Because of the increased efficiencies and boosted productivity the technology helps companies realize, unified communications tools are all the buzz these days in the business world. But many forward-thinking owners are taking the implementation of such technology a step further, choosing to adopt hosted unified communications solutions delivered through the cloud rather than deploy on-premises infrastructure.
This market — referred to as Unified Communications as-a-Service (UCaaS) — is expected to explode from $2.52 billion in 2013 to $7.62 billion by 2018, boasting an impressive 24.8 percent compound annual growth rate during that period, according to recent research.
Businesses are turning toward UCaaS for a variety of reasons, including:
- Increased efficiency: After unified communications tools are integrated into a company’s day-to-day operations, business owners will notice substantially increased efficiency. The technology allows employees to communicate with one another in real time through a variety of mediums no matter where they happen to find themselves — so long as there is an Internet connection available.
- Business continuity: Maintaining open lines of communication is essential when it comes to delivering best-in-class customer service. By leveraging UCaaS tools, companies benefit from the fact that their communications networks will remain online despite any disaster that they might encounter.
- Cost savings: Because the service is delivered through the cloud by a third-party vendor that maintains the infrastructure and ensures the tools remain working properly, the IT staffs of businesses that utilize UCaaS solutions are free to invest their time and energy in overseeing other mission-critical aspects of a company’s technological infrastructure.
Another important factor to consider is the cost of purchasing and maintaining an on premises UC platform. On-premises UC platforms typically involve a relatively large, one-time upfront investment in software licenses. This investment entitles the buyer to a perpetual right to use the software. However, if the company wants access to bug fixes, help desk, and product updates, they will have to pay a recurring annual maintenance and support fee for on-premises that equates to roughly 18% to 22% of undiscounted license prices.
In addition, buyers often need to acquire the plumbing to support the system, including: hardware, infrastructure, and IT resources (or alternative hosting services). From a cash-flow perspective, on-premises UC platforms impose a relatively heavy short-term burden, with much lower ongoing financial pressures.
In contrast, UCaaS vendors charge a consistently smooth recurring subscription fee. This fee gives a subscriber the right to access the software. No rights are transferred, and the buyer never takes possession of any software. Subscription fees include costs relating to maintenance, support, and underlying IT infrastructure. In the short and mid-term, aggregate SaaS costs are likely to be lower than the aggregate on-premises costs over the same period.
In today’s difficult economic climate, chief executives are constantly seeking creative ways to do more with less while reducing unnecessary expenditures. And one way to do that is by employing UCaaS, as IT costs and capital expenditures are reduced while employees are treated to the benefits associated with unified communications tools.
With more than two decades at the helm of your company, you’ve experienced firsthand the way business communications have changed over the years. The amount of time you spent talking with partners in the past could now be described as sparse compared to the frequency with which you’re in contact today. And that’s due to the fact that technology has evolved to the point where companies and individuals can seamlessly collaborate in real time thanks to unified communications solutions. Such tools have been incorporated into the arsenals of many businesses, allowing for increased productivity by enabling employees to know when their coworkers or clients are available.
As the unified communications market continues to explode—some analysts predict that on a global scale, the entire industry will encompass a compound annual growth rate of 15.7 percent from 2012 to 2018 — decision makers are realizing the myriad benefits the tools provide across their organizations. And with that in mind, more and more companies are deciding that it makes perfect sense to leverage the power of the technology to communicate with those outside of their organizations as well.
But with employees being pulled in hundreds of different directions each day, at best it’s hard to find the time to stay on top of the contact information of various people outside of an organization by one’s self. At worst, it’s impossible.
Whether clients get new positions within a company or choose to pursue employment opportunities elsewhere, or you simply get paired with a new contact, it can be hard enough to stay on top of contact information within your own organization. This spells potential for disaster in managing the contacts of those outside of it.
Luckily, with more business-to-business collaboration taking place, and many businesses employing disparate unified communications solutions, federation services have emerged and bridged the gap between distinct companies, granting members access to an ever-updated list of their collaborators’ contact information.
In case you missed the December flurry of 2013 UC tech recaps and 2014 UC predictions, here’s our take on some of the key drivers and trends that shaped the UC market in 2013 and what’s ahead for the 2014 market.
The 2013 Buzz – Most of the dialogue last year was around Unified Communications as a Service (UCaaS), B2B UC Collaboration, social networking software for the enterprise, WebRTC and the as yet, fully realized promises of these technologies.
