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VoIP Planet Trends How Will Economic Downturn Affect VoIP Industry?

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When the economic news isn’t gloom these days, it’s doom. We’re bracing for the worst, but the worst is not here yet. Nevertheless, in a couple of reports just out, industry watchers say the prognosis for IP communications remains relatively strong.

The Radicati Group predicts steady growth in the on-premises corporate unified communications (UC) market, with revenues swelling from $730 million worldwide this year to over $1.5 billion by 2012. In its latest Enterprise Telephony Report, Dell’Oro Group saw several major vendors a bit off their stride, but continuing to hold their own.

“The Q3 results really weren’t impacted by the economic downturn yet,” said Dell’Oro Director Alan Weckel. “If you look at sequential growth between Q2 and Q3, it was 5 percent for the PBX market, compared to 9 percent a year ago, and 6 percent two years ago. So it’s in the range. It’s not like anything fell off the cliff.”

Those with fiscal years ending in the third quarter upheld this trend. Siemens grew 1 percent from Q2, as compared to 9 percent in the previous quarter and 11 percent in 2006. Avaya showed greater slowing, growing 3 percent over Q2 versus 26 percent in the same period in 2007, Weckel said. “For Avaya, a lot of that is the weakness in the economy beginning to filter in.”

Part of the slowdown may divide out by sector, Weckel said. Buyers can readily see the return on investment for upgrading call control to IP, for example, but they may be less sanguine about swapping out their endpoint devices. This holds especially true during a slowdown when potential layoffs could roll back the need for extensive replacement projects.

Overall, Q3 went well enough, with the total enterprise telephony market up 5 percent over Q2 to $4.2 billion, including PBX sales, voices applications and phones, Weckel said.

Don’t look forward to Q4, though. October numbers will show up in that quarter, and October marked the start of the steepest slowdown thus far. “I would expect Q4 to be down, and Q1 is always weaker than that because of seasonality,” Weckel said. By this thinking, the industry will be well behind the curve by mid-2009.

The Radicati Group takes a longer view with its study, “On-Premises Corporate UC Market, 2008-2012.”

By the end of 2008 the installed base for on-premises corporate UC will be 31 million users. That number should reach 67 million by 2012, an average annual growth rate of over 23 percent over the next four years.

In a survey of 108 corporate IT organizations, the Radicati Group showed that only 20 percent of respondents have deployed a UC solution, while 51 percent showed interest in deploying a UC solution in the near future.

President and CEO Sara Radicati said the fundamental drivers of UC adoption point toward a steadily increasing market size. It begins with increased awareness.

“There is a lot of changeover of older infrastructures, which is nothing particularly new, but more than at other times customers have come to understand that if they are going to rip out their old voice infrastructure, voice over IP and unified communications create some interesting opportunities.”

Major vendors like IBM and Microsoft have been helping to drive this new understanding. “Almost every presentation they give these days has the term UC in it,” she said.

Vendors for their part have been taking steps to make UC solutions more accessible to would-be buyers. “The vendors of these products have become more sensitive to the needs of the customers, especially with regard to interoperability and issues of fitting in with legacy systems. The products that are coming out are becoming much more targeted in this regard,” Radicati said.

Then there is that pesky recession. Radicati’s numbers were compiled prior to the downturn, and she said a downward revision may be necessary once the Q1 numbers come in. Overall, though, she suggested that the long-term prognosis remains healthy, regardless of any short-term setbacks.

“The need and the interest in these types of solutions is very much there,” she said. “There is an understanding of the problems and there is a much better understanding than ever before of the benefits of these products in helping to address these problems.”

This article was first published on

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