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July 29, 2015
By Ellen Muraskin
Frost & Sullivan joined a chorus of analysts on Tuesday seeing shrinkage in domestic purchases of on-prem communications equipment. Its new report, Global Enterprise Communications Platforms and Endpoints Market, predicts a faint rise in global on-premises sales over seven years: from $11.67 billion in 2014 to $11.99 billion by 2021.
While Dell’Oro Group, in the announcement of its Enterprise Telephony quarterly report, seems to blame this on cloud migration alone, Frost blames a still-challenging economic climate as well. Frost also paints a slightly rosier picture than Dell’Oro for equipment vendors going forward, with IP replacement of remaining TDM systems “shoring up” their prospects, especially in the midmarket, outside the U.S., and in companies looking to adopt open-standards platforms.
Frost sees a top driver toward IP platform adoption today in UC and collaboration features. Businesses have begun to see real competitive advantage here, as early fears of call quality have faded. Generational change has also helped, with the higher-touch, always online habits of today’s digital-native workforce.
Then there’s equipment age: As many TDM PBXes are now aging out of support, businesses weigh their options between on-prem, hosted, and hybrid IP PBX systems. And with IP voice servers a good 15 years in or more, it’s also time for early adopters to replace their first-generation VoIP with more advanced, SIP-based architectures, new middleware infrastructure, and collaborative apps, the report says.
Frost and Dell’Oro agree that enterprise communications vendors must aim at the cloud. Dell’Oro’s Alan Weckel, vice president of Enterprise Telephony market research, says that over the next five years, “We expect vendors to focus heavily on the cloud market and to look at both selling equipment to support cloud build-outs and towards creating standalone cloud offerings.”
But Frost’s UC&C analyst, Michael Brandenburg, claims that many businesses will keep their platforms in house and many will want a “hybrid” model, concluding that vendors “must provide OpEx subscription models alongside CapEx models to deliver a wide variety of options and ultimately, stay relevant in a constantly changing marketplace.”
On-prem or in the cloud, further proof that many companies have yet to make the move comes from a third source, a March 2015 study of 1,250 SMB decision makers jointly sponsored by Edgewater Networks and Metaswitch Networks. It found that only 25 percent of under-100-employee businesses, 29 percent of those with 100 to 249 employees, and 30 percent in the 250-500 range are now on IP voice systems or services. It found access to advanced UC and mobility features to be primary drivers, and it found the average age of in-service TDM PBX to be six years.
Based on those relatively low adoption percentages, Edgewater’s report applied the holdout figure across the U.S. Bureau of Census’ numbers of businesses and seats, and came up with an addressable SMB market for IP telephony – in the cloud and on prem – of $26 billion annually. Confirming Frost’s finding that QoS concerns have faded, the study found only 5.8 percent of TDM users believing that call quality would suffer if they switched to VoIP.
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