Unified communications market trends drive increased spending
On-premises UC is in decline as organizations buy into the latest unified communications market trends, such as cloud collaboration tools and embedded communications.
Investment in on-premises unified communications and collaboration continues to decline. The cloud is becoming the preferred delivery method for UC applications and services. And lines of business are gaining more buying power.
Overall, annual spending on the UC and collaboration market has more than doubled over the last decade to reach more than $45 billion, according to a Synergy Research Group report on IT spending. The report consisted of quarterly global surveys of major equipment vendors and service providers.
The hosted and cloud market segment has grown to constitute two-thirds of the total market, while on premises is declining 4% per year, according to the report.
"New cloud-based UC and collaboration tools address a whole new world of business tools, which older premises technology was not able to due to technical limitations or economic constraints," said Jeremy Duke, analyst at Synergy, based in Reno, Nev.
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UCaaS explained: Guide to unified communications as a service
Video conferencing is a prime example of this shift toward cloud, he said. The UC market trend of low-cost, USB-based room systems paired with video-as-a-service platforms enables organizations of all sizes to take advantage of video conferencing. The in-house IT management requirements and high equipment costs limited traditional video conferencing systems to large enterprises, he said.
The introduction of communications platform as a service is also driving the increase in cloud spending as the technology enables organizations to integrate and tailor business applications to their UC-as-a-service (UCaaS) systems, Duke said.
UC market trends drive cloud growth
The combination of economics and ease of use will drive continued adoption of the cloud, Duke said. UC vendors are also revamping their legacy services to be more cloudlike by virtualizing applications and using pay-as-you-go models for equipment.
Teams and meeting applications are almost entirely cloud-based, with organizations also moving calling to the cloud, said Irwin Lazar, analyst for Nemertes Research, based in Mokena, Ill.
Jeremy DukeAnalyst, Synergy Research Group
A 2019 Nemertes workplace collaboration study of 600 end-user organizations found 65% are using UCaaS or hosted services for part or all of their UC needs. For organizations still on premises, 43% are evaluating or planning a move to the cloud.
"Overall, the shift to the cloud has led to purchasing models that are subscription-based, rather than perpetual licenses and large upfront capital expenditures," Lazar said.
Despite the cloud taking over as the dominant delivery model for communications systems, on premises remains popular for IP telephony, call control and endpoints, according to the Synergy report.
Mid-to-large enterprises are increasingly adopting cloud-enabled traditional UC applications, Duke said. UC vendors, such as Avaya and Cisco, offer private cloud deployments that enable organizations to virtualize UC services in their own data centers to essentially keep them on premises.
Endpoints are also seeing growth as organizations buy physical endpoints, such as desktop IP phones and video devices, to complement cloud-based communications and collaboration services, he said.
Changing buying habits drive increased UC spending
As UC spending increases, buying power within the organization is evolving. Traditionally, IT departments were responsible for UC budgets, but the cloud has enabled lines of business to also invest in UC apps.
"The cloud has a promise of offloading some of your IT department, and we are seeing this happening," Duke said. Shadow IT is also common with cloud-based applications as some vendors offer freemium options for their collaboration services.
"Collaboration tools could penetrate first through shadow IT, then widespread in an organization -- forcing IT to adapt," he said.
Freemium options have advantages and disadvantages for organizations. The main advantage is IT teams can test new tools without having to make a significant investment, Lazar said. But freemium services also enable employees to adopt tools without IT's approval.
Despite the existence of shadow IT, about half of organizations fund their UC spending through a central IT budget, Lazar said. Larger organizations are more likely to use chargeback and line-of-business funding models for UC spending, according to the Nemertes report.