Cloud and hosted UC services outpace growth on-premise

In addition to the Secure Access Service Edge (SASE) and SD-WAN markets, the "collaboration market" has benefitted in a big way from increased demand due to the rise of hybrid working during the pandemic, according to Synergy Research Group.

Spending for on-premise and cloud collaboration services grew 8% year-over-year (YoY) for Q2 2022, and hit nearly $15 billion per quarter.

All about the cloud

The transition from enterprise use of on-premise products to cloud and hosted services has also been a boon for the collaboration market, which includes as-a-service (aaS) software such as UCaaS (unified communications), CCaaS (contact center) and CPaaS (communications platform). These three services together grew 17% from last year and now account for more than $7 billion in quarterly spending.

Enterprises are hot for UCaaS, CCaaS and CPaaS, but not seabass. Pictured here are perhaps a school of salmon. Unfortunately, Light Reading ran out of budget for images of actual seabass. Image source: David Wall/Alamy Stock Photo.
Enterprises are hot for UCaaS, CCaaS and CPaaS, but not seabass. Pictured here are perhaps a school of salmon. Unfortunately, Light Reading ran out of budget for images of actual seabass.
Image source: David Wall/Alamy Stock Photo.

All video all the time

IDC released a similar analysis of the global Unified Communications & Collaboration (UC&C) market, stating that it grew 11.4% YoY for Q2, reaching $14.8 billion. The market was up about 3% compared to Q1. IDC researchers noted that UC&C growth will continue as a result of increased interest in video conferencing, collaboration and UCaaS technologies.

Synergy's Jeremy Duke echoed the sentiment that interest in collaboration features such as video conferencing are on the rise. New market opportunities have opened up during the pandemic within the collaboration sector, "especially in video conferencing services and devices, rapidly driving change that would otherwise have taken a decade to achieve," explained Duke.

"The collaboration market continues to evolve rapidly, as new technologies and services emerge that increase both management capabilities and productivity of in-office, remote and hybrid workers," added Duke, Synergy Research Group's founder and chief analyst.

Long-term strategies for UC

Ericsson is among those taking advantage of the collaboration market boon by acquiring UC provider Vonage for $6.2 billion, though not without some confusion from investors. Ericsson's share price fell 6% when the deal was announced, reported Light Reading's Iain Morris. While the UC market is clearly doing well, it's not obvious why a vendor such as Ericsson, which has been vocal about its focus on 5G, would choose to acquire a UC company.

Regardless, there's strong enterprise demand for UC technologies as organizations are taking a more long-term approach to their investments in collaboration tools.

"We're seeing more strategic buying decisions by organizations versus fewer short-term reactive decisions in the recent past," said Rich Costello, senior research analyst for Unified Communications and Collaboration at IDC, in a statement. "While the overall market remains a growth story, providers are starting to see some sales cycles return to the pre-covid pace."

Market leaders

Within the collaboration market, Microsoft, RingCentral and Twilio lead the hosted/cloud-high-growth service segment with 51% of the market as of Q2 2022, according to Synergy. IDC reports that Microsoft's total global UC&C revenue reached $5.7 billion in Q2, up nearly 23% YoY.

For hosted/cloud – mature services, Zoom, Microsoft and Google have 30% market share. Cisco, Microsoft and Poly lead the on-premise products segment with 19% market share, according to Synergy Group. Cisco's total UC&C revenue hit $1.2 billion in Q2, up 1% YoY, said IDC.

Source: Synergy Research Group
Source: Synergy Research Group

Microsoft is the overall leader in total collaboration for global Q2 revenues due to a diverse platform of collaboration products and services. Cisco ranks second, but is experiencing market pressure from Microsoft, among other organizations that fared well during the pandemic.

While in third place, Zoom has experienced tremendous growth over the past four years. Fourth in line is Twilio, which "now has a growth rate far in excess of the other three, as it dominates the rapidly emerging CPaaS market," according to Synergy Group. "Twilio's CPaaS revenue run rate has now reached $2.5 billion per year."

IDC reported that Zoom's UC&C revenue hit $1 billion in Q2, up 7% YoY. However, Zoom recently reported that its "Q2 FY23 performance (ended July 31) was weighed down by lackluster growth in online sales and a strengthening US dollar," according to Light Reading contributing editor Ken Wieland.

"[Zoom's] revenue was up 8% year-on-year to a shade under $1.1 billion, which was a marked slowdown to the 12% year-on-year turnover increase drummed up the previous quarter," reported Wieland.

RingCentral, NICE, Five9 and Sinch are among other major players enjoