UCaaS Market Bolsters Leaders in Different SegmentsUCaaS Market Bolsters Leaders in Different Segments

Synergy's 3Q17 UCaaS Market Tracker and UCaaS Firmographic Market Tracker reports are out, and results show the UCaaS market is accelerating well over 25% per year.

The UCaaS market is now generating revenues exceeding $400 million per quarter and approaching $2 billion annually. While the combination of hosted PBX and UCaaS adoption is still low, at mid-single digits, the market has already created a dynamic set of UCaaS providers that are competing fiercely for prized customers with varying different strategic approaches.

Please note, Synergy excludes traditional hosted PBX voice services built on softswitch architectures from technology vendors such as BroadSoft (BroadWorks; now a Cisco company), Cisco (HCS), Metaswitch, and Genband from our UCaaS market study discussed here; however, we track the hosted PBX market through a different research service.

Hitting the Million Mark: RingCentral & Mitel
3Q17 marks a significant period for the early stages of the UCaaS market. For the first time, a UCaaS provider -- make that two! -- has managed to cross the one million subscriber mark. The vendors couldn't be more different from one another: RingCentral & Mitel.

Please note, above graph only includes the Top 5 UCaaS vendors of which Synergy tracks 17 currently, as well as more than 70 hosted PBX vendors. Further, BroadSoft subscribers included here represent the company's wholesale UCaaS platform, BroadCloud. Also, the Vonage seats represented here reflect UCaaS subscribers and not the equally sizable hosted PBX business.

RingCentral was born in the cloud, sells its services direct (mostly), and is focusing on organic growth through bulking up its digital sales and marketing. Mitel was born for the premises, sells its services mostly indirect (although Mitel also sells direct), and is pursuing UCaaS with an aggressive industry consolidation and premises-to-cloud migration strategy.

SMB: An Active Battleground
Driven by the compelling economic advantages of UCaaS, SMBs (fewer than 100 seats) have been the beachhead where vendors first found headway with this emerging technology. Of the top five players in this segment, which all have above 350,000 seats, BroadSoft, Mitel, RingCentral, and Vonage have grown their bases by at least 20% over the last 12 months. 8x8, while ranked as the third largest by number of subscribers, has been focusing its growth in the 100-to-1,000 segment, which has been seeing growth of more than 20%.

RingCentral and Mitel have managed to surpass and distinguish themselves from the competition by growing their bases by more than 30% in this segment over the last 12 months. As noted above, RingCentral has done so through organic growth while Mitel has done so through acquisition.

Continue to Page 2: Mid to Large Market, Fuze, Microsoft, and UCaaS Future

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Mid to Large Market: 8x8 Enjoys First Mover Status
On-premises PBX deployments continue to dominate in the mid-market, with little UCaaS penetration in companies that have between 100 and 1,000 seats. That said, 8x8 finds itself the installed base market share leader in the UCaaS mid-market segment based on subscribers. It achieved this ranking thanks to its first-mover advantage and early investments into features that appeal to this upmarket segment.

As vendors strengthen their offerings to appeal to this segment, they are scoring more and more wins in this highly sought-after segment. In the long term, this activity could squeeze the lead 8x8 has today. Some fellow competitors in the SMB segment are very aggressive here, looking to translate their successes from SMB to bigger and higher-paying customers.

Fuze Strengthens Large Enterprise Leadership
Fuze has a story all to its own. The Fuze that exists today is a combination of two earlier pioneering collaboration ventures: ThinkingPhones and FuzeBox. The underlying call control that is part of the Fuze platform today derives from the foundational technology built out by ThinkingPhones. This cloud PBX platform found modest success with the sub-100 seat market when ThinkingPhones was a standalone UCaaS provider. However, after its corporate transformation, fueled by the merger, strategic change of direction, and significant financial investment, Fuze today is a serious UCaaS contender in the large enterprise category of deployments with more than 1,000 seats.

As a pre-IPO player, Fuze has been influential in investing in customer acquisition and shrinking sales cycles, which today translates into its large enterprise leadership, measured at more than 2x over its closest competitor. More impressively, Fuze has also managed consistent increases in its market share in this segment.

Microsoft: Where the Heck Is It?
Despite Microsoft's bold moves into the UCaaS space, including replacing Skype for Business Online with Teams, it's yet to penetrate the Top 10 UCaaS vendor list. In fact, given that Microsoft has announced 120 million active users on Office 365, our research shows penetration rate of UCaaS among this base remains less than 1%.

When Microsoft entered the highly fragmented under 100-seat market, it did so with a UCaaS solution that at the time wasn't very feature-rich. The majority of providers were able to position their offerings competitively against Microsoft, making the company a non-disruptor up to this point.

DEFINITIONS!

Understanding terminology is important in navigating the abundance of marketing confusion. Here are Synergy definitions for UCaaS and hosted PBX:

UCaaS -- a subscription service whereby a service provider hosts and develops its own proprietary cloud PBX platform, enabling PSTN connectivity and offering an integrated UC applications portfolio stack (conferencing, team collaboration, instant messaging/presence)

Hosted PBX -- a voice service for which service providers utilize third-party softswitch call control technology to build/manage/operate their own, branded hosted PBX voice services. The vendors that provide the call control technology to the service providers include BroadSoft (BroadWorks; now a Cisco company), Cisco (HCS), Genband, Metaswitch, 3CX, and Centile.

Recent roadmap updates from Microsoft seem more promising, but whether it'll be able to consolidate UCaaS into the broader office productivity space is yet to be seen.

UCaaS, the Best Is Yet to Come
By looking at the large size of the existing premises PBX installed base, as well as the changing nature of how organizations communicate internally and with customers and partners, Synergy's research indicates that the UCaaS opportunity couldn't be more promising. Synergy is currently gearing up for its 4Q17 and year-end market share reporting, targeted for end of February, and we're eager to analyze the year-end performances across the vendors, firmographic segments, and geographies.

Other UCaaS vendors we track in our study that we feel are worth mentioning are: Dialpad, Fonality, IP Telecom, Jive, Nfon, Panterra, and Star2Star. Also worth noting again is that Vonage doesn't get full credit for its unique approach to the hosted UC market, where it addresses the hosted UC market with both a UCaaS and hosted PBX platform. In this combined view we would see Vonage with a much larger subscriber base.

Given the continuing acceptance of software as a service as general business practice, and observing continued advancements in cloud communications and connectivity, we believe UCaaS has many years of strong growth and opportunity ahead of it -- and, from all the signs, the best is yet to come.

About Synergy Research Group
For nearly 20 years, Synergy Research Group has published in depth quantitative market reports for a variety of fast emerging technology markets. Synergy's data analysis is published quarterly through standard reports and also made available to its clients via a unique cloud-based research platform, designed specifically for the market intelligence community. A trusted source of accurate market data, Synergy is heavily quoted in the media such as the Wall Street Journal, New York Times, Washington Post, Economist, NPR, BBC, CNN, Financial Times, Forbes, Fortune, Bloomberg, Guardian and many more.

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