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Hosted PBX Market: 18% of All PBX Sales in 2017Hosted PBX Market: 18% of All PBX Sales in 2017

New research from Eastern Management Group values 2017 UCaaS sales at $5 billion.

John Malone

December 14, 2017

3 Min Read
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The hosted PBX market launched about a decade ago on an appeal to cash-strapped small businesses: Get a new PBX for $10 a month, per seat, compared to a new premises-based PBX at $800 for the same seat. That hosted promise has never evaporated. Nor have UCaaS vendors failed to deliver as advertised. And now the hosted PBX market will close out 2017 having captured 18% of all PBX sales for the year.

Eastern Management Group research analysts recently finished a four-year study of the hosted market and published the research in a new report, "Worldwide Hosted PBX Market 2017-2022." We present some of our market size findings in this post, third in an ongoing series.

Hosted PBX sales have rocketed from 4% of the total PBX market in 2010, to 18% this year. And our research shows the market is still young. Here's why. Looking at the numbers, in 2017 new hosted PBX sales were $5 billion. That's only 3% of the dollar value of all installed PBXs. Today, customers replace PBXs with predictable frequency, which means there's decades of sales opportunity in front of all hosted UC vendors in just selling PBX replacements. These are mouth-watering numbers for prospective and established UCaaS vendors.

And this raises the point of attracting competitors and how this will affect the UCaaS market. Eastern Management Group analysts follow more than 180 hosted PBX providers. That is the tip of the iceberg. The number of UCaaS suppliers is growing exponentially. Seemingly everyone wants a bite at this apple. We estimate 3,000 to 4,000 service providers will be in the hosted PBX market in the next decade. This is no exaggeration.

Three things will drive the market upswing. First is enterprise customer behavior. Second is UC features (e.g., collaboration), integrations, and APIs that will double or triple the average revenue per user (ARPU). Third is the arrival of thousands of service providers. We will describe all three.

Enterprises -- Enterprises make up a small share of the hosted PBX market today. About 10% of large businesses have UCaaS. Those that do, by and large, already use cloud computing. For them adding voice is just one more application, and so they do it. As cloud computing grows so too will the enterprise market for hosted PBX.

Features -- Integrations and APIs aren't only demanded by businesses that need CRM and other applications to improve productivity, they are a means of growing ARPU. Vendors can bundle suites of integrations for $10 to $50 per month per seat. At the same time they're delivering what the customer wants. The table below shows some common integrations by application classification.

Service providers - Service providers can't enter the market just delivering the same 80 or so common features provided by all other UCaaS vendors. And they won't. As the number of competitors increases, new entrants come with unique vertical market features, enhanced functionality for existing features, new services, custom applications, and network capabilities. This is differentiation in spades.

Can the market support 3,000 to 4,000 service providers? Our research suggests that it can and will.

This is the third in an eight-part biweekly series featuring research from Eastern Management Group's exhaustive "Worldwide Hosted PBX Market 2017-2022" report. For questions about the hosted PBX study please ask Eastern Management Group researchers.

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About the Author

John Malone

John Malone is the President and CEO of The Eastern Management Group. He heads one of the world's premier communications industry research companies. He is also the author of three books.

In addition to Eastern Management, he founded two other software and database management companies. He has served on the board of directors of numerous publicly traded, and private technology companies.

At The Eastern Management Group, he has managed thousands of the company's research assignments for major technology businesses and service providers worldwide.

John Malone is a former executive with AT&T. While there he developed the first call center.

He has advised Members and Staff of The US House of Representatives, US Senate, Department of Justice, FCC, National Telecommunications and Information Administration, State Legislatures, State Regulatory Commissions and the European Commission. He has testified extensively before the US Congress, state legislatures, and regulatory agencies on technology matters. His research and analysis of telecommunications and Internet policy have been presented at the Cato Institute and FreedomWorks.

His insights and views have been frequently reported in The Wall Street Journal, The New York Times, and Business Week. Fortune magazine called John Malone the leading analyst in the industry.

John Malone has served on the Board of Directors of American Fiber Systems acquired by Zayo, Valere Power acquired by Eltek Energy, In Motion Technology acquired by Sierra Wireless, Phaethon Communications acquired by TeraXion, Applied Digital Access acquired by Dynatech, VINA Technologies acquired by Larscom, and Larscom acquired by Verilink. He also served on the University of Dayton Alumni Board of Directors. He holds a BS and MBA from the University of Dayton.