2011 Year in Review in UC
UCStrategies founder Jim Burton moderates this Industry Buzz podcast which takes a look at the year 2011 in unified communications.
Jim Burton: Welcome to UCStrategies Industry Buzz. This is Jim Burton and I'm joined, as usual, by the UCStrategies team, and today's topic is A Year in Review, the year 2011. We're going to give you our thoughts about the important highlights of the year. Please make a note that in January we will be doing our thoughts on what will happen in 2012.
So without any further ado, I'm going to turn it over to Marty Parker for his thoughts of 2011.
Marty Parker (00:36): Thanks, Jim. I think 2011 has been a very interesting year for three reasons. Number one, 2011 displayed an evolving understanding of what unified communications is. Customers are increasingly savvy that UC is not just the assembly of technologies; rather, it is even more important for them to focus on what UC will do for their businesses and their governments and healthcare organizations and so forth. This is highly visible as the major vendors are now using the term "collaboration" in their UC marketing, since collaboration is definitely a business process, not just a technology. Also, we're seeing a definite upsurge in CEBP - Communications Enabled Business Process case studies and white papers - as the vendors are bundling the UC technologies with their traditional platforms, whether it's email-based or PBX-based, there's less and less money to be made by just selling the parts, the technologies, and the licenses. The big money is now in the applications of UC; that is, in these communications-enabled business processes. Of course, this drives many other parts of the UC market - demand for video and mobility and social connections and so forth - and other members of the team are going to talk about that. But it's clear that the market focus is shifting in 2011, and has shifted in 2011 from pure technology more towards applications.
Which leads to the second point that the value added resellers and systems integrators - the VARs and the SIs - are showing up as the big winners in UC and they are consolidating amongst themselves to gain position. We at UCStrategies have been predicting this for the past four years. We've been saying that VARs would be the leaders in UC since the VARs and the system integrators are the agents for UC solutions, definition, deployment, and adoption. We now see this happening. This is another reason why our UC Summit, scheduled again for La Jolla in May 2012, has become such an important industry event.
Just a couple of data points: Dimension Data reported revenues of $5.8B for their fiscal year '11 ending September 30th. This makes them bigger than Avaya, who reported $5.5B for the same period. And then Cisco's UC business, which has been mentioned publicly as a $4B revenue number for their fiscal year ended in July. So basically, we're seeing Dimension Data as one of the largest VAR examples moving out into the lead in revenues. It doesn't mean that the vendors aren't important, too. It's an ecosystem. But in a recent report it appears that VARs are now getting about 34% of the pie and the vendor's getting about 33%.
Similarly, we are seeing a major round of mergers and acquisitions as other companies seek to capture this growth. PAETEC purchased three large VARs in the past year before they were consolidated further into Windstream; Shared Technologies was the latest acquisition by Arrow Electronics. Strategic Products and Services - SPS - has also grown this past year through acquisition, by buying Spenser Communications and Image Technologies. So the VARs are a big winner and they are consolidating.
And the third point that I would emphasize is 2011 really ramped up UC in the cloud. We already had many, many vendors out there providing hosted telephony, hosted conferencing, and some hosted UC in the cloud. This past year, when Microsoft put Office 365 with Lync online and SharePoint online and two versions of Office available whether it's the Web Office or the federating with the Enterprise Office, when they put that up in the cloud, it really helped validate the cloud motion. This was clearly a response to what was already there from IBM LotusLive and already there from Google Docs, so three major players - Microsoft, IBM, Google - playing hard in that space. Cisco responded just a few months ago with a new version of WebEx. It includes their Jabber client and the Quad social workspace functions. So we're seeing a lot of motion into the cloud as a vehicle for expanding the market and for early adopters and for federation with the enterprise infrastructure. And this has been reinforced by many other cloud-based offerings, including upgrades of services for video and Polycom and others.
So clearly, 2011 was really emphasizing the cloud in a big way, UC in the cloud in a big way. So back to you, Jim.
Jim Burton: Thanks, Marty. A lot of really, really good points. Art, you're never shy with your opinions of what's happened or what will happen. So what are your thoughts about what happened in 2011?