The Rise of UC as a Service (UCaaS)
Between 2012 and 2013, NextPlane conducted an internal study tracking the key trends in the Fortune 1000 (F1000) UC market. The study examined the externally published XMPP and SIP records for known F1000 domain names which showed:
- The UC platform vendor
- Hosted vs. on-premises UC platforms
The study revealed that there was a 188% growth rate in the number of F1000 companies moving from on premises UC platforms to hosted or UC-as-a-Service (UCaaS) deployments. Additionally, the study showed a 59% growth rate in organizations that are deploying both SIP and XMPP-based platforms.
These statistics show that the 2013 market space was fluid and that there was a lot of migration activity. There were a number of new hosted platforms along with more customers switching from on-premises platforms to hosted and cloud-based platforms. A large percentage of customers also switched from one vendor to another in the hopes of finding a more holistic unification of communication modes.
Collaborative Communities Take the Center Stage
Most analysts viewed 2013 as a lackluster year for UC and some analysts like Dave Michels were outright pessimistic about the events of 2013. Michel’s states in his January 7, 2014, Unified Communications Strategies article titled 2013 was a Reboot Year, “Unfortunately, the promise of rich UC federation between organizations largely remains a fantasy. Inter-organizational HD audio is still the exception. Presence took a step backwards when Google dropped support of XMPP. Oddly, most federation examples are for like-to-like systems. This is progress? Even worse, not all UC vendors even support that.”
However, even if 2013 was not a blockbuster year for UC technologies, I do believe that there was progress on many fronts as enterprises continued to recognize the benefits of UC technologies and in particular, the rich possibilities of B2B UC collaboration.
It’s clear that collaborative communities are becoming mainstream as evidenced by the growth of NextPlane’s UC Exchange. In February of 2013, 85 companies had joined UC Exchange. As of January of 2014, 166 companies around the world belong to UC Exchange. This represents a 100 % growth rate!
Our usage statistics also point to increased enterprise adoption of UC. In 2012, UC Exchange had 218 provisioned domains with over 190,000 users. As of December 2013 we had 626 total provisioned domains, 423 federations, and close to 230,000 unique users who exchanged quarter of billion messages per month. These numbers clearly point to increased growth and rapid adoption trends that will continue as UC B2B collaboration becomes a key component of daily enterprise business processes.
In October, NextPlane announced that The NextPlane UC Exchange Collaboration and Federation Service is being used by the global financial institutions under the name Markit Collaboration Services (MCS). Members include Thomson Reuters, Markit, Bank of America Merrill Lynch, Barclays, Citi, Credit Suisse, Deutsche Bank, GFI Group, Goldman Sachs, JPMorgan Chase and Morgan Stanley.
The global financial services collaborative community will enable people in all parts of the world-wide capital markets industry to communicate and share information seamlessly and securely. The service, which was developed in close coordination with financial institutions, is intended to offer a better alternative to Bloomberg terminals, allowing market participants on disparate UC platforms to collaborate.
The service has been well received by the financial services industry, and adoption of the service is gaining momentum. Evidence of this is a recent Wall Street Journal article reporting that Goldman Sachs plans to ban traders from using computer messaging services from Bloomberg, Yahoo! AOL and several other third party providers “in a bid to protect proprietary information at the heart of its sales-and-trading operations.” (Goldman Looks to Ban Some Chat Services Used by Traders, WSJ, January 23, 2014) The article goes on to indicate that the firm has backed the Markit Collaboration Service – which provides an alternative to Bloomberg and 3rd party messaging solutions.
The End of Public IM Connectivity
Two events critically influenced the social media landscape last year. Microsoft Lync Public IM Connectivity User Subscription Licenses (“PIC USL”) were effectively discontinued and Google dropped support for the XMPP protocol.
As of September 1st, 2012, PIC USL was no longer available as part of new or renewing agreements. Customers with active licenses will be able to continue to federate with Yahoo! Messenger until the service shut down date (sometime in 2014).
This puts organizations in tough spot if they already offered, as part of Microsoft Lync or OCS, Yahoo! Messenger federation for their end-users. If they open firewalls and modify security rules to allow Yahoo! Messenger traffic on their corporate networks they could potentially expose their company to a myriad of security, regulatory, reputational, and other risks. This is especially true in highly regulated companies, such as banks and energy companies, where Yahoo! Messenger is a fairly common tool among energy traders.
On May 15, 2013, Google announced a unified messaging system called Hangouts, which ties its disparate communication services together. The new service replaces Google Talk, Google+ Messenger, and the original Google+ Hangouts video chat service. Hangouts will eventually replace all of Google’s communication properties and will be available for Android, iOS, and the web using Google’s Chrome extension.
