally aren’t doing a good job of helping the customer understand fundamental UC concepts and how their products best fit into a particular situation. In some cases, there are compensation issues. But more generally the challenge is that UC-U is easier to understand and implement than UC-B, even though it likely won’t bring the greatest payoff. Moreover, a UC-U sale usually involves licenses for a broad range of employees; UC-B may be focused on a much more targeted audience. Therefore, UC-U receives most of the emphasis.
For all these reasons, too many enterprises still have too narrow a view of UC’s potential within their company. We’re working on correcting that!
Blair: My main disappointment is that we haven’t made much headway in ROI tools or in ways of proving the value of UC to end users. We need to get past “improved productivity,” to how much productivity is being improved by and how this relates to and impacts the company’s bottom line. I’m also disappointed that no one’s really broken the code on how to sell UC to end users. Several vendors have stated that they’re now focusing on the end user, rather than the IT manager - but how do you reach and sell to the end user? It’s the business managers who are the ones who will reap the benefits of UC, but it’s hard to get the IT managers to work with the business managers and understand their business processes.
Question: How is the outlook for UC?
Blair: The outlook for UC prior to the economic meltdown was looking good, and UC was picking up strong momentum, but now all bets are off. In my UC market study, “Unified Communications 2007-2012,” I estimated very strong growth for both the total gross UC market (the total revenues for all of the UC components added together) and for the net “true” UC market (the segment of the total market that is being used as part of UC implementations). I still believe that the outlook for UC is strong, but it will take a little longer to get there since many companies will be holding off on capital expenditures for the next year or so. Smart companies will still invest in UC as a way to help enhance customer relationships, increase revenues, and reduce costs, but the UC projects will probably be scaled back in terms of size and scope.
Don: 2009 will see the beginnings of packaged solutions designed for specific vertical market applications. These tailored solutions, specific to a particular business sector or problem, may get the most traction in a belt-tightening environment. The UC market will evolve with many similarities to the data processing revolution three decades ago. Just as then, applications developers with domain expertise in a particular field will use APIs and SDKs coming from the vendors to create software suites with embedded unified communications functionality.
In many cases, this will be accomplished by adding UC functions to existing software applications, such as exists now with Salesforce.com. More slowly, new kinds of communications-based applications will emerge that don’t treat UC as an adjunct, but rather bring new ways of getting work done based on the capabilities UC makes available. We see such opportunities in high-value customer contact, medical applications, professional services, financial services, and many others.
Jim: I think it is important to look at what UC really is. It is a combination of integrating the silos of communications, and integrating communications into a business process (which of course is part of integrating silos of communications). With that in mind, it is easy to see that UC has a great future. All forms of communications may be changing, such as a shift from wired to wireless phones and voice messages to text messages, but they all still fall under the umbrella of what we now define as unified communications.
Marty: The data seem to show the outlook is strong. Blair’s UC Market report really brings this into focus, describing how the market will be growing dramatically off of the broad base of presence-enabled applications, especially instant messaging. The recent Gartner forecast for the Enterprise Infrastructure portion of what Blair calls the “gross” (vs. “net”) UC market, i.e. the market including IP PBXs, voice mail, and more, reinforces her point, by showing that all the growth in the enterprise communications market in the next 7 years is in the UC (vs. standalone) category and that the “UC Portfolio/Suite” category (examples including Microsoft Office Communications Server, IBM Sametime and Cisco WebEx) comprises almost 90% of the growth ($8 billion of the total market growth of $9 billion). So, the outlook is bullish for software-based UC with a dose of network-based (UC as a service?) growth thrown in.
Question: How will UC fare in a recessionary environment?
Marty: It’s going to do fine – in three dimensions:
• Expenses: There’s no question that travel and office space will both be cut back in this crunch time. There is only one answer – UC-type tools. Room conferencing systems will do well, too, separately or as a component of UC, but the communications-enabled worker – desktop, mobile or remote – will be the answer to running the business with lower expenses.
• Doing more with less: This is the tough part to talk about since it starts with hiring freezes or layoffs, but once that’s a fact, the only way out is to change things to get more done with less. Innovation and breakthroughs happen in these times and UC is a major answer. The fastest way is just to use UC to help users do their job more quickly and efficiently – that can be up and running in weeks. The best and biggest way is to change the business process by cutting the waste and utilizing knowledge and resources to the fullest, or UC-Business Process. Almost all of our UniComm Consulting clients are pushing forward with at least one or two of these projects.
• Capital and TCO: UC is just plain less expensive than PBXs, by half or more, to provide satisfactory voice communications to a desktop; and the UC solution trumps the silo-based approach of separate IM, e-mail and voice systems. So, in a budget crunch, customers will be less sensitive to the minor concerns that UC doesn’t match all the prior solutions and will “just do it.”
