What's in Store for the UCaaS Market in 2018?What's in Store for the UCaaS Market in 2018?

The year 2018 has already proven eventful for the enterprise communications industry, with several mergers and acquisitions (M&A) and major vendor restructuring initiatives (e.g., Avaya's emergence from bankruptcy) marking the first couple of months. Frost & Sullivan customer research shows that companies will make significant investments in communications and information technologies this year, creating growth opportunities for both established participants and new market entrants.

To position for future success, communications solutions providers must accurately assess market trends and gain a deeper understanding of customer challenges and investment drivers. No doubt, customer migration to cloud architectures and delivery models is one of the overarching trends in the industry and must define providers' visions, portfolios, and go-to-market strategies. But will 2018 be "the" year of cloud? If so, how can providers differentiate and deliver a more compelling value proposition to customers to beat the competition?

Cloud Adoption Goes Mainstream, but Remains a Daunting Task
Compelling evidence suggests that the move to cloud is happening in earnest. A recent Frost & Sullivan survey of nearly 2,000 global IT and telecom decision makers reveals that a surprising 80% to 90% of respondents in all industry verticals are already using a cloud communications provider. Digging deeper into the data we see that 54% of those using a cloud provider have moved part or all of their enterprise telephony solutions to the cloud and another 31% plan to do so in the next couple of years. These data suggest considerable opportunities for unified communications-as-a-service (UCaaS) providers offering PBX and key telephony system replacement solutions.

An even larger percentage of respondents -- 61% and 59%, respectively -- have moved part or all of their video and Web conferencing solutions to the cloud. Furthermore, 62% of respondents are consuming instant messaging solutions as cloud-based services. More than a quarter of respondents plan to move part or all of their video and Web conferencing and instant messaging to the cloud in the next two years. This creates growth opportunities for standalone conferencing and messaging application providers, as well as UCaaS providers with compelling conferencing and messaging capabilities in their portfolios.

The UCaaS market has evolved dramatically over the past couple of decades. Most businesses are aware of the benefits offered by cloud delivery models and are considering cloud options for their future communications solutions. However, many decision makers also acknowledge the risks and challenges associated with the move to cloud. Existing premises-based UC investments, particularly in more complex IT and telecom environments, often delay cloud adoption. Control and security remain top concerns related to cloud solutions: 49% of non-cloud users wish to retain full control of their communications solutions and 46% consider hosted communications a security risk.

Frequent shifts in service provider portfolio roadmaps and competitive position represent another major concern for IT and telecom decision makers. Intensifying M&A activity in the service provider community is creating a particularly strong sense of uncertainty among businesses evaluating UCaaS solutions and providers. While competitor consolidation is likely to have an overall positive impact on industry health, it also causes customer hesitation and/or churn.

IT Budgets Favor New Investments, but Voice Isn't a Top Priority
As we face the possibility of a global recession, UCaaS providers and other communications vendors fear delays in customer technology upgrades, including the move to cloud solutions. Frost & Sullivan's customer data provides some comforting insights: 62% of global decision makers state that their IT and communications budgets will increase in 2018, whereas only 5% expect their budgets to decrease this year.

Reducing operational costs and improving the customer experience will represent the main IT investment drivers in 2018 for 33% and 32% of respondents, respectively. A factor for communications supplier concern is that UC ranks low among technologies expected to impact revenue growth and margins. Overall, respondents expect that cyber security, big data and analytics, and data center investments will be the most impactful for their revenue growth and cost reduction efforts. The good news is that more than half of the respondents plan to invest in UC in 2018 and 2019.

Among communications technologies, Web conferencing ranks highest in terms of 2018 budget priority (selected by 26% of respondents), whereas IP telephony is a priority for 19% of respondents.

Continue to Page 2: Winners and Losers

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Winners and Losers
UCaaS providers typically see their growth opportunities in migrating customers with premises-based solutions to cloud communications. However, customer churn among UCaaS providers is bad news for some and good news for others. Frost & Sullivan research shows that a significant 46% of global investment decision makers plan to replace their IT or communications providers in 2018 and 2019. Cyber security, big data and analytics, and Internet of Things (IoT) vendors face the biggest threat and opportunity with 39%, 38%, and 34% of respondents planning to replace their vendors for the respective solutions/technologies. Premises-based UC vendors and UCaaS providers are not safe either -- 26% of respondents are looking to replace their communications providers.

Solution quality and reliability issues rank highest among customer churn factors, selected by 33% of those looking to replace providers. Quite important for UCaaS providers, 27% of respondents in this group are switching providers because they want to move to the cloud and their current provider does not offer a suitable cloud solution. Overall, these data indicate a considerable opportunity for providers of cloud-based security, big data, analytics, IoT, and communications solutions.

UCaaS providers must carefully evaluate their customers' and prospects' cloud perceptions and provider selection criteria to stay competitive and accelerate growth rates. As the market becomes increasingly competitive, UCaaS providers will need to more effectively address key customer concerns to win deals. Security and reliability top the list of cloud communications provider selection criteria with 45% and 40% of respondents identifying these as their key decision-making factors. Price and cutting-edge features are neck-in-neck in third and fourth positions.

UCaaS providers must also tailor their solutions and messaging to address overarching IT decision makers' challenges and concerns. The top challenges for IT departments remain as follows:

The good news for UCaaS providers is that one-third of cloud users state that cloud eliminates the hassle of integrating multi-vendor products and solutions. Also important is that 37% of cloud users appreciate the fact that cloud provides access to advanced features and capabilities. This perception aligns well with key customer investment drivers, as follows:

Conclusion
The UCaaS market continues to grow rapidly and is already entering the mainstream adoption stage. However, businesses adopting cloud solutions will scrutinize providers and solutions based on a variety of criteria. Owning the right UCaaS tool set, an effective go-to-market strategy, and an appropriate marketing message will be critical for provider success.

Additional customer data are available in the following Frost & Sullivan studies: An End User Perspective on Navigating Digital Transformation in IT and Communications, Global, 2017 and An End User Perspective on Workplace Communications and Collaboration, Global, 2017. Also, consider attending Decision Factors in Choosing a UCaaS Provider next Monday, March 12, at Enterprise Connect 2018.

Learn more about Cloud Communications at Enterprise Connect 2018, March 12 to 15, in Orlando, Fla. Register now using the code NOJITTER to save an additional $200 off the Regular Rate or get a free Expo Plus pass.