Unfortunately, the announcement indicates that Google Hangouts does not support the XMPP protocol for federated communications. The impact of Google’s decision is that users of any XMPP-based UC platform (or any SIP based platform using an XMPP gateway) will not be able to communicate with any users who adopt Google Hangouts. Our May 29, 2013 blog Google Dropping XMPP Imprisons Millions of GApps Users Behind the Iron Wall of Hangouts – the Ultimate Irony of UC Interoperability describes the details of Google’s decision and the ramifications for the UC market.
Social Software for Enterprise – Work in Progress
All of the key UC players now have a social enterprise offering – Microsoft (Yammer), IBM (Connections), Cisco (WebEx Social), and Google (Google Hangouts) and there’s a host of other solution providers such as Salesforce.com (Chatter), and VMware (Socialcast).
Our take on the 2013 developments in this area is that despite the availability of new social media tools, none of the UC vendors have been able to successfully integrate their social enterprise with their UC platforms. Moreover, some vendors’ social enterprise software competes with their sister UC offerings by offering presence and chat. And, at the same time, none of the social enterprise solution providers have been able to add UC&C (Unified Communications and Collaboration) capabilities into their solutions. Most rely on 3rd party developers.
We believe that there are two barriers to successfully integrating UC and social enterprise. The first is figuring out the right balance between asynchronous and synchronous modes of communications. The second is understanding how today’s workers perceive the use of social media in the workplace and their inherent discomfort with using the technology for day-to-day business communication.
As Blair Pleasant states in her SearchUnifiedCommunications article, Social Software and UC create Collaborative Communications, “As an asynchronous means of communication, social software has its limitations. While it’s great for providing textual and visual information, making connections, and finding the resources and expertise needed, it needs to go one step further by enabling real-time voice interactions. Here’s a typical scenario: I’m reading my Twitter stream and see that someone responded to one of my tweets. I can send a reply or a direct message to the person, and we can send tweets and messages back and forth to each other discussing the topic. This is fine in many situations, but sometimes a real-time voice interaction is needed. Wouldn’t it be nice to be able to “click-to-call” from within Twitter (or Facebook, Jive, Yammer or any other social software solution) and have a voice or video interaction, rather than sending text messages back and forth?
That’s where unified communications comes into play. Social software helps to build communities and engage in discussions about a variety of topics. Enterprise social software makes it possible to find the people you need, based on expertise, projects they’re working on, communities of interest, etc. Add UC to the mix, and you can view the presence and availability of people you want to interact with, then communicate directly from the social software client via voice or even a Web or video conference.” This is the synchronous communication point that is critical to the social media user experience.
We would also like to point out that this generation of enterprise workers is not particularly comfortable with the idea of using social media in the workplace. We are still far more comfortable with the idea of attaching a file to an email, calling, or actually having a face-to-face conversation with a co-worker about a business issue. It’s safe to assume that by the time our children enter the workplace, they will be entirely comfortable using social media for business purposes and the UC vendors will have successfully integrated the various disparate tools that we are currently struggling with in the UC social media space.
WebRTC – Full of Potential and Promise
While WebRTC was hailed as the “next big thing” in 2013, we tend to agree with Dave Michels on this one too. Again quoting from his article 2013 Was a Reboot Year, “The good news for the WebRTC advocates is they can reuse posts that proclaim “WebRTC will be big next year.” The giant disruption got held up in committee, when the IETF took a page from the Congressional Handbook on compromise and shut down its progress. WebRTC applications continue to increase in quantity and scope, and there’s a sound argument to go ahead and engage, but the magic really happens after broad support. Two of the largest web browser providers have yet to show any interest in WebRTC. Without broad support, it’s really not much different than existing plugins.”
Businesses are increasingly turning toward unified communications (UC) solutions in order to increase their productivity and efficiency while padding their bottom line. In fact, anywhere between one-third and three-fifths of companies have already implemented UC solutions, and those adoption rates are extremely likely to inch up even further. For example, recent research indicates that the UC market will explode to $61.9 billion by 2018, up from $22.8 billion in 2011.
While many businesses that have integrated UC solutions into their communications infrastructure have received numerous benefits on a company-wide level, the fact remains that these days companies are increasingly developing symbiotic relationships and collaborating with one another with impressive frequency. In fact, recent research conducted by the Aberdeen Group indicates that 83 percent of industry leaders have business-to-business (B2B) collaboration initiatives in place.
So if businesses are realizing the substantial benefits UC technology has within their own companies—and are continually collaborating with one another—why should they not be able to realize the benefits of UC tools with their partners as well? Because with so many UC solutions on the market, compatibility becomes an issue.