Art Rosenberg (5:12): Well, I think Marty highlighted some key things. The one thing he didn't stress, which I think needs to be added to the list, is how mobility and BYOD is taking center stage in terms of means of communication contact. And that applies not only to people within an organization, but the customers of a business operation, as well. So it's multimodal in that sense. The VARs are obviously going to play a strong role because they can help customize every individual organization's needs depending on who's involved and the applications that will be involved and putting it all together into one kind of an interoperable structure. The label that I came up with in 2011 - which I think needs to be emphasized - is it's really the contact center expanding beyond what it used to be, which was a call center and dealing only with customers and some customer-facing agents. This is now for everybody in the organization, everybody outside the organization, and the people who make the money for you, generate the revenue - which are your customers - and they all are coming together in terms of being mobile and need to be interoperable across modalities of contact. So I call it the UC Contact Center.
Jim Burton: Thanks, Art. You did mention mobility and BYOD, and we've got a lot of things to talk about regarding mobility. But we're going to get to Michael Finneran, who is going to cover that later. Right now, let's jump to Blair Pleasant, who we know is always going to talk to us about how the industry is evolving, how social is becoming part of it, and then she's got a new key word that she thinks is really important for this year. So Blair, take it away.
Blair Pleasant (7:05): Thanks, Jim. Marty touched on a couple of these already, but the main thing I saw in 2011 is that UC has become UC&C-collaboration has really taken center stage. As an example, at a Cisco conference recently, we barely heard the term unified communications. It was all about collaboration. And most of the other vendors have also added the term "collaboration" to their UC offerings. IBM was actually doing this from day one, talking about UC2. But now, pretty much all of the vendors are focusing on collaboration - either instead of UC or in addition to UC.
I've been using the term "collaborative communications," to talk about the integration of UC collaboration and social media. So if you hear me talk about collaborative communications, that's what I mean. Also in 2011, obviously social media was really big for the enterprise, and companies are using it for internal purposes, as well as for things like customer care. We've also started seeing UC being integrated with social media, and if you come to my session at Enterprise Connect, you'll hear from some end users that are integrating social software and UC. Most of the vendors that I spoke with over the past year are now talking about tying in social software with business processes, just like what we've been saying about UC for years. Companies are recognizing that social has to be integrated and tied into business processes in order to be the most impactful.
In 2011, most of the UC vendors were integrating their UC capabilities with private or public social software products, the public ones being mainly Twitter and Facebook. But one thing we saw is the customers weren't stepping up as expected, and that'll change in 2012 so that'll be part of our next discussion.
Another big thing that's part of collaborative communications is video. We've really seen desktop video playing more of a role. Customers have been asking about new ways to deploy video capabilities. They don't just want the room-based or especially telepresence, in some cases, because it's cost prohibitive, and we've really seen desktop video. It's interesting, I participated in way more video conferences in the past, say three to six months of 2011 than I did in the past two years combined.
So collaborative communications will be more important in 2012. It started in 2011 and in 2012 we'll really see a lot more of it. Jim?
Jim Burton: Great. Well, thank you so much, Blair. Jon, you've always got an angle on most of this stuff. What are your thoughts about the year?
Jon Arnold (9:33): Yes, sure, Jim. Thanks. I would first just say Blair, I don't think you left too much for us that we haven't covered. I mean, it just shows you what's happening in UC. To me, that is a big takeaway from what I see in this space, that I think UC is becoming almost everything we didn't think it would be. I think the traditional thinking around UC starts with a phone, with a PBX and building up from there and tying in everything else. And I don't think we're going to hear the words "telephone" or "PBX" in this call at all. We don't hear about it hardly ever, even from the telephone vendors who are now becoming UC players. And I think what's happened with UC this year is that from every angle possible, there have just been new directions coming that have to be part of the UC conversation. And everything that we've been hearing so far in the social media and the video, we've talked a bit, Art talked about BYOD and I think that, to me, is the most important trend because it's totally taking the communications hub out of the hands of the desktop and away from the desk and the phone, out to the mobile space. I think the tablet has been probably the big story for me this year in terms of devices, and you tie that into where mobile broadband has been going and of course, Android being the biggest operating system out there, and people just cannot get enough of the Apple experience, and I think that is a huge driver, potentially, for where UC is going to go in 2012. I think this demarcation point is getting further and further away from what IT is able to control and what the end users are prepared to spend money on and bring into the office environment and pretty much expect that it be added to the mix. I think that is going to be one of the biggest challenges we'll talk about for the 2012 update. And the comment earlier tying into the VAR is, I think, a huge opportunity here - especially for SMBs who don't have a lot of IT expertise. That's a big gap right now that we're seeing in this market, that the technology is ahead of what these guys can do. And if the VARs can make it easy for them to understand, I think that's going to give us the traction that we've been talking about that we're expecting to see in 2012.
