• January 1, 2013
  • By Donna Fluss, president, DMG Consulting

Why Contact Centers Are Moving to the Cloud

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The contact center infrastructure market is at the most significant inflection point in its 30-plus–year history. The cloud-based contact center infrastructure market is booming and showing no signs of slowing, while the premises-based sector is struggling to hold its own. End users around the world, in contact centers of all sizes, are adopting cloud-based contact center solutions and considering this acquisition model an important enabler for their future.

IT and business managers are realizing that there are many advantages to cloud-based solutions. Besides the financial benefits—no capital investment, lower start-up and integration costs, and no upgrade fees—contact centers are finding it compelling not to have to purchase, set up, maintain, and upgrade hardware and software. Once freed from this burden, managers can dedicate their time and resources to optimizing the business aspects of the solutions.

The concept of cloud-based solutions is increasingly capturing the imaginations and pocketbooks of IT and business leaders, as well as of chief financial officers, who see them as a highly effective method for acquiring technology without a major capital outlay and with reduced risk. Currently, most sales of cloud-based contact center solutions are for environments of 100 to 250 seats, and deal sizes continue to grow. Although cloud-based solutions are not for everyone, both public- and private-sector organizations are realizing their benefits, and when the need arises, are looking to expand their implementations.

A Recessionary Boost

The Great Recession, with its long-lasting impact in the United States and Europe, has been driving the adoption of cloud-based contact center solutions. Companies that needed contact center infrastructure but did not want to put up the capital to purchase it have hesitantly tried cloud-based solutions as a short-term alternative. These managers soon discovered that the cloud-based business model offered more benefits than challenges.

At the same time that funding for capital investments was limited, Avaya, the contact center market leader, was struggling to absorb its acquisition of Nortel. The result: an opportunity gap that Cisco, Interactive Intelligence, ShoreTel, and close to 80 cloud-based contact center infrastructure vendors from all over the world have jumped in to fill.

The competitive landscape for contact center infrastructure solutions is changing. Avaya is still the market share leader, but for the first time in many years, it no longer appears untouchable. End users now have dozens of contact center infrastructure vendors from which to choose, and much to the surprise of the traditional market leaders, companies of all sizes are opting to use nontraditional vendors. As contractual commitments to cloud-based providers are usually much less onerous than the up-front cost of implementing a premises-based solution, the risks are far less than the potential benefits.

Clearing the Way

After more than 15 years, the stars have finally aligned for the cloud-based contact center infrastructure market. Core contact center routing and queuing capabilities are increasingly viewed as commodities, minimizing dependence upon traditional providers. End users no longer see the need to pay a premium for technology that is available from dozens of vendors.

The adoption of session initiation protocol, multiprotocol label switching data networks, and the reduced cost of bandwidth are facilitating the transition to centralized data centers, both in enterprises and the cloud. In the contact center architecture of the future, solutions—whether for routing, queuing, recording, quality assurance, customer relationship management, or knowledge management—will all be considered services that reside as applications in the enterprise data network. This will allow them to be delivered across standardized networks to anywhere in the organization—a contact center, a remote site, an offshore location, or the home of an agent, just as data is delivered today. As long as the solutions are already residing in a centralized environment, it doesn't matter whether they are in an enterprise data center or the cloud. Increasingly, IT and business leaders are turning to their cloud-based partners to cost-effectively deliver redundancy and disaster recovery capabilities that they previously could not afford to purchase.

The Numbers Tell the Story

In 2008, the adoption rate of cloud-based contact center infrastructure solutions was only 2.2 percent. By the end of 2011, the adoption rate had more than doubled, to 5.9 percent. By the end of 2015, DMG estimates that a minimum of 18.1 percent of all contact center seats will be in the cloud. And it's likely that these numbers are conservative estimates.

The growth rate of this sector has been outstanding over the last two years. The market limped along for more than 10 years, and then grew by 26.4 percent, from 268,794 seats in 2008 to 339,850 seats by the end of 2009. The market then expanded by 42.4 percent in 2010 and 80.2 percent in 2011, and had 871,717 seats as of the end of June 2011.

DMG projects that the cloud-based contact center infrastructure market will grow between 35 percent and 45 percent each year between 2012 and 2015; it's possible that these numbers, too, are highly conservative, and the growth rate could be twice that. Even though the recession was instrumental in driving the acceptance of cloud-based contact center infrastructure solutions, it has also been holding back the market, to a degree. Now that the cloud-based vendors have overcome concerns about security and integration to home-grown and third-party applications, end users are accepting cloud-based solutions as viable and dependable.

However, the recession is preventing many businesses from expanding and, as a result, they do not need to purchase additional equipment or replace an existing solution that is already paid for. This means that cloud-based contact center solutions, which have already proven to be counter-cyclical in relation to the economy, are expected to grow even more quickly in good economic times.

Final Thoughts

Adoption of cloud-based contact center solutions is a worldwide phenomenon. In 2011, DMG Consulting conducted a benchmark study in which business and IT managers around the world were asked if they were using cloud-based contact center solutions. Nearly 41 percent of survey respondents were already investing in these solutions, and others were looking into them. This is not a passing fad. It is the fastest-growing sector of the contact center infrastructure market, and cloud-based solutions are going to account for an increasing percentage of new purchases in the near future.

Cloud-based contact center infrastructure solutions are not yet appropriate for all enterprises or departments, but they have altered the contact center competitive landscape for the better. End users have more choices of vendors and options than ever before, which gives them great leverage in negotiating a deal. However, buyers still have to be careful, and must appreciate that there still are substantial differences between the solutions. Additionally, given the large number of new competitors, DMG predicts that within five to eight years, more than 60 percent of the current competitors will either merge with another company or go out of business.

End users looking for a new contact center solution are encouraged to follow best practices for selecting applications, and to invest the time and resources necessary to craft contracts that include vendor management programs and service-level agreements to protect them for both the short and long term.

For more about the hosted offerings, see DMG's Cloud-Based Contact Center Infrastructure Market Report, at www.dmgconsult.com.

Donna Fluss (donna.fluss@dmgconsult.com) is founder and president of DMG Consulting, a provider of contact center and analytics research, marketing analysis, and consulting.

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