Vanessa Alvarez and I just completed the update of our North American Hosted IP Telephony and UC Services Markets study. Here is a summary of our findings:
In 2009, the economic crisis continued to plague enterprises, particularly in the small and medium business segment, which is the target market for hosted IP telephony. Many service providers suffered customer retention issues as SMBs downsized and some even went under and couldn’t pay their bills. Customer acquisition was even more difficult as many enterprises held back on making communications decisions or made other IT technology investments a priority.
Yet, 2009 was a relatively successful year for hosted IP telephony. The installed base grew by close to 30 percent with new adds compensating for losses due to workforce reduction in customer organizations.
Although the concept of unified communications continued to make inroads into enterprises, it did not gain as much traction as originally anticipated. As a result, although many hosted service providers took 2008 to retrench and include more UC offerings into their portfolio, the market segment targeted by hosted services was not ready for unified communications, and UC adoption rates and revenue impact were minimal.
Frost & Sullivan estimates about 1.4 million installed hosted IP telephony lines as of the end of 2009 and expects the installed base to reach between 7.5 and 8 million lines in 2015. Revenues, estimated based on an average bundle of features and capabilities, reached about $700 million in 2009 and are expected to reach $3.8 billion in 2015.
Many factors will contribute to growth going forward. The macroeconomic situation forces enterprises to reconsider maintaining their own infrastructure as opposed to using hosted services. Enterprises today want to focus on driving their business, not managing their IT environments.
Parallel to this, hosted IP telephony, and hosted services in general, have evolved in terms of features and functionality. Underlying technologies are also evolving, allowing service providers to upgrade and enhance their own networks and data centers, making the delivery of IP telephony easier and more cost-effective.
The market remained fragmented with over 50 providers, each offering varying bundles of communications applications typically including local and long-distance voice, voicemail or unified messaging, auto attendant, conferencing, contact center and CRM applications, frequently also packaged with an access line and an Internet service. Frost & Sullivan predicts that consolidation in this market will accelerate, as large IT service providers look to bundle communications services into their overall IT hosted services offerings. As cloud computing begins to evolve in service providers’ data centers, it will become easier to deliver compelling cloud-based communications services. Also, within the next two to three years, some PBX vendors will look to develop their own solutions, in the form of virtual appliances hosted in their own data centers or the public cloud, and deliver services more directly to end users, bypassing the traditional telcos.
Enterprises today must consider what delivers greater value to their business. Many are finding that managing their own IP telephony systems, or any IT for that matter, just doesn’t make economic sense. It is best to focus their IT and communications management resources on delivering superior products/services to their customers as quickly and efficiently as possible.