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Unified Communications Adoption: What’s the hold up?

Vincent Guihan

September 15, 2008

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Debate about the unified communications space is seriously heating up.  Some analysts are predicting growth in the application space, some in the device space.  Some favor the incumbent vendors and their reliable uptime and some favor the new entrants with their focus on desktop productivity tools.  But one thing everyone seems to agree on: unified communications is poised to be a multi-billion dollar industry. Incumbent vendors and new challengers alike seem to be convinced.  The media is convinced.  Lots of solution providers are convinced, but what about customers?

Along with all the excitement, there’s also a lot of discussion about low adoption rates of unified communications in the SMB market segments.  For the industry to become multi-billion dollar, that will definitely have to change.  The SMB market segments make up, by far, the largest installed-based of PBX systems that can benefit from unified communications.

Larger players in the unified communications space have been content to pay little more than lip-service to the SMB, largely repackaging their existing systems and pricing them in terms of cents/user/day.  The results are feature-poor, still expensive unified communications solutions that focus on desktop productivity that most SMBs don’t have much use for or on new PBXs systems that lock customers into a whole new generation of proprietary systems.

All things considered, it’s not a surprise that unified communications has stirred tremendous interest but little demand in the SMB market.  It’s unfortunate.  Customers want solutions that will allow them to respond to customers more effectively, that will provide their IT teams with the tools required to bring voice and other customer outreach tools entirely into the data center where they can be connected to other business systems, processes, and corporate data.  Solution providers are ready to provide it to them. 

Most IT VARs are eager to sell unified communications.  All solution providers know a good opportunity when they see it, and nothing equates to “good opportunity” more than “multi-billion dollar industry”.  UC also provides those VARs with unique opportunities to better serve their customers, help them compete more effectively and do better business.  In that respect, unified communications stands to reshape the relationship between business and VARs, providing a one-stop shop for end-to-end business communications.  This is good for customers, good for their solution providers, good for peripheral vendors, and good for the customers’ customers. 

To describe unified communications as “win-win” is to leave out several wins.  So, what’s the hold up?  Why isn’t UC getting more traction in the SMB? In fact, there are several prominent factors that are slowing UC adoption in the SMB market segments.

First, vendors aren’t working hard enough to explain to SMB customers why they should invest in UC.   For example, by itself and even more so when paired with VoIP, unified communications promises to lower TCO and capital and operational expenses.  Most businesses, from the very small to the very large, like to save money. 

But many incumbent vendors have focused on providing only slightly modified offerings with only modest price differences from their enterprise offerings.  Many of these PBX+  unified communications solutions require a whole new investment in a whole new PBX system (or PBX-replacement system to be technical) in order to get what many SMBs would consider to be table stakes: voicemail, some limited integrated messaging and some basic VoIP.  That’s not really unified communications, and no smart small- to medium-sized business is in a hurry to pay tens of thousands of dollars on a new PBX system in order to get basic features. 

Second, everyone claims productivity enhancements but are sketchy about the details.  Whose productivity will be affected?  In what way?  How many hours/user/year will be saved?   Of course, not everything has to be reduced to calculations and figures.  Just about everyone agrees that unified messaging, teleconferencing, desktop collaboration tools, and so on, “reduces human latency” (that is, allows businesses to respond more quickly, hopefully to their customers) and drives organizational productivity.  But SMBs have specific problems that they want to solve with information technology and they want to see specific results.  Vague, generalized claims about productivity are unlikely to move SMB customers.

Third, most of the larger players don’t really understand unified communications for the SMB— and that’s fine.  Enterprises need solutions just as much as the SMB, but vendors can’t expect a hand-me-down solution to be all that meaningful to SMB customers.  SMBs need overhead voice paging a lot more than IM.  They need voice conferencing more than video conferencing.  They need integrated fax more than videoconferencing.  And most of all, they need simple, productized ways to integrate UC into their business processes and systems, not a system that requires weeks and weeks of specialized work at the PBX to build self-service applications, account management applications, and emergency notification applications.

