About this blog

News and analysis of developments in the enterprise communication industry and market with primary focus on Europe.

The author aims to tap into ideas, insights and thoughts of the readers to get varied perspectives.

Views expressed in this blog are solely the author's opinion and in no way reflect those of his employer.

Sunday, January 28, 2007

2007: Outlook

Climate Change in 2006 Rippling into New Streams in 2007

This outlook provides a concise review of the enterprise communications industry. The past year’s activities of the major players, equipment vendors, newcomers and start-ups are appraised against the background of the overall and ongoing changes in the industry and technologies.

A. Key Announcements in 2006 and their relevance in 2007

A.1 Microsoft’s entry into the Unified Communication Market

Microsoft unveiled its vision and roadmap on Unified Communication in 2006. The vendor has been in the periphery of telephony for more than 15 years. During this time it has built capabilities to offer components of what is now called ‘Unified Communication’. The greatest testimony of its capabilities is the announcements of several strategic alliances with the telephony vendors preceding this announcement.

As part of the roadmap, Microsoft announced new products that included Office Communication Server 2007 (updated version of LCS 2005), Office Communicator 2007 amongst others.

This announcement has offered credibility to the value proposition of unified communication, otherwise a buzzword for vendors and buyers hard to find. Also it has created a more competitive environment with increased seriousness at the board level of the vendors and awareness amongst large customers. Also Microsoft’s entry to be followed by IBM and others has the potential to create new categories in the overall competitive landscape that might shape the market in 2007 and ahead. Microsoft and others in this category carry the power to disrupt the centralised proprietary IP architectures of IP PBXs to create an open telephony model based on SIP centric application servers.

A.2 Alcatel and Lucent merge

Two of the largest telephony vendors merged to form one of the largest conglomerates in this industry. Although the fallout of this merger in the enterprise market in Europe is very limited, the future roadmaps seem poised interestingly. The merged entity can either focus on service providers and telcos offering them enterprise and carrier grade infrastructure to cater to enterprise telephony needs or Alcatel’s ESD division is left alone to do what it does best. Thus the ramification of this merger on the installed base of Alcatel in Europe and the future of its ESD division will become clearer in 2007.

A.3 Several vendors change management

Following two ‘not so great’ quarters, Avaya decidedly changed its management both at the corporate level as well as in EMEA. Lou D’ Ambrosio replaced Don Peterson as Avaya CEO while Carlos Sartorius took the mantle of the president of EMEA. Both of them have a strong services background, underlying the direction of their leadership in the times to come.

Avaya has announced greater emphasis on software and services as its strategy for 2007 and beyond.

Siemens Enterprise created a new management following the creation of an independent operating company within Siemens AG. Andreas Bernhardt became its first CEO and chairman of the executive board. Previously Eduardo Montes held the position of CEO when the entity was within Siemens AG. It is believed that Siemens will continue to leverage its Openscape portfolio and HiPath 8000. Its promises to provide ongoing, innovative open communication technology that promotes consolidation. The entity has expressed its intention to partner while by the latest reports seem unlikely to happen in the near future.

Nortel saw an executive re-shuffle in 2006 preceded by Mike Zafirovski taking over the mantle of CEO from Bill Owens in Oct 2005. Mike has placed a new team committed to improve transparency, focus on markets where it leads the pack and improve the efficiency of the organisation. Announcing the innovative communication alliance with Microsoft in 2006, Nortel charted a new course in moving to system integration.

Apart from these Philips, NEC United, Ericsson and Alcatel have seen changes in their management teams in 2006. The changes will affect the course of 2007.

