Business adoption of VoIP has only just begun

Only 30 million of the world's 450 million business phones have gone IP, making Cisco optimistic there is plenty more voice business to be done!

Voice is not dead.

Despite the din around instant messaging, data and video, Cisco's senior vice president of voice technology, Barry O'Sullivan, said Tuesday US time that voice will make up about $US15 billion of what will become a $US30 billion unified communications (UC) market by 2011.

He estimated there are 450 million business phones in the world -- all of which will eventually be Internet Protocol (IP) phones. So far, Cisco has shipped 17 million IP phones worldwide and combined competitors have deployed another 13 million.

"The way we look at it is that there are another 420 million to go, so [there is] lots of runway in front of us," O'Sullivan said at the Oppenheimer Annual Communications and Technology Conference. The technology shift will enable voice to be integrated into video and data for UC and IP private branch exchange (PBX) applications.

And the adoption rate for IP phones is booming, after a slower ramp-up.

"It took three years to ship the first million, and the most recent million we shipped in two months," said O'Sullivan. Cisco replaces about 21,000 legacy phones every business day, he added.

The other half of the UC market pie is broken into $4 billion for contact center technology, another $4 billion for email and instant messaging, and the rest split between video and other applications.

Based on these numbers, the sales opportunities are strong for partners. More importantly, though, O'Sullivan confirmed that these projections are based on "pure product revenue." That means there is room for more revenue from services that will go along with voice and unified communications implementation.

Ironically, it's possible that IP phone sales could eventually recede, considering the growth of mobile devices -- though O'Sullivan joked that wasn't his preferred business plan. But when asked by an analyst what Cisco was missing from its UC offering, O'Sullivan said, "I think one of the gaps we saw was mobility." He said in the future users will wonder why they need desk phones at all.

When asked if IP phone sales would shrink, O'Sullivan avoided a direct answer. "The mobile device market is tough." It's the network that runs underneath that enables "intelligent, secure enterprise devices for voice," he said. Cisco's goal is to provide that network.

In a push toward mobile UC, Cisco last week launched the Mobility Services Engine 3300, a hardware-based platform that enables enterprises to manage mobile devices and applications across wired and wireless networks. O'Sullivan also noted the 2006 acquisition of Orative Corp., which makes client software that enables mobile devices to access UC applications.

While focus from the media and analysts has shifted away from voice in recent years, O'Sullivan said that email is not quite as compelling a business proposition for Cisco. His 14-year-old daughter has all but quit sending emails to anyone but her dad. "Email is being displaced by social networking and messages on BlackBerrys," he said.

In the enterprise, email is likely to become a cloud application, he said. "We don't think premise-based email is a good place to look," O'Sullivan said, adding that Microsoft has claimed that half its email boxes will be in the cloud in the future.

Cisco set itself up for growth in cloud email and other application delivery with its acquisition of Software as a Service (SaaS) company WebEx last year.

"We definitely see a transition to cloud computing," O'Sullivan said. "It's hard for us to think about getting into big enterprise software, but its interesting to think about being on the right side of the transition to SaaS." He noted WebEx's ability to offer on-demand software sales by credit card as an interesting prospect that "could extend out to other areas" that have yet to be dreamed up.

As for the competitive landscape in voice, Cisco sees Avaya as its main competitor -- and it no longer views Nortel as an issue, O'Sullivan said. That's notable considering Nortel has spent the last two years ramping up its UC offering and adding voice capabilities to Microsoft's UC package. O'Sullivan admitted that Microsoft has a strong instant messaging offering as part of its Office Communications Server, and it looks as if the company will work a voice system into that. Cisco has made an effort to work with Microsoft by integrating the software giant's instant messaging into its own telephony technology for UC, O'Sullivan said.

Eventually the IP phones market will "shake out" to two or three major players, he concluded.

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