It’s undeniable that the unified-communications-as-a-service (UCaaS) space is kicking into high gear. Recently, its growth has been the subject of deep analysis and reports that have confirmed expedient growth for the market over the next several years. In fact, UCaaS subscriber numbers are forecasted to grow sixteen-fold over the next five years, and UCaaS revenues expected to grow almost as quickly, according to Synergy (News - Alert) Research Group.
Interestingly enough just last year the UCaaS segment was being viewed by many as though an inconsistent and fragmented market, not yet suitable for distributed enterprises. Today however, it has taken root and has many large enterprise companies intrigued by the presented functionality and benefits of its cloud-based hosted architecture, which could overtake many customer-owned unified communications (UC) solutions.
Last year, the UCaaS market did not have identified market “leaders,” meaning companies that were recognized as have a completeness of vision, combined with the ability to execute. This year however, according to the latest Gartner Magic Quadrant Report for the UCaaS segment, there are now four such companies: West, 8X8, Thinking Phones, and ShoreTel (News - Alert).
Certainly, what a difference a year makes. UCaaS segment services today include integrated voice over IP (VoIP), messaging, conferencing and presence technologies. In a UCaaS environment, the provider owns, manages and hosts the UC infrastructure. Although until just recently, it didn’t seem that they were ready to serve large enterprises for two reasons: either providers were seen as lacking a full suite of integrated UC functionality, or they simply could not scale their services to meet the needs of large enterprise customers. By contrast, the market leaders identified by Gartner (News - Alert) have developed- and own their own UC technologies, and have been delivering complete UCaaS solutions for more than a year.
It Is common for UCaaS providers to spend years building out integrated suites of UC applications and to partner with other organizations to enable complete packages to different customer segments. These sizable providers surely enable cost advantages, and have established themselves within key distribution channels and customer segments. However, demand for unified communications is growing which means that even emerging entrants into the UCaaS market which must rely on third-party licensed UC technologies can be competitive through their own service sourcing strategies and offerings.
After all, underlying UC technologies – whether licensed or self developed – are just one component of enabling a service bundle or offering from a UCaaS provider. Therefore, service providers that compare potential capital vs. ongoing cost advantages of owning a self-developed UC platform may find it more cost efficient to forgo development due to software development and support costs, as well as common difficulty in determining ROI from those investments.
A second opportunity for small and emerging UCaaS providers is to focus on niche markets rather than large enterprise targets. Because the enterprise UCaaS market is still very nascent around key business areas such as customer segments, distribution channels, product SLAs, features, and interoperability, it creates an opportunity for focused and disciplined service providers to leverage specific prospect needs in order to build new, small, and serviceable customer bases.
It’s also very important that emerging UCaaS providers differentiate their service offerings and provide maximum value to the customers they are serving. Competition in the UCaaS space is unique given that it’s very likely for traditional tier 1 telcos to compete with large software companies for the same business. Also, a service bundled by a provider in the northeast that is focused on an enterprise in the legal industry may need to look vastly different than one focused on SMBs in the Midwest.
Targeted offerings and succinct capabilities are two key components that enterprise customers seek in UCaaS service providers, and it’s not uncommon for them to be on their second or third iteration of service provider. Since end customers are becoming much more educated on UCaaS offerings and potential pitfalls, they are also now looking for best-of-breed type solutions, rather than traditional best-of-suite type offerings.
In the end however, whether it’s a market leader or emerging UCaaS provider, the opportunity for unified communications is on the rise to benefit all. In fact, the vast majority of growth opportunity for UCaaS during the next two to three years is anticipated to come from new market segments, and a recent Atlantic ACM survey of service providers shows 85 percent expect new market segments to provide positive revenue growth for them.
Many service providers are embracing this shift by beginning to view other providers that may have differing services and hosted applications as potential partners rather than competitors. In fact, the next big paradigm shift may be led by providers that engage in strategic or wholesale partnerships that enable them to customize and create best-in-class type service mash-ups, regardless of whether they are offering all services on their own infrastructure, or pulling through a partner’s services via APIs.
Ultimately, UCaaS providers are seeking to meet growing demands from enterprise customers seeking the ease of a single-source vendor, and a seamless service acquisition and delivery process. After all, their customers like themselves, seek to maximize returns in their own businesses by engaging service offerings that enable them to free up capital expenses and compete favorably in their unique industries.
Edited by Stefania Viscusi