Jim Burton: Thanks so much, Jon. Well, now we're to Michael Finneran, who is going to, I'm sure, give us some insight as to some of his thoughts that have happened, particularly around AT&T.
Michael Finneran (12:00): Thank you, Jim, and thank you to my UCStrategies colleagues for your contributions here - this has been great. I can only characterize this year as a wild ride. Certainly, the recent news with AT&T's collapse of their monumental misstep of trying to acquire T-Mobile was going to be the story that carries us into 2012. For the moment, they've taken a $4B loss for the fourth quarter to cover, in part, their payment to T-Mobile's parent, Deutsche Telekom. In the meantime, their spectrum position is still pretty bad. Meantime, Verizon has improved theirs by acquiring Spectrum from some of the cable operators. Sprint's fairly strong; they have first dibs on the Clearwire spectrum. It looks for the moment that AT&T's big hope, in terms of expanding the network capacity, is going to have to depend on WiFi, both their own WiFi deployments in Starbucks, their hotzones like we have here in New York, but also, possibly partnering with companies like Towerstream, to get some way of augmenting their network capacity.
Of course, overall despite AT&T's difficulties, the mobile market has just experienced tremendous growth both in products and excitement. But certainly as John Arnold mentioned, a reordering of the players - of course that is led by RIM's precipitous decline with Messrs. Lazaridis and Basillie, demonstrating that you really can be overpaid at a dollar a year. Of course RIM's loss has been everyone else's gain and the two players who have grabbed the most of that have been Android and iPhone. Of course, iPhone and Apple in general continue to redefine life with capabilities like Siri. Of course, RIM's decline has also possibly opened the door to the Windows phone from Microsoft. And of course, the Microsoft Nokia combination was an eye-opener and just in the past couple of weeks now, Microsoft's announcement that the mobile client for Lync are soon to be available.
On the tablet front, a $200 Kindle tablet really is something to see. But this does produce a real opportunity to the VARs; certainly not as distributors, because we don't see that changing in the near term. People will be buying their phones from the mobile operators, but what the VARs have to start looking for is how they get a play in this market. They are not going to be providing the phone, but they certainly can provide the glue and that glue to link the applications, the UC implementation, and mobile device together, could be a key opportunity particularly as the industry moves toward the BYOD model.
Of course the last important development of this year is also the saddest, which is the passing of Steve Jobs. Certainly, Mr. Jobs was one of the greatest creative geniuses of our generation and without his guiding light bringing all these wild things to market, hopefully we can keep this beat going into the next year. So Jim, I will turn it back to you.
Jim Burton: Thanks Michael, a lot of really good insights. I feel sorry for our last series of speakers, because we are going through so much and a lot of them have to reiterate, but I know that they all have their own angle and view. So Kevin, you are next on the list for your points of view of 2011.
Kevin Kieller (15:03): Thank you very much, Jim. Blair mentioned that there was a focus on collaboration or at least the term "collaboration" shifting away from unified communication. And that's the first thing that I really want to talk about. For me, 2011 we had Microsoft's acquisition of Skype, Facebook launching Skype-powered video chat, Google+ and their multiparty video hangouts, Apple's Face Time and iMessage. All of these are examples of what I see in 2011 as really the year when the public, what I call the public collaboration network, or the PCN, took hold. And what this means is there is increasingly the ability for, both at work and in our social lives, for us to communicate with one another avoiding entirely the PSTN. And certainly while the PSTN has served us well, the public collaboration network which I see rising through all these increased interconnectivity options allow a user to connect with any other user using a common identification plan. But not like a phone number, it's more of an email address or technically a SIP URI. And unlike the PSTN this public collaboration network really provides a common connection mechanism regardless of whether the communication is real time.
