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11/5/2007
09:41 AM
Melanie Turek
Melanie Turek
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Sizing Up the Market for Unified Communications

One of the biggest issues facing the unified communications market today is how to size it. It’s still early days—the 2007 UC market is valued at well under $10 million—but it’s important for vendors to have a solid understanding of what sales count as “unified communications” revenue. And that’s not as simple as it sounds.

One of the biggest issues facing the unified communications market today is how to size it. It’s still early days—the 2007 UC market is valued at well under $10 million—but it’s important for vendors to have a solid understanding of what sales count as “unified communications” revenue. And that’s not as simple as it sounds.

Companies today and in the future will have three options when it comes to deploying UC technology:

  • Integrated best-of-breed on premises applications from a variety of vendors, which could include a vendor to deliver IM and PC presence, another to deliver audio/video/web conferencing, and a third to deliver VoIP, telephony presence and related services, such as unified messaging.
  • An all-in-one application from a single vendor to deliver all presence information, chat, conferencing and voice capabilities.
  • A hosted service around UC.

Sales of all-in-one applications and hosted UC services have a price tag, and those revenues clearly count as UC (even if end users don’t take advantage of all the included capabilities, their companies paid for them). The trick is in how to count revenues for integrated best-of-breed products, since those are often purchased separately as stand-alone applications, then integrated on the back end before they’re deployed within an organization. That requires a blending of supply-side and demand-side research, which starts to complicate matters—you need to know not just the number of licenses sold by the vendors, but also what buyers plan to do with them immediately after purchase.

More problematic is the fact that today, very few companies are in fact purchasing UC components from multiple vendors, then integrating them for a true UC application; those that are number in the hundreds, not the thousands—and among those companies, we’re looking at hundreds, not thousands, let alone millions, of users. Much more typical are companies that are taking a stepped approach to their UC deployments: They’re buying VoIP or IM or conferencing applications and services today, and intend to unify them in two or three or five years.

That’s a perfectly valid plan, but it doesn’t help those vendors that want to jump-start the size of today’s UC market (and, of course, look like leaders in the space). That’s because it isn’t okay to count today’s stand-alone VoIP sales as UC revenue, even if those customers tell us they intend to make that VoIP purchase part of a UC environment in the future. For one thing, there’s that old saw about the best laid plans. There’s no way to know for certain that the company will, in fact, deploy a UC solution, or that when it does the solution will include those purchased VoIP licenses. But on a more basic level, there’s still a very viable VoIP market out there—indeed, some analysts would say that market is only now starting to mature. There’s no reason to count VoIP sales as UC sales; they’re VoIP sales (or IM, or conferencing—plug in your favorite UC component here).

(Once several stand-alone applications are integrated on the customer site, any services that support that integrations would, of course, count as UC services, and be considered part of the overall UC market.)

Take Cisco, for example. The vendor sells VoIP technology (Unified Communications Manager/CallManager); conferencing services and on-premises conferencing software (WebEx and Cisco Unified MeetingPlace, respectively); unified messaging (Cisco Unity Connection); a presence server (Unified Presence); and a UC client called Cisco Unified Personal Communicator that brings them all together on the front end. To enable a true UC environment, a company would need to deploy the client (UPC) and at least four back-end servers (Communications Manager/CallManager, Unified Meeting Place, Unity Connection and Unified Presence). If a company were to do that, all five purchases would be considered part of the UC market. However, if a company deploys just CallManager and Unified MeetingPlace today as stand-alone applications, even if it intends to deploy UPC, Presence and Unity Connection down the road, those purchases would count as VoIP and conferencing revenue, respectively.

I can tell you that most of the leading UC vendors would like to include everything from VoIP to IM sales in their UC numbers. There are at least two problems with that:


  1. Unified communications requires a complete set of integrated technologies in order to be considered unified communications: Presence, point-to-point voice, chat, audio/video/web conferencing, and basic call-control features such as unified messaging and find-me/follow-me capabilities. To say a company that buys VoIP technology is buying UC is simply incorrect.
  2. All the leading UC vendors also sell other communications technologies as stand-alone products. If we count those sales as “UC” revenue, we’re simply moving money from one bucket into another. That may have marketing appeal, but it’s not defining a new revenue stream so much as redefining an old one. Any real value it has is as an illusion.

Analogies are hard to come by, but think of it like this. If you buy a car today and intend to use it as a taxi in three years, the money you paid for it counts as “personal car” revenue; it doesn’t count as “taxi” revenue. Taxi revenue requires that the car you buy come complete with, at the very least, a “taxi” light on top, a meter, and a nifty yellow paint job. Now, should you make good on your intention and convert that car into a taxi in three years, whatever you spend on after-market services (for that light, meter and yellow paint) will count as “taxi” (services) revenue. But in 2007, what you bought was a car, and that’s how the money you spent gets counted. (Can you tell that I don’t cover the auto market?)

So how big will the unified communications market be? At Frost & Sullivan we consider the addressable market to be roughly equal to the number of e-mail licenses in the enterprise. Today, that translates into about 320 million seats; we’d expect about 80% of those same users to be given a UC application (integrated with e-mail, but purchased separately). For more details on how much we expect those licenses to sell for, as well as other elements we expect to contribute to the overall UC market, please e-mail me. We’ve just published the Frost & Sullivan North American Unified Communications 2007 Market Insight, and I’d love to discuss our key findings.

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