In fact, many enterprises are already in the process of integrating their back office data stores with the communications and productivity tools of their front office customer service professionals.  CRM systems are the most obvious example.  But how does a particular UC solution solve a concrete business problem in a way that measurably lowers costs and drives productivity that takes days not weeks to deploy?  If a solution provider can’t answer this question for an SMB buyer, it will be an up-hill sell.

Fourth, the up-front prices of most PBX-based UC solutions are still just too expensive for what you get.  No one is fooled by the cents/user/day model — UC from an incumbent vendor is still expensive and typically feature-poor from an applications perspective.  This is the long way of saying that the future of UC is users, productivity and applications – not protocols, codecs, locations and devices.  To a certain degree, incumbent vendors are still asking their customers to pay for research and development costs for their predominantly hardware offerings.  Incumbents also don’t really understand the user-centric nature of UC in the way that true software vendors do. 

The good news for SMB customers is that software solutions and their solution providers are already reshaping the elasticity of the market and the cost expectations of customers.  Just as the cost of the modem plummeted when Internet access became ubiquitous and modems switched from being predominantly specialized hardware to PC software. PBX systems are poised to become commodities.

Fifth, the cost to deploy a system from box to business is still too high and, as important, too unpredictable.  It may take between 2-4 hours/desktop for an IT administrator to provide an employee with a phone, some integrated messaging, and some basic call control tools. The time is considerable, if you take a relatively small business of 100 desktops.  That’s about 400 hours to deploy the system.  Not many SMBs have 10 weeks of IT resources that they can devote to a unified communications deployment.

Just do the math behind the professional services bill and you have one of the key impediments to UC adoption for outsourcing the project: 4 hours multiplied by 100 users for 10 weeks of professional services at (if you’re lucky) $1000/day.  That’s roughly $50,000 — if the project goes well, if there are no specialized business requirements, just to get a relatively modest system installed — a serious deal breaker for most SMBs.  When the up-front costs are so high, the hopes of ROI fade into the background.  A unified communications solution that takes fifteen minutes/desktop to deploy is more likely to turn some heads.

Finally, vendors haven’t undertaken the very difficult task of educating their solution providers and their customers about how unified communications can help them solve key problems in a way that helps them build competitive advantage while they cut costs and streamline.  At Objectworld, we liken it to the transition from the desktop calculator to Microsoft Excel.  What you could do with a calculator has been and remains fairly sophisticated.  But what someone can do with Microsoft Excel, with integrated OLAP, pivot tables, and so on, is quite profound.

Of course, many people do their monthly budget or balance their checkbooks with Excel and not that much more.  However, the opportunity to do more is always there, and as the technology becomes more available, creative people will make use of a flexible solution in ways that vendors couldn’t predict.  In that regard, there’s a great deal of similarity between Web 2.0 and unified communications.  A flexible solution that puts users at the center and provides them with the right tools is what will drive examples of real, highly visible value to unified communications that even the most cautious SMB CFO will find it difficult to say no.

So, what are the serious impediments to UC adoption in the SMB segments?  SMBs look to serious value for optimal solutions for their money today, not solutions that may (or may not) come in handy someday down the road. Vague promises about saving money or driving productivity, expensive up-front and deployment costs won’t cut it with the typical SMB buyer — and they shouldn’t.  SMBs are wisely waiting for the right solution to come along at the right costs to solve a specific problem.

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I think we're about to see an interesting shift in IT spending by businesses of all shapes and sizes because of the ailing economy. While we've not seen bad economic conditions affect spending on managed services (and in fact have seen a rise in the use of solution providers by everyone from small business users to enterprise users), I wonder if we're about to see people pull the purse strings tighter on hardware and software purchases. I'm definitely curious to see what happens and how businesses balance the need to stay efficient with the need to be careful with their budgets.