Blair: As much as I’d like to be as optimistic as Marty, I’m afraid that many companies will go into lockdown mode and freeze all unnecessary spending, which in some cases will include UC. Many companies will stick with what they’ve been using and try to get more mileage out of it, and will be reluctant to move to something new, even if it can save them money in the long term. UC solutions generally involve significant professional services and integration costs that need to be taken into account. Our team has defined 3 categories that companies fall into during recessionary times: survival mode, focus mode, and expansion mode. The companies in survival mode are struggling to stay alive and will not invest in UC. Those in focus mode will concentrate on where they'll get the most value for the buck, focusing on identifiable cost savings or revenue growth. They’ll invest in some UC projects, but they’ll be smaller in scope. Expansion mode companies can leverage the economic situation and optimize and transform their businesses while reducing communication and other costs by implementing UC solutions that focus on streamlining their business processes. These companies will focus on UC implementations that have measurable impact, notably decreasing costs and increasing sales, such as inventory notification solutions.
Most companies will reevaluate their upcoming expenditures, and in some cases, UC purchases will be put on hold. The worldwide economic conditions will cause most companies to carefully examine their technology expenditures, but they won't curtail them.
Jim: The overall outlook for UC is very good. UC can deliver great ROI. Even if you look at UC-U with a soft ROI, you can see that this may be an appropriate justification for investment in today's troubled times. Historically a soft ROI showing a savings of 10 minutes per employee per week - that would equal a staff reduction of 10 people, has often been met with the question – so, who are the 10 people you're going to lay off? Many companies made staff reductions - now we have a hard ROI, an opportunity to maintain productivity with less people. The big opportunity still lies with UC-B - a hard ROI plus an opportunity for companies to reform their business.
Don: Recession or not, some companies are going to be forced to make a change in their communications infrastructure – existing systems are at end-of-service or end-of-life, or some business change (e.g., merger or restructuring) mandates a new system. There will be great pressure to make the minimal investment, to replace existing equipment with like-for-like capabilities. But, as Marty points out, stepping more boldly into UC may actually result in a lower TCO than simply replacing aging equipment. Moreover, this approach puts you on the path of next generation thinking, rather than dragging the past into your future. Explore all the alternatives.
There are also companies just hunkering down and unable or unwilling to make any purchases. If this is your situation, this is a time to plan. Take this time to:
• Understand the offers from vendors of all orientations – voice, desktop, mobility, applications – and determine what your communication focus should be.
• Evaluate where the real benefits for UC will be in your company. Not just UC-U, but look for the UC-B applications that can transform your business in preparation for coming out of this downturn.
• Understand the triggers that will mean it’s time to make the investment – end-of-life equipment, mergers or restructuring, new market initiatives, company moves in response to the economy. Get ready.
Question: What are the secrets of UC success?
Marty: Well, it’s the same as for success in other endeavors. Be clear about where you’re going, then put all the focus on reaching that goal before going on to another. The great UC successes have shown that creating breakthrough level change in just one core process of an enterprise’s value chain will allow success through focus on a contained project scope. The initial success can then be the basis for a repeat breakthrough in another process area. For example, using wireless IP Phones to automate nurse call and communications in a hospital is very doable; that shift to mobility now opens the door for other mobile solutions, including the associated communications tools, and that leads to secure cellular communications to allow Physicians to make decisions, give orders and allow treatment progress without the time and delay of physically coming into the hospital buildings. Three simple steps, but breakthroughs in care, quality and cost.
Don: Broaden your perspective. Don’t just gravitate quickly to the UC offering of your current vendor(s). Take time to understand how your company gets things done and what tools help to facilitate reaching objectives. Understand what differentiates you from your competitors, and whether you have communications bottlenecks that hamper areas where you need to be strong. Then, figure out which UC suppliers can best address that need.
Your current voice communications or desktop vendor may be the right answer. Or, maybe you need to embed communications functionality into your key business applications, or make it part of your mobility capabilities. Understand where and how the company derives value, and what the current impediments are. This lets you develop more creative, and more valuable, approaches.
Jim: The secrets of UC success will come in several forms.
1. Enterprise and End-user education - the first key to success requires enterprise customers to understand unified communications. They need to know how to develop a UC strategy that looks at both UC-U and UC-B. They need to bring together telecom, IT and line of business managers to address the needs of various departments within the enterprise. They need to understand that UC is made up of many important communications components, and they need to look at all of them before they make a technology acquisition decision. They need to understand that while the PBX has historically been the center of corporate communications, it is now just one of the components.
2. Channel education - the channel is responsible for selling and installing and servicing UC solutions. Most are used to selling boxes and are now challenged by selling solutions. This may be the biggest challenge for the industry.
3. Vendor positioning - vendors need to be consistent in their definition of unified communications. Many have confused the market and slow down the industry by trying to differentiate their products and services by having a slightly different definition than their competitors. The market will grow much faster if vendors, the channel, consultants, and analysts would all support a common definition for unified communications.
Blair: Focus, focus, focus. As Don likes to say, don’t try to boil the ocean. Carefully select the user groups and business processes where it makes the most sense to implement UC. It’s not something that is needed across the board and for every employee. And as I always like to say, view UC as a philosophy or vision that leads to solutions – UC is not a product, and companies should craft a long-term vision for where they want to be and how UC can help get them there.