Moz@Work

There was an interesting article by Eric Krapf on VoiceCon eNews about a recent report by Frost & Sullivan on the future of the deskphone.

One of the points in the Frost report was that despite vendors bundling in softphone clients as part of their telephony solutions, very few are being used as the primary solution for voice. No kidding!

Hardware vendors have systematically lacked an understanding of how to build software client experiences that meet users needs, whether it’s integrating experiences into existing applications, developing flexible client side APIs or enabling end to end scenarios. That lack of understanding often translates into a real lack of imagination too …. I mean, take a look at the two softphones below. Guess which is from the existing hardware based vendor?

With softphones like these, why would users adopt? Even the imagery hints at what the vendor really wants them to use … the expensive deskphone sitting next to them.

For softphones to be adopted broadly in the market, you need to think of a world where there are only softphones and mobile phones and design a solution around that. That’s the advantage of not having a hardware business to protect.

Gartner and Frost & Sullivan have different views on the future of the deskphone. I am biased, but I side with Gartner believing that a paradigm shift will happen where companies look at what is possible with softphone only solutions and rethink the need to buy deskphones at all.

For those that really need a deskphone, I suspect there will be a market. It will be increasingly dominated by device manufacturers that specialize in a portfolio of end user devices suited to a workers needs. The days of vertically integrated lock-in solutions must surely be numbered.

Analyst firm, Synergy Research Group, recently tried to size the UC market. Synergy claims to have “cracked the code” to develop a market size estimate that is superior to other analysis. I have to disagree.

The scope definition and inconsistent treatment of technologies leads to significant under sizing of the market. Synergy says they looked at the market for “collaborative applications”. That market is huge and includes Office, Sharepoint, OCS, Exchange in the Microsoft stable for example and could be in the $90B+ range, even if judged by revenue from Microsoft and it’s competitors today. And yet …

“Synergy estimates the 2008 worldwide sales for collaborative applications to total just over 33 million units and $4.6 billion in revenues. This represents strong annual growth from 26.8 million units and $3.8 billion on 2007, or year-over-year growth rates of 23% and 21% respectively. These totals include the sales of standalone collaborative applications as well as UC desktop application licenses representing pre-integrated UC systems.'”

Perhaps more important than an esoteric sizing exercise is the lack of a holistic view of the market. Unified communications encompasses a broad set of technologies that have typically been sold as silos. As these merge, the market will no doubt consolidate as efficiencies between silo purchases leads to discounts for integrated or bundled technologies. A narrow view of the market is sometimes indicative of the lack of recognition of this need for unification across silos.

When we took a look at the data on this market, we estimated an opportunity of $31B in 2006 and $50B in 2011. This represents a big market for the industry to chase after and is more exciting than the $4.6B identified in the Synergy research.

Microsoft has taken a unique view of this market. Our belief is that the industry is shifting in structure from a vertically integrated market (where the same vendor sells hardware, software, devices and sometimes even service) to a horizontal one (where different vendors specialize in hardware, software, devices etc. This approach not only unlocks innovation in the market as specialists working using standards can innovate more, it also opens up revenue opportunities for partners that were hitherto locked out of the market. A good example is devices. By enabling a partner ecosystem around devices, Microsoft is enabling access to a huge revenue opportunity that was previously locked up by PBX vendors. Our partners are excited by this possibility and the growth opportunities for them.

So I would encourage those trying to size the UC market to look holistically at the market and consider the real opportunity ahead for the industry.

A few years back, I complained about the lack of debt in Microsoft’s capital structure and the lack of accountability this fosters in the company. This week, Microsoft issued it’s first bonds to raise $3.75 billion at only a slight premium to US government debt!

My original blog post talked about our own leverage to purchase our first house. Clearly there has been a decline in the housing market, but if you apply leverage prudently, the principles still hold. And that’s what Microsoft is doing now. I am really impressed by the way our CFO has approached both our capital structure and cost structure …. it finally feels like Microsoft is a real company that has grown up from the tech start up money-to-burn mentality.

Now, we just need that accountability to run through our management chain a little more and Microsoft could live up to be the great company for shareholders that it has the potential to be.