So whether it's voice or video, IM, texting, document sharing, or the asynchronous modes like email the discussion boards, voice mail, calendaring and really this PCN also allows us to increasingly share rich presence and location information and truly supports this push that's been talked by many of my colleagues towards whether its tablet devices or the bring your own device to work in terms of the smart phones. I think what we are seeing then is this public collaboration network in 2011 allowed us to connect really on the basis of being users and not simply calling a device that's sitting either at somebody's home, which they are increasingly switching away from those devices and moving to smart phones, or even calling somebody's desk where increasingly workers especially sales people are on their mobile phone or sitting in Starbucks. It's hard to get the exact numbers but by a quick tally if we look at kind of the four horses that I see leading the race, I see Microsoft with it's Hotmail Messenger, Skype and it's Xbox LIVE users you know there is approximately 550 million users connected into an ecosystem, Apple with it's 200 million iOS devices and 58 million Macintosh's. That's 258 million in that ecosystem. Google with just under 200 million email, IM and now video users being able to connect, and then Facebook coming on with chat and supporting the video chat with somewhere in the neighborhood 750 million users. So really for me one of the key things in 2011 was this rise of this public collaboration network. And certainly what I see this meaning for VARs and systems integrators is that there is some significant interconnectivity business options and opportunities and I expect many of these options and opportunities will discussed in detail at the upcoming UC Summit.
And then the second thing that I felt for 2011 was really it became the year of hard choices. I think that there's been a lot of talk of the Microsoft platform, OCS, but into 2011 Microsoft Lync, I mean technically Microsoft Lync was released very late in 2010, but really in 2011, supported by an ecosystem of hardware vendors that included NET, AudioCodes, Polycom, Aastra, Snom, and more recently HP, you know Lync in 2011 really for the first time became a viable PBX replacement. And there Jon-you said nobody would mention PBX but I'm mentioning it more so in suggesting that new options are coming into the fold. And so really for the first time, all of the medium and large companies that I spoke to, they had three viable choices in 2011. They could continue with their traditional PBX or voice vendors, they could evaluate these new vendor solutions, most often, but not exclusively Microsoft based for them, and or they could look at new deployment locations on premise or was mentioned in the cloud. Or they could pursue a hybrid strategy either through multiple vendor products sometimes traditional combined with some of the newer one or a hybrid strategy that combined the traditional on premise deployments with some of the cloud deployments.
So 2011 provided more choices for customers but these were not always easy choices hence my saying it's the year of hard choice - because there was seldom a perfect choice. So in 2011 I saw the customers that were successful really it was even more important that they document and prioritize their business requirements, that they transparently evaluated the pros can cons and costs of multiple solutions and that they then chose a solution that best met their needs while simultaneously minimizing their pain. By that minimizing the pain meant often choosing the simplest solution that would meet their needs, so not kind of blindly trying to bolt together four- or five-vendor solutions.
In 2011 certainly then companies that did their homework and made hard choices I believe saw benefits, saving money and improving efficiency. Consultants who put their customer needs first and helped them evaluate transparently and recommend the best solution did well this year. Traditional telecom VARs who allowed themselves to move outside their comfort level and kept and open mind with regard to some of the new solutions did well. And application VARs who really were new to the voice world but brought in some voice and network expertise to their teams and really recognized that real time communication and voice can be complex - those application VARs did well. Vendors did well in 2011 building on their existing customer bases but really 2011 set the stage for what I believe will be some larger market disruptions in 2012. I'm sure this will be discussed in more detail during our January podcast. So with that, Jim, I'm going to turn it back over to you.
Jim Burton: Great, thanks a lot, Kevin. To follow all of this up I'm going to turn it over to Dave Michels who always has something interesting and provocative to say. Dave, don't disappoint us.
