The elephants adjacent to the cloud VoIP communications market are about to squish some unsuspecting players.  We hear a lot of chatter in the market about ‘proprietary’ VoIP and UCaaS platforms (solutions built in large part on the Asterisk freeware PBX) and wonder if these independent VoIP brands are going to make it.

Many years ago, PBX manufacturers like Avaya, Nortel, Siemens, Tadiran, and others enjoyed a growing and prosperous business.  The beginning of the end was when an elephant in an adjacent market decided to begin offering IP-based PBX phone systems. The big players scoffed that the elephant didn’t know the market, that voice was not just another application running on the network, and ultimately the elephant would fail due to the incumbents’ inherent dominance.

That elephant happened to be Cisco, which at the time was already the global leader in routing and switching solutions. After the Selsius acquisition it didn’t take long for Cisco to not only play in the business communications market but redefine it and become the clear market leader globally.  As result, all the traditional on-premise players got squeezed out.  Nortel went bankrupt with most assets being bought by Avaya and others by Genband. Avaya went bankrupt, reemerged, and recently handed its customer base to RingCentral. Siemens was sold off to private equity and exited the North American market.  ShoreTel and Toshiba were absorbed into Mitel, which bears increasing resemblance to a “bad bank” of legacy PBX assets – only without a government bailout in the future.

Earlier this year, Gartner announced they would no longer publish a market report on premise-based enterprise communications vendors.  The destruction is complete.

 

What about the next elephant?

Today we see a similar set up occurring in the cloud communications space. There are many companies with well-known VoIP brands who can deliver basic voice capabilities from the cloud.  These well-known VoIP brands are “buying” your business – essentially paying master agents and sub agents to sell their services in return for 3 to 6 times the recurring revenue up front, plus 10% to 25% residual on the back end. It’s a business model that is not sustainable – just look at the financial performance of the public players and you’ll notice most of these companies are losing money and have never made money.  But are there really any elephants in the cloud communications space when the leading companies have just a few points of market share?

Cisco has once again acquired its way into the market, first by acquiring Webex, the global leader in online meetings and video, and more recently by acquiring BroadSoft, the global leader in cloud VoIP.  Cisco now operates in the cloud communications market under the umbrella of the Webex brand with Calling, Teams, Meetings, and Contact Center. Currently Cisco has over 50 million subscribers on their calling services let alone the number of subscribers using Meetings only or Contact Center only. Their nearest competitor has under 2 million subscribers.

And, of course, there is another elephant in the room, Microsoft. Microsoft used to sell Office and Outlook on perpetual licenses then moved onward to a software subscription service for Office commonly known as Office 365. Today they boast nearly 100 million subscribers to Office 365. Microsoft recently announced they are taking dead aim at mid-market of the cloud communications market with Office 365 Calling directed at organizations with under 200 employees. Although Microsoft has had many starts and stops in the communications space with Lync, then Skype for Business, Teams, etc., they seem to be on the road to figuring it all out.

With the sheer size and market reach of Cisco and Microsoft coming into the market, the “traditional” cloud communications companies seem to be staring at a similar situation which the on-premise providers faced 20 years ago.  With market penetration poised to balloon over the next few years can your organization invest in brand recognizable companies knowing that Cisco and Microsoft are entering the market. Cisco clearly has the lead with a fully integrated package under the Webex umbrella with Calling, Teams, Meetings, and Contact Center being fully integrated and all under a single desktop and mobile client.

As if to make it all even worse for the independent VoIP brands, Cisco and Microsoft recently announced enhanced interoperability between Webex and Microsoft Teams, and many industry pundits expect the integrations to deepen in the coming years.  Remember, Sri Srinivasan, the SVP in charge of Webex, joined Cisco from … Microsoft.  Cisco and Microsoft are frenemies to be sure, but next to these two giant cloud platforms you have to wonder whether the independent VoIP brands are going to make it over the long term.  For us, these so-called ‘propriety’ platforms, are looking more and more like ‘terminal’ platforms, as in any CIO or CTO that standardizes on them is risking a terminal event.

 

About Altus

Altus is the premier choice for cloud-based business communications and technology, providing companies with flexible and secure technologies that help employees and customers stay connected more easily.  Whether looking for basic voice service, comprehensive collaboration, contact center, or network services, business executives trust Altus to deliver the latest features and functionality without costly capital spending programs.  Simplify your business with Altus.  Visit www.altustechnology.com or call toll free 866.922.4001.