Unified Communications Market Trends Drive Spending Growth

Investment in on-premises unified communications and collaboration continues to decline. Cloud computing is becoming the preferred delivery method for applications and services, and business units are gaining more purchasing power.

Overall, annual spending on the unified communications (UC) and collaboration market has more than doubled over the past decade to more than $45 billion, according to Synergy Research Group’s IT spending report, which includes quarterly global surveys of major equipment vendors and service providers.

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The survey report shows that the colocation data center and cloud computing market has grown to two-thirds of the total market share, while the on-premises deployment market has declined by 4% annually.

Video conferencing is a prime example of the transition to cloud computing, he said. The unified communications (UC) market trend of low-cost, USB-based client systems combined with video-as-a-service platforms has made video conferencing accessible to organizations of all sizes. IT management requirements and high equipment costs have limited the adoption of traditional video conferencing systems in large enterprises, he said.

Duke said the increase in cloud computing spending was also driven by the introduction of communications platform as a service, as the technology enables enterprises to integrate and customize business applications into their unified communications as a service (UCaaS) systems.

Unified Communications (UC) Market Trends Drive Cloud Computing Growth

Duke said the combination of affordability and ease of use will drive continued adoption of cloud computing. UC vendors are also transforming their traditional services into more cloud-based services by virtualizing applications and using a pay-as-you-go device model.

Team collaboration and conferencing applications are almost all cloud-based, and many organizations are starting to move calls to the cloud, too, said Irwin Lazar, an analyst at Nemertes Research, based in Mokena, Illinois.

New cloud-based unified communications (UC) and collaboration tools are enabling a new world of business tools that traditional on-premises technologies could not do due to technical limitations or economic restrictions.

Nemertes' 2019 workplace collaboration study of 600 user organizations found that 65% of respondents said they use unified communications as a service (UCaaS) or managed services for some or all of their unified communications (UC) needs. 43% of enterprises are evaluating or planning to move to a cloud platform.

"In general, the shift to cloud computing has resulted in purchasing models that are subscription-based rather than perpetual licensing and large upfront capital expenditures," Lazar said.

While cloud computing has become the dominant delivery model for communications systems, on-premises deployments remain popular for IP telephony, call control and endpoints, according to a report by Synergy Research Group.

Duke said that medium and large enterprises are increasingly adopting traditional unified communications (UC) applications in favor of cloud computing. UC vendors such as Avaya and Cisco offer private cloud deployments that enable enterprises to virtualize UC services within their own data centers, essentially keeping them on-premises.

Endpoint counts are also growing as more physical endpoints such as IP phones and video equipment are purchased to complement cloud-based communications and collaboration services, he said.

Changing purchasing habits drive growth in unified communications (UC) spending

As UC spending increases, enterprise purchasing power is also evolving. Traditionally, IT departments are responsible for UC budgets, but cloud computing enables business deployments to adopt UC applications as well.

"Cloud computing has taken some of the burden off of IT departments, and we're seeing that happen," Duke said. "Shadow IT is also common in cloud-based applications because some vendors offer freemium options for their collaboration services."

“Collaboration tools can infiltrate first through shadow IT and then spread broadly across an organization, forcing IT teams to adapt,” he said.

For businesses, freemium options have advantages and disadvantages. Lazar said the main advantage is that IT teams can test new tools without making a large investment. But freemium services also allow employees to adopt tools without IT's approval.

Despite the existence of shadow IT, about half of enterprises still fund their UC spending through central IT budgets, Lazar said. Larger enterprises are more likely to use chargeback and line-of-business financing models to pay for UC spending, according to the Nemertes report.