Dave Michels (22:07): Thanks Jim. A lot's been covered obviously and there's a couple of points I would love to argue with but instead of doing that I think I will just share some of my observations from 2011. One, I think it was just a really tough year. I think it should be noted that we had recession going on, we had the Euro in Greece. We had some wild fluctuations in currency exchange rates, which will cause some trouble for some multinationals. We had the Arab Spring obviously and so it's just been a really tough year with a lot of uncertainty. I think we are going to see a lot of humble reports for 2011 as the vendors publish their numbers. I think that's worth noting.
Another point is, 2011 was really the year I think social networking kind of changed the world. It grew up a little bit; it's getting some older demographics. It was instrumental in changing the leadership of various countries, and even here in the U.S. with the Occupy movement. I think social networking is on a different level than it was before 2011. It isn't clear to me yet how that is or if the dust is settling regarding the business use of social networking but clearly social networking is becoming a much more important concept than it was before.
We've talked a lot over 2011 about consumerization of IT and it's been interesting as consumers or individuals make IT decisions and bring these technologies into the office and we've mostly seen just adoption of these technologies. But the problem with consumerization is that it's also a two-way street and we saw this with Netflix. Netflix was not infallible and so when the vendor, in this case Netflix, made the mistake, people left. People abandoned them. I think they saw hundreds of thousands of drops of their services. I think this is an important double-edged sword of consumerization. IT organizations tend to be more resilient to ups and downs of companies and so consumerization brings a whole new level of the pendulum swing with daily moods and more accountability toward recent activities.
Tablets have been well covered, clearly changing the face of mobility and productivity and that's not going to change at all.
Another thing that was big in 2011 was patents became much more of an issue than they were before. We saw a lot of patent news. I think just this week or yesterday or this morning I'm not sure, Apple's managed to stop HTC with their tablets. Earlier in the year we had Google buys Motorola, and we also saw Microsoft and RIM buy the Nortel patents. I think that patents are really moving into the forefront in a lot of ways that they weren't there before.
Carrier IQ, which has just been the most recent event in the past month here, I think is a very profound event and I think it's going to have huge ramifications moving forward. I think it's going to put privacy back to the front burner particular with BYOD. We're storing corporate secrets on our personal devices and there's going to have to be an increase of awareness around security on the personal devices, which hasn't been in the forefront. I think that is very important.
I don't think RIM is over. I think RIM is going to be in the news in a number of ways this year probably in acquisition stories. But I do think that RIM and mobility has still got a lot to change.
To wrap it up here with the channel, the channel is very fluid. So many important key services, we talked about desktop video we talked about mobility in carrier services. A lot of these things are not going through the channel and so the channel is really focusing much more than it ever has before on services. I think the revenue models are changing and I don't think that the channel has caught up yet. I think we'll see things like subscription-based pricing become much more common over the next year. The channel is very fluid right now; I think we are still going to see a lot of changes. Those are my thoughts, I will wrap it up with that and thanks very much, Jim.
Jim Burton: Thank you, Dave. Well thank you, all. One of the comments that I would like to make and this gets back to what both our Canadian friends, Jon and Kevin brought up, is about the PBX. I think that one of the things that was fascinating this year is that all of the vendors finally got to a point where it wasn't required to sell a PBX to continue to be successful in the market place. As we started UCStrategies quite a number of years ago we defined UC as "communications integrated to optimize business processes." And we have recommended that people looking at UC, look at what they are trying to accomplish, what business case they are trying to work on as opposed to looking at a PBX as the first component to a UC solution. We understood that the vendors, many of them that were depended on PBX sales for survival, needed to make that happen. I think that one of the important things is that this year the vendors have gotten themselves to a point where it's not critical for survival. It may be important but it's not critical for survival and that would include Avaya, Siemens and Mitel, that they are finally to a point where they are offering a broader portfolio of products that include things beyond just call control.
And the Microsoft introduction, Microsoft worked very, very hard over the years to say they were not going to deliver a PBX. They were delivering a component to a UC solution and with what you said Kevin, I agree, they did deliver this year and it does open up the opportunities for users to look at them as a potential option for replacing whatever they've had for call control in the pa st. So with that again, I would like thank everyone. We will see you in the New Year where I said before we will be talking about what our predictions for the year will be. Good night and happy holidays everyone!