Because the solutions have the ability to dramatically increase efficiencies—recent research indicates that employees who leverage such technology stand to save up to 115 minutes at work each day—one could imagine how such efficiencies would rise even more if different unified communications platforms were compatible across companies.
With this in mind, forward-thinking business organizations are already giving their employees the collaboration tools necessary to compress decision-making cycles when dealing with external organizations—thus improving productivity and gaining competitive advantage.
Microsoft Office 365 (O365) provides cloud delivery of the company’s popular software applications. The offering consists of four core applications: Exchange Online, SharePoint Online, Lync Online and Office Professional. O365 is now supported in 127 markets worldwide and 36 languages, up from 88 markets and 32 languages in 2012.
O365 Lync Online offers rich presence, IM and Web conferencing, but with limited videoconferencing, audio conferencing and telephony capabilities (relative to on-premises Lync). While Microsoft intends to maintain the cloud and premises versions at the same release level, the functionality will differ. Notably, not all functions available in an on premises deployments are supported in the cloud configuration.
O365 users can acquire services directly through Microsoft or through Microsoft partners offering value-added services. While many enterprises obtain O365 directly, the partner approach is currently necessary for enterprises requiring telephone calling functions. Lync Online offers only Lync-to-Lync and Lync-to-Skype calling.
Business users are attracted to O365 for multiple reasons, including low costs, ease of administration (for example, with Active Directory), and employee familiarity with Microsoft applications.
However, when it comes to B2B UC collaboration and federation, O365 Lync Online is not just another hosted Lync environment. In fact, the reality is that it’s a UC platform a bit like the now-infamous “Hotel California,” in the hit 70s song by the Eagles–“You can always checkout but you cannot leave.”
As a hosted UC service from Microsoft, O365 Lync Online only allows direct federation with other Microsoft platforms, such as Lync 2010. Other UC platforms such as Cisco Presence Server (CUPS) and IBM Sametime claim support for federation with Lync 2013 via their own gateways, and in theory they may be able to federate with O365, however in practice we know from experience that these Do-it-Yourself (DIY) federation solutions can be an uphill and frustrating struggle – not only to get them to work initially but also to maintain and scale them.
This is especially true for federation with O365, as Microsoft enforces direct federation with O365 Lync Online by requiring that the domain name in the FQDN (Fully Qualified Domain Name) of the edge/gateway server published in the SIP DNS SRV record, matches the domain name on the security certificate – issued by a certificate authority such as VeriSign. Otherwise O365 Lync Online refuses to establish an encrypted TLS connection. As a result the federation fails!
To make matters worse, Microsoft does not provide an XMPP Gateway as an option to O365 customers. This precludes O365 customers from collaborating with partners who are using an XMPP-based platform such as Cisco WebEx Messenger, or OpenFire.
As a result, many organizations are left without the ability to communicate with their partners. This applies to O365 users as well.
If all this sounds to you like some absurd ‘Catch 22’ rule, you’re right. This is why we compare Office 365 to the legendary “Hotel California” – you can always on-board, but you cannot collaborate with all your partners, only the ones Microsoft lets in.
The sound of clashing armies can be heard across corporate networks as Microsoft, Cisco, IBM, Unify, Mitel, ShoreTel, Avaya and a lot of other UCaaS providers battle it out in intense competition for market supremacy.
Analysis from Gartner and other research firms shows that UCaaS is increasingly becoming an overcrowded area. Gartner’s 2013 Magic Quadrant for Unified Communications as a Service examined 16 of the leading UCaaS providers in terms of richness of services, branding, experience and ability to scale. Gartner named Thinking Phone Networks as the “Leader” UCaaS Magic Quadrant– a company that did not exist a couple of years ago.
Our internal research study tracking the key trends in the Fortune 1000 (F1000) UC market between 2012 and 2013, revealed that there was a 188% growth rate in the number of enterprises moving from on-premises UC platforms to a hosted or UCaaS deployment. (Please see our November 22, 2013 blog, Reflections on the UC Market and the Second Law of Thermodynamics, for details about the NextPlane study.)
While the F1000 companies are collectively moving toward adopting UCaaS, a closer look at the trends revealed some clear winners and losers. Our research showed Microsoft and Cisco to be the most widely adopted UCaaS vendors among the F1000 between 2012 and 2013. This clearly shows that F1000 enterprises are buying UCaaS offerings from well-established vendors instead of new entrants.
We foresee that this trend will continue well into the future because many UCaaS providers can successfully roll out a few enterprise deployments, but they lack the deep bench of Cisco and Microsoft to simultaneously support large F1000 deployments. We also believe that the landscape of corporate communication will continue to change in dramatic ways, but one constant will remain–the increasing demand for B2B UC collaboration.