A.4 New range of products in the P2P category announced

Acquisition of Nimcat Networks and the launch followed by runaway success of Avaya One-X quick edition in the small business market tells us a story in itself. It is well known that the small businesses have been deprived of IP telephony solutions because either they were too small or the solutions were too pricey for them. Not after peer-to-peer products pioneered by Nimcat Networks came to the market. Such was the influence that Siemens and Aastra Technologies used Nimcat’s technology to come up with BizIP and VentureIP products respectively. It is well known that small businesses represent the largest segment in terms of numbers in Europe. Estimates put the number of lines at around 48 million in Europe alone. From 2007 this segment will be a keenly fought turf where not only will the vendors claim a pie for themselves but they have to compete with players who offer P2P as a service such as Skype and Popular Telephony.

A.5 Nortel and Microsoft announces an Innovative Communication Alliance

Microsoft stunned the industry by announcing preferred partnership with Nortel to form an innovative communication alliance (ICA) that involved joint R&D and product development, sharing intellectual property and co-marketing. We believed that this paved the way for Nortel to move into the integration space with the creation of a global services business. Since July 2006 the business unit has come up with 3 joint solutions and 11 implementation services. The business unit with its expanded integration services portfolio spans the entire network lifecycle from design and deployment to support and evolution.

In addition, Nortel and Microsoft have presented a roadmap for 2008 and beyond for moving business communications onto a software platform that will drive a higher quality user experience and reduce total cost of ownership. The roadmap outlines several key applications and technology developments including a UC contact center, Nortel feature server, expanded hosted UC solutions, mobility and client solutions, and application-aware networking enhancements.

ICA is credited with several customer wins in the past few months in North America and Europe. The future of this alliance will be keenly followed by the industry in 2007.

A.6 Siemens Enterprise breaks free

After several attempts to restructure the ailing Siemens Com business unit, Siemens AG decidedly carved out the carrier business that formed a JV with Nokia Networks. The other big unit that carried the enterprise portfolio was made into a separate legal entity as of Oct 1, 2006 christened as Siemens Enterprise Communications, a wholly owned subsidiary of Siemens AG. The US entity of the business is named Siemens Communications, Inc.

One of the early adopters of open communication, Siemens suffers from being in the market too early. Its LifeWorks and OpenScape vision were too ahead of time. Another tricky issue that the vendor faces is to move its installed base to SIP based IP telephony solutions because most of the installed systems cannot be migrated without a forklift.

The biggest strength for the vendor is in leveraging on the vast breadth of businesses under which Siemens AG operates.

In 2007, the biggest challenges for the vendor are its large direct sales force and its rather limited presence outside EMEA. The vendor earns a substantial portion of its revenue from maintenance and services which with the ongoing market transformation will continue to put serious bottom line pressure.

A.7 Zultys goes bankrupt

Zultys Technologies was incorporated in 2001 and launched its first IP telephony platform, the MX-1200 Enterprise Media Exchange in January 2003. Zultys is one of the first few companies to introduce a completely SIP-based IP telephony system to the SMB market. Zultys offered MX250 - a SIP-based PBX and MX25 -Modular SIP Gateway. It offered text-to-speech capabilities on its MX250 system to enhance its value proposition. In April 2005, Zultys introduced the MX30, which integrates voice, data, video, and fax, and provided the functions of an IP PBX for a small business or a branch office in a single appliance. The vendor grew its installed base and enrolled several large distributors and resellers globally.

Zultys technologies announced large scale downsizing in July 2006 subsequent to its failure to seek funding. In spite of a pipeline of orders Zultys resellers and channel partners were left with no products to fulfil them. Also, a major section of their European team moved to ShoreTel.

This case is highlighted to depict the increasing entry barriers and growing competitive pressure for sustenance. In 2007 not only do we expect to see far less number of players entering the IP telephony market but also increased consolidation. Philips-NEC United and LG-Nortel are just the beginning of a trend. By 2009 the IP telephony vendor space is likely to be left with 3-4 global players.

