The benefits of voice-over-internet-protocol in cost and flexibility are well understood, but what is not yet certain is how the supplier community will ultimately shake out. With multiple companies offering different voice-over-internet-protocol (VoIP) components, how are the suppliers aligning themselves?
"You think about voice when you think about VoIP, and you think about the private branch exchange," says Jon Arnold, principal of Toronto-based VoIP market analyst Jon Arnold & Associates. "However, we're moving beyond simple voice applications with VoIP," he says. What is more, the traditional private branch exchange (PBX) is slowly dying.
"Within the last year or so, unified communications has become a big story, and all the suppliers are jumping on that bandwagon and pitching a higher-value solution, of which VoIP is just one piece," Arnold explains. This is changing the structure of the VoIP market. "Suppliers are pitching this unified communcations nirvana, where if you put your faith in IP, then the mega-solutions will pull everything together for you." That also leads to a discussion of IP-based communications in the context of business processes. How, for example, can customers integrate VoIP into their SAP solution so that the enterprise resource planning (ERP) system automatically communicates with the right people at the right time? And which supplier can handle that integration?
That leads Arnold to carve the market up into three tiers. In the first tier are the traditional PBX suppliers that have focused purely on voice communications. Many of these companies started with legacy analogue PBX solutions, and a few began with an all-IP platform, but they all focused exclusively on voice communications using hardware. The second tier encompasses relative newcomers to VoIP, who have an IP-only history and are heavily promoting VoIP as part of a software-based system that will bring new functions to a company's application base. The final tier - comprising portal-based, VoIP-as-a-service providers - is a wild card, he adds.
Alcatel, Avaya and Nortel are traditional suppliers with a heritage of legacy products that migrated to IP, says Arnold. "They're trying to keep their existing customers in the fold by offering IP PBXes that carry VoIP," he says. Companies like 3Com also focused heavily on hardware-based voice communications, while at the lower end of the enterprise market, you'll find organisations like Mitel, Suretel, and Panasonic.
"The traditional guys tend to draw bridges," says Henry Dewing, principal analyst at Forrester Research. "They can do a lot of modular things that let people bridge between the old and the new."
Dewing believes we are at an inflection point in the industry, where the traditional voice suppliers are moving rapidly towards a software-based IP world. "They have the potential to fail miserably if they don't keep their eye on what's happening," he says.
The challenge for them is that they face heavy competition from the second tier of suppliers, who come from a purely IP-based background and who, in some cases, have much more experience in the application space. Microsoft sits in this tier, and while Cisco is an IP supplier with voice roots, it has a strong emphasis on applications such as telepresence.
"Microsoft has the potential to build Office Communication Server and then swap everything in the background," says Dewing. If the company can dazzle customers with its communications applications, they might also buy the VoIP components that support the applications as a fait accompli. Shifting voice around a network is becoming more of a commodity these days, so these suppliers will want to lump it all in together.
This creates a branding war between the relative newcomers from the IP world, and the traditional PBX suppliers trying to get into IP. The latter need to assert their rich heritage in communications in their marketing material. "If you can get IP buyers and users to recognise that quality comes from Alcatel and others then you will drive customer preferences," Dewing says. In the meantime, however, IP-centric suppliers like Cisco are putting IP phones on every desk, which aside from guaranteeing interoperability with its own back-end equipment, also creates an incredible branding tool.
A lot will rely on the channel, says Arnold. It is the value-add resellers (VARs) and systems integrators that will help decide who wins. "Ultimately I believe the major PBX suppliers have competent quality products. The ones who win in the end have channel partnerships."
Reliability may be the trump card for voice suppliers, who will claim that they've been doing voice for years, whereas the likes of Microsoft are relative newcomers. Do we really want the blue screen of death infecting the phone, too? But Microsoft has made some major wins in the unified communications business. Shell, which rolled out VoIP systems based on Microsoft servers around the turn of the year, is the poster child for Microsoft's communications business. And for those that don't want to buy the whole stack from Microsoft, its partnership with Nortel on unified communications products, inked last autumn, will have been a reassuring move.
Cisco is an interesting newcomer because it straddles the second and the third tier, the IP newcomer and what we might as well call the communications-as-a-service (CaaS) market. "Ideally, there is nothing installed at the customer end," says Sara Radicati, founder of analyst firm the Radicati Group says of this third tier of suppliers. "It's a hosted PBX, where rather than using analog switching lines, you're using the internet."
Skype (which hasn't penetrated the business world much) is a CaaS play, but there are others. "A lot of people are buying managed meeting and collaboration services now," says Dewing. "Cisco has a big opportunity."
Microsoft is running beta tests of its Live services, and IBM has an initiative called Bluehouse, which offers hosted SameTime environments. "I'm sure it won't be long before we see SameTime with unified telephony," Dewing predicts.
However, no-one has a lock on the CaaS market yet because no-one has tackled it perfectly, warns Radicati. This is why Arnold calls it a wild card, and predicts that the real winners could come out of left field.
"Google is emerging as a serious alternative," he says. "Google isn't a major player yet, but they have the scale to do it and they aren't far off. There isn't a major supplier in this space that isn't scared of Google."
What would a Google solution look like? The only sure bet is that it would be a cloud-based CaaS proposition, standing in stark contrast to the traditional PBX and IP-only offerings. There would be little or no customer-premises equipment, and SMBs would likely be the target market. All we've seen from Google so far is the underwhelming consumer-focused Google Talk client, acquisition of telephone management startup GrandCentral, and its shadowy investments in large amounts of dark fibre. Maybe Google won't go any further, or maybe the winner in the CaaS market will come from somewhere else. In a market this disruptive, the signals aren't that clear.