As SMBs enjoy an expanding IP communications and managed services market, no dominant players have yet emerged.
Posted Jun 21, 2007
Adoption of Internet Protocol (IP) communications and managed services by small and midsized businesses (SMBs) in the United States has been slow, but will increase dramatically over the coming years, according to a new study by AMI-Partners. The study shows that the total U.S. IP communications and managed services market is estimated to be over $30 billion for 2007 and will grow at a compound annual growth rate (CAGR) of 15.6 percent out to 2010.
"The SMB IP communications market is sizzling right now, and it's leading to increased interest and competition from global and regional voice/data vendors, software vendors, Internet/portal vendors, and large traditional telecom service providers," says Sanjeev Aggarwal, AMI's vice president for SMB infrastructure solutions. This growth has been helped along by the telecom service providers, such as AT&T, Verizon, and Sprint/Nextel, who are now offering expanded bundles of complementary services like improved Internet connectivity and managed services. These services include Web hosting, e-commerce, and hosted applications and databases--all of which are increasingly important for SMBs with constrained technology budgets, Aggarwal says. "With in-house I.T. staff busy addressing basic break/fix issues, SMBs are looking to outsource non-core I.T. services."
SMBs are also turning to these service packages for security and I.T. backup. Over 10 percent of SMBs now use a managed firewall service and over 15 percent are using managed Virtual Private Networks (VPNs). And thanks to intensifying business-continuity and disaster-recovery needs, 11 percent of small businesses and 15 percent of midsized ones have opted for online/off-site data storage and backup, according to the study.
While VoIP is currently being used by less than 5 percent of SMBs, the study predicts that the technology's penetration is entering a high-growth phase, resulting in CAGR of 56.9 percent between now and 2010. "If you look at small businesses, especially those with fewer than 15 employees, they are expressing a clear need for simple, secure, easy-to-use VoIP," Aggarwal says. "If they can, they prefer to get it in a hosted manner because it gives them a better professional presence. They also appreciate the ability to pay per user, per month with no up-front investment as they would have with a traditional PBX." He notes that the sorts of businesses that are most likely to adopt hosted VoIP include startups, small wholesale firms, small retail businesses (including restaurants, doctors' offices, and similar concerns), and service businesses with highly mobile field forces.
In contrast, there is less of a market for broadband VoIP, a consumer version of the hosted VoIP offering delivered over the public Internet. "Broadband VoIP providers like Vonage and Skype...do not operate their own networks and cannot guarantee levels of service," the report states. "Consumers are the primary target for these providers. These services can also be useful for very small businesses (one to five employees) with need for a limited number of access lines and where voice communications [are] not critical."
Aggarwal adds, however, that "no single dominant vendor has yet emerged in this rapidly evolving space," referring to a mix of vendors including infrastructure players (such as Cisco Systems, Nortel Networks, and Avaya) and hosted VoIP vendors (such as Covad, M5 Networks, and Speakeasy). In the absence of any single leading player or offering, SMBs are being forced "to adopt a mix of IP communications products and managed service in a best-of-breed manner to meet their immediate needs," he says. "Businesses should be comprehensive in their vendor-selection process, because the vendor waters of this market are [as] deep as they are wide."
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