A.8 Mobility gains traction: New products announced

The growth in the number of mobile workers and the development of wireless networks has enabled companies to provide access to the organization’s internal and external information to its mobile workforce. With the help of scalable technologies, it has become possible to deploy various applications, such as mobile office applications, customer relationship management (CRM), field service automation (FSA), enterprise resource planning (ERP), Sales Force Automation (SFA), Field Force Automation and other workforce management tools, to mobile executives, sales force personnel and field force employees, on a host of wireless devices.

Even the large enterprise players understand the value proposition. Avaya and Cisco for example have announced partnerships with Nokia to offer PBX type features on dual mode handsets that can be used to bypass cellular costs in a private wireless network coverage area. Regulators like Ofcom in the UK have licensed the guard band GSM to allow service providers to offer low power GSM services to enterprises. Also several wireline telcos are gearing up to offer private wireless networks while wireless operators are toying the idea of mobile PBX. In summary, in 2007 several of these products and services will face the litmus test of customer acceptance.

A.9 SIP based products launched

IP telephony not only broke technology barriers but also made ‘best-in-breed’ in vogue. As dust settled from the war between several standards such as H.323, MGCP, Megaco and SIP, the latter clearly turned the winner.

Vendors were fast to adopt SIP when it became clear that this standard is here to stay. Offerings from leading vendors such as Alcatel OmniPCX Enterprise, Avaya Communications Manager, Cisco Unified Call Manager, Ericsson MX-ONE, Mitel 3300 ICP and Nortel Succession series were made SIP capable. Several products including Siemens IP portfolio including Hipath 2000, 5000 and 8000, 3Com VCX7000 and InterTel 7000 were designed on SIP from scratch.

All new products introduced in 2007 will be SIP based.

A.10 Open source software gains traction

Ironically, as Microsoft’s application suite enters the enterprise telephony market, we see Windows gradually being displaced by Linux as the preferred operating system supplier. In the last three years, Linux has replaced Windows in most of the new products rolled out in the market. This along with the growth of Asterisk (now used by Digium and Aastra technologies) marks the ascent of open-source in call control systems of enterprise telecommunication. Apart from NEC United and Nortel (except CS2100) most tier-1 vendors’ flagship products run on open source operating system with Linux being the OS of choice.

Nonetheless, there is still a long way to go for open source. Today while they have made inroads into the call processors, application servers and media servers continue to predominantly run on Windows. This situation will only be bolstered with the advent of Microsoft’s UC products in 2007. In the short term, the strategic alliance partners of Microsoft will ensure that applications such as messaging, presence, collaboration continue to run on Windows platform. However, when the market gets past the early adopter stage, OS battle is likely to begin.

The above 10 market movements will greatly impact the shape of things to come in over the next 12 – 16 months.

B. The Market in 2007

I measure the enterprise telecommunication pulse by PBX lines. In the year 2006, the market in Western Europe grew by an average of 3.7% while Eastern Europe grows by around 11%. In total the total number of lines shipped in Europe stood at 20.54 million lines registering a growth of around 4.9% y-o-y. This being put in perspective paints a less than rosy picture as we stand in the middle of a replacement cycle. In the year 2006, CAPEX wasn’t as big an issue as the previous two years. However vendor’s strength in Europe seems to have diminished considerably. Amongst them include Siemens, Avaya and Ericsson. However that being said, increased challenge is being posed by service providers (including telcos, next generation carriers, and ASPs) offering hosted and IP centrex type of solutions.

C. Competitive Landscape

While the traditional market players such as Alcatel, Siemens and Nortel held ground, one of the largest slips was encountered by Ericsson. These four players in together constitute the traditional silo. While Alcatel and Siemens held on to their number one and number two spots, Nortel was ranked four while Ericsson at six. Together they own 70% of the enterprise (>50 users) installed base.

Aastra Technologies ranked third in Europe. This firm has grown in size through a series of acquisitions including Nortel’s legacy telephony assets, EADS telecom, Ascotel and DeTeWe.

Avaya has maintained its fifth rank. However it has lost some market share points due to a weak performance in the first two quarters. A change in management with Carlos Sartorius at the helm in Europe might change things for the better in 2007.

