Australia’s on-premise unified communications (UC) market experienced a decline in revenues in 2013, according to Frost & Sullivan. This was mainly due to the improved understanding of the benefits of hosted and cloud-based UC solutions, which have now reached mainstream adoption.
Organisations are now able to deploy any UC application over a hosted model, and have a much improved understanding of the benefits of hosted and cloud-based UC solutions. In addition, the capital intensive nature of on-premise solutions limits the flexibility for organisations to adapt to the changing communication and collaboration environments. As a result, the on-premise UC market is approaching a phase where growth rates are flat or declining.
According to Anand Balasubramanian, Industry Analyst of ICT Practice, Australia & New Zealand at Frost & Sullivan, the decline in the Australian UC market revenues can be attributed to the changing business preferences for communication and collaboration solutions.
“In line with a cautious spending approach, both government agencies and businesses delayed IT investments, reduced the number of large scale deployments and opted to extend the life of their existing systems, which had a major impact on the market. Growth rates in the UC market are expected to be flat in 2014 and will continue to be low. Vendors will find it difficult to convert opportunities for on-premise solutions as hosted and cloud-based alternatives gather momentum. This will also have the effect of tightening the profit margins for vendors and channel partners, further contributing to the low growth rates in the market,” he added.
Frost & Sullivan forecasts the UC market to grow at a compound annual growth rate (CAGR) of 1.6 percent from 2013 to 2020. By 2020, revenue contribution from hosted and cloud-based solutions will be close to that of on-premise solutions. However, on-premise UC solutions will continue to offer opportunities, particularly in the government and banking, financial services and insurance (BFSI) sectors, where there is greater need for infrastructure control. Many organisations have sunk significant amounts into their UC infrastructures and will not find it cost effective to switch to a hosted model.
Although the contact centre market in Australia is fairly mature, it was among the strongest performing UC segments in 2013. This segment benefited from pent-up demand from previous years, where organisations opted to defer major deployments and refreshes while assessing the impact of economic and political conditions.
Though most UC vendors experienced declines in revenues in 2013, vendors with a major dependency on a particular application segment were most severely affected. Alcatel Lucent, Unify (previously Siemens) and Avaya experienced significant decline in revenues due to their focus on enterprise telephony.
Responding to challenging market conditions, vendors aggressively marked down prices of products. For example, the average selling price of a room-based video conferencing system declined by more than 30 percent, resulting in sales of a greater number of units for lower profits, further weakening growth in the market.
To increase profit margins, vendors and channel partners are focusing on optimising operations through consolidation of business lines and by making strategic acquisitions. Telstra, Optus, Unify, and Mitel have undergone significant changes to their go-to-market strategy or company structure. Such moves and changes will become increasingly common over the next few years.
“The shift towards hosted and cloud-based models is changing the dynamics between vendors and channel partners. UC vendors and channel partners are increasingly competing for the same market as UC related services become critical for driving future growth,” said Audrey William, Head of Research of ICT Practice, Australia & New Zealand at Frost & Sullivan.