Apr 23, 2007 12:00 PM,

Opportunities emerge in unified communications

By Joan Engebretson

Software giant Microsoft has set its sights on making PBX systems obsolete. It hopes to replace them with a unified communications platform that takes a software-based approach to voice over IP and integrates it with other forms of communications, including instant messaging, conferencing and e-mail.

More on this Topic

Industry News

Blogs

Briefing Room

“The next generation of office workers won't interact with phone devices the same way that we do,” said Chris Cullin, Microsoft's director of product management for unified communications. “Voice as a single media is not addressing their needs.” Noting that more and more people are becoming accustomed to presence-based services such as IM, Cullin said end users will want to pick up a phone only when they know the other party is available to take the call.

Although Microsoft has made the boldest predictions, it's not alone in attacking the PBX market. Networking giant Cisco Systems also has released software-centric unified communications products that could help hasten PBX obsolescence. Perhaps wishing to protect its strong share of the IP/PBX market as long as possible, Cisco just hasn't made as much noise about that eventuality.

Yet despite the potential disruptive effect on the enterprise market, the near-term impact of the new unified communications offerings on service providers is likely to be minimal. Long term, however, service providers could be uniquely positioned to capitalize on Microsoft's and other initiatives by providing connectivity services to enable interoperability between enterprises.

Microsoft's chief unified communications initiatives are Office Communications Server (OCS) 2007 and its client software, Office Communicator 2007. Currently undergoing beta testing, the products are targeted for general release by the end of June.

As Cullin explained, the new product suite aims to integrate enterprise communications on two levels — within the information technology department and for the end user. On the IT side, the use of a single server for voice, IMing and other forms of communications is aimed at centralizing operational control. “A lot of end users are starting to bring in AOL or Yahoo! instant messaging, and they expose the enterprise to security and compliance vulnerabilities,” Cullin said.

From the end-user perspective, Microsoft's offering aims to increase productivity by enabling people within an organization to launch calls by clicking on one another's name in an e-mail, PowerPoint presentation or other software program. Because the offering is presence-enabled, end users will know if colleagues are available to accept communications. The presence capability also will help facilitate audio or document conferences, which users will establish in a drag-and-drop manner.

In its most basic form, end users may communicate using headsets connected to their computers. The system also can interconnect with an existing IP- or TDM-based PBX, enabling organizations to preserve their investment in such equipment. Doing so enables end users to get unified communications capabilities on existing handsets, and it retains specialized PBX functions such as features used by a company's receptionist.

Alternatively, organizations can use OCS, in combination with VoIP phones from Microsoft partners, as a replacement for a PBX system. Microsoft has not yet released pricing, but Cullin said the goal is to reduce the cost of VoIP.

Depending how the system is set up, it may include some level of VoIP connectivity and interoperability outside the organization. For example, through connectivity to a VoIP gateway, calls can be placed to the public network — and if the OCS is installed outside the organization's firewall, outsiders can be invited to join intra-company conferences.

Microsoft's plans have caused a stir in the enterprise networking community, said Irwin Lazar, principal analyst and program director for Nemertes Research. “It's the one thing our clients ask us about more than anything else,” he said, adding that some Microsoft representatives are telling customers not to buy a PBX — even an IP-based one.

Despite the strong interest, Lazar expects enterprise customers to proceed cautiously in adopting OCS. In recent interviews with 100 enterprises, Nemertes noted concerns about the reliability and scale of Microsoft's offering. “They don't have credibility in that space,” Lazar said.

Enterprises initially will implement OCS within individual work groups or company locations, said Brian Riggs, principal analyst for Current Analysis. Because OCS is likely to be deployed initially in combination with an organization's PBX, PBX vendors, at least for now, are “falling over each other to partner with Microsoft,” he said.

Riggs added that Microsoft's offering will have the greatest appeal within the small and medium-sized business market, where Microsoft traditionally has been strong. How quickly and widely OCS is adopted will depend on the popularity of corporate IM, Riggs said. “If you can truly build a market for corporate-grade instant messaging, it will be a no-brainer for a business to simply add voice capability to that over time,” he said.

Perhaps in an effort to hasten that outcome, Microsoft will replace its current Live Communications Server (LCS) with OCS, offering a built-in migration path for organizations that may only want corporate messaging today. The LCS, which has 10 million users worldwide, can be upgraded to support OCS functionality, Cullin said.

Although the potential long-term demise of the PBX might appear to be bad news for service provider business units that focus on enterprise sales, Riggs anticipates that those units will simply sell Microsoft and similar offerings instead as more customers demand them. Microsoft and other initiatives also will create opportunities — at least in the short term — for service providers to integrate unified communications with existing PBX equipment.

Other opportunities for service providers may be in managing an enterprise customer's OCS or other unified communications system or in offering the OCS platform, or a competitive one, as a hosted service. Several service providers — including Call Tower, HostLabs, Servelogic and Verizon — already offer Microsoft's LCS as a hosted or managed service. Such companies would make excellent prospects for similar offerings based on OCS, Cullin said.

Here too, though, the likely net result is that service providers will simply exchange the new offerings for existing PBX management or Centrex services. Mark Cortner, senior analyst for the Burton Group, estimated that 70% of large business customers own and manage their own communications equipment, while 25% outsource management and 5% use a hosted solution. Although Cortner sees telcos making some gains in the crowded outsourced management market, he does not anticipate any dramatic changes to any of those percentages as a result of the new unified communications initiatives.

Where Cortner and others see the strongest opportunity for service providers is in providing federated services — similar to those underlying IM offerings — that would enable interoperability between different organizations deploying OCS or other unified communications platforms. “Service providers could provide not just connectivity but a secure federation,” Cortner said.

Industry observers agree that significant demand for OCS or other unified communications federations is unlikely to materialize right away. They also agree, however, that service providers are uniquely positioned to offer federation services.

Cortner advises service providers to begin positioning themselves now for that opportunity. “They could own by far the dominant market share when you talk about federated types of services,” he said.