The dark horse in 2006 has definitely been Cisco. Rising from the bottom of top 10 vendors in Europe, it has shown remarkable grit to fight it on in one of the most competitive markets in the world. It has gained close to three percentage points in market share in 2006. This is definitely the company to watch in 2007.

D. Major Trends in 2007

Taking cue from the developments on the supplier’s side in 2006 on one hand and gauging the market’s pulse on the other, the following are the major trends that will shape 2007.

D.1 Disruption and Confusion precedes Convergence

Finally we are starting to see a transformation in the industry. I call this the ‘confusion phase’ that my peers term as the movement to shrink silos. It’s important to note that we are all talking about the same thing. The classical industry segments no longer stand in exclusion. It is getting difficult to categorise players, services, products and solutions into silos such as wireline-wireless, enterprise-carrier, business-residential, hardware-software and even IT-telecom. To me this is start of a larger transformation, the process when settles down will lead to new categories being defined. It’s an opportune moment for new innovative players who stand to benefit as and when the barriers are broken and new rules are set.

D.2 Unified Communication Story Gains Momentum

It is no doubt that Unified Communication has been the buzzword in the industry since the June 25th announcement by Microsoft outlining their vision and strategy in this space. Its importance amongst the suppliers can be felt by the fact that Microsoft, Cisco and Avaya have announced the creation of business units to cater to this market. Cisco has re-branded its flagship Call Manager as Unified CallManager.

Although there is euphemism on the supplier’s side, the market is still in the learning mode. There have yet been only a handful of complete rollouts. Surveys have revealed the need for greater awareness for enterprise users in terms of the capabilities and benefits.

D.3 Small businesses rally for peer-to-peer networking products

Small businesses have been left behind for quite a while now. While enterprises with larger sizes migrate to next-generation communication platform, a large market approximately the size of 48 million users in Europe alone have been left behind using the traditional key telephony systems or centrex type solutions from telcos. Starting 2005 but more prominently in 2006 a new hope came in the form of peer-to-peer networking products. Not only are these products priced affordably for a large section of the segment, it is easy to install, maintain and are generally flexible. One of the most notable vendors for this segment is Nimcat Networks, now acquired by Avaya Inc. Nimcat’s technology has helped Siemens and Aastra Technologies to come up with products for this segment. Going 2007, this segment of the market is likely to see a large scale churn of old key telephony systems leap frogging to pure-IP systems.

D.4 “Best-of-breed” or a single vendor solution

Shrinking silos, converging platforms and increased openness have created the notion for “best-of-breed” solutions. However if truth be said there are significant challenges in the path ahead. The increasing shortage of skilled labour pool to address the complex issues of integration is just one. The battle for openness is a keenly bought one with stakeholders trying every attempt to safeguard their interests and make the most of the opportunities they can. It is safer to say that in 2007 vendors will continue to place greater emphasis on nurturing ecosystems and that system, network and application integration business will continue to grow.

E. Final Comments

It is believed that 2007 will be the year for (a) mobility in enterprises and (b) Unified Communication. The quest for newer avenues for cost-cutting has led to mobile enterprise. Still in its buggy, this will be a story of a very fast growth as the necessary infrastructure is in place. On the other hand with so much of investment already gone into perfecting Unified Communications, the witching hour is near. Already the stakes are becoming unmanageable for some vendors.

Far from these burning issues IP penetration will grow unabated at a pace higher than last year. In 2007 we expect to see a stabilisation of the technology. Enterprises today understand that IP telephony do not guarantee cost savings or productivity improvements; but is a medium to be used to derive such benefits. In this year we expect to see the deployment of applications such as unified messaging, mobility and contact centres to derive greater value out of the investment in IP telephony.

1 comment:

Gary Leikin said...


Nice insight into the industry. Who do you think will be the eventual winner in the UC market?