Still Perfecting Ways of Making Sealing Wax

by Russell Bennett, UC Insights

April, 2011

Leave a comment

Introduction

‘Baby boomers’ will immediately recognize the title of this paper as being a phrase from the classic Rolling Stones song, “19^th Nervous Breakdown”.  This song tells the story of an unhappy young woman who, among other issues, has a mother who owes a million dollars to the tax authorities, yet her father spends his days perfecting ways of making sealing wax (so we can assume that won’t be the how the tax bill gets paid).  The coincidence of 3 things today (April 18^th) brought the theme of this paper to mind:

• It is tax filing day in the US;

• Microsoft launched the public beta of Microsoft 365, their cloud collaboration platform;

• Alcatel-Lucent is reported to be putting their enterprise business up for sale.

Comets and dinosaurs

If you wondering where I am going with this, let me try to lay out the convoluted path of my thinking for you.  The first point above has nothing to do with the others, except that, as the lyric suggests, you can’t make ends meet by selling obsolete technology.  The remaining two points are related in the same way as:

• Gunpowder and castles;

• Automobiles and horses;

• Personal computers and typewriters.

[You get the picture – a significant innovation presaged the replacement (albeit gradual) of one technology by another.]

Wireline telephony has been in decline for a decade or more, and PBX sales have been stagnating for even longer: gaining access to the 501^st telephony feature was just not sufficiently compelling to customers to justify the upgrade costs.  The advent of H.323 based IP systems at the turn of the millennium, which was supposed to be the savior of the PBX industry, was a flop.  The conversion rate of digital systems to IP systems was as low as 3% per year because there was no benefit for the end user and the value proposition for the CIO was marginal at best.

Unified communications (UC) has, for 3 years or more, held out the promise of rich, multi-modal communications and collaboration that, when integrated with processes and workflows, will revolutionize the way that we work and do business.  However, access to UC has been restricted to employees of large enterprises with the budget and (frankly) the chutzpah to deploy a new class of technology during a difficult economic climate.  Furthermore, the ROI on a UC deployment cannot be fully realized unless most of the regular contacts of a UC-enabled employee not only have access to UC, but access to an interoperable UC system.  With the current fragmented state of UC interoperability, this means a system from the same vendor.

‘The Cloud’ is the final piece in the UC puzzle

On April 18^th I signed up for the public beta of Microsoft 365, the cloud collaboration service, by clicking on a link in an email.  The installation probably took 10 minutes – and only took that long because I was ‘multi-tasking’ while I was on a conference call.  This latter factoid is proof that UC delivered from ‘the cloud’ solves the deployment / management challenge of UC for once and for all.  Microsoft 365 is a beta deployment, so I am not paying for the service; but I understand that the monthly fee for hosted UC and productivity apps (i.e. Office) will be a lot less than my cable provider charges me for just an IP voice line.  While Lync PSTN voice integration is not yet available on Microsoft 365, PSTN gateway and SIP Trunking integration has been shipping for several years with the CPE version, so this is more of a business development/regulatory issue.  (I have written a separate paper on the challenges of deploying UC in the cloud).

Microsoft is not the first to deploy UC in the cloud: one could argue that Skype has been doing it for years.  Among enterprise UC vendors, Cisco has been partnering with various incumbent carriers for over a year to host its UC suite and Siemens Enterprise Communications claims to have 130+ customers in 30 countries world-wide for its OpenScape cloud service.  Furthermore, numerous application and telephony hosting firms have positioning themselves as cloud UC vendors by doing their own integration of various collaboration and voice technologies.

The bottom line is that full featured UC in the cloud is rapidly becoming available to small and medium sized businesses and that will address the reachability/ROI problem mentioned earlier in this paper.  But while UC in the cloud is an important step to the ubiquitous adoption of UC, that isn’t what changed on April 18^th.

The first important thing that changed on April 18^th

On April 18^th it was reported that Alcatel-Lucent’s enterprise communications business is up for sale: this signals the capitulation of one of the last tier 1 PBX businesses:

• Avaya, which was spun out of Lucent in 2001, was purchased in 2007 by Silver Lake, a private equity fund;

• Nortel filed for bankruptcy in 2009 and sold its enterprise business to Avaya/Silver Lake;

• Siemens Enterprise Communications was spun out of Siemens AG in 2008, with the acquisition of 51% of the shares going to Gores Group, another private equity fund;

• Ericsson sold its Enterprise Communications business to Aastra in 2008.

The only remaining original tier 1 PBX vendor is NEC, which arguably executed a strategy to reinvent its PBX business with the acquisition of Sphere Communications in 2007.  However NEC, like Siemens and Toshiba, is an industrial conglomerate that operates many other businesses, so they could exercise the option to divest the PBX business at any time.  All the companies who are still operating in the CPE telephony business space are rapidly repositioning themselves as UC vendors.

As discussed above, the PBX vendors watched their businesses stagnate while better and cheaper technology was emerging.  Although they had the opportunity to be the UC innovators (SIP was actually ‘invented’ at Bell Labs), they could not contemplate disrupting their own business by investing in a technology that would cannibalize their core revenue. While this may seem short-sighted, I contend that their hands were tied because the PBX business was in the Maturity stage of the product lifecycle and their margins were declining.

As a side note, I recently read a post in an online forum asserting that “UC will never replace telephony” because UC phones “don’t even support the flash-hook feature”.  Acknowledging and respecting that person’s point of view, traditional telephony isn’t completely going away anytime soon.

The second important thing that happened on April 18^th

As discussed above, on April 18^th the Microsoft 365 public beta started.  Of course, Microsoft was not first to market with cloud based collaboration – so that isn’t what I am talking about.  The important thing about this event is that one component of Microsoft 365 is the online version of their mainstream Office application suite.  This is to say that Microsoft is investing in disrupting some of its mainstream business in order to remain competitive in the longer term.  Contrast that with outcome of the non-self-disruption strategy of the PBX vendors.

You could argue, for example, that Siemens Enterprise Communications is disrupting its core business by moving OpenScape into the cloud, and you could be right.  However, I suspect that they:

1. Had no choice, given the way that the PBX business was heading – this could even have been the strategy that the Gores Group had in mind when they made that investment (and the reason why Siemens AG retained a minority stake);

2. Currently have the bulk of their PBX market share in Germany, but the hosted solution is available worldwide: so they aren’t so much disrupting themselves as disrupting everyone else.

Conclusion

The probability that April 18^th 2011 will be remembered as an inflection point in the global communications business is very low.  However, I think that my general conclusions are fairly sound:

• The PBX business is in the Decline stage of the product lifecycle;

• UC is moving from the Introduction stage to the Growth stage;

• The availability of UC in the cloud will help UC to ‘cross the chasm’;

• In the 21^st Century, particularly in the technology industries, if you are unwilling to disrupt your own business, you will quickly find someone who will do it for you.

In summary (and to take my tortuous argument full circle) although you can still buy sealing wax, it is not a growth business in the era of free email and ‘dirt cheap’ cloud based UC.

If you liked this article, please comment, share and/or rate it below.   If you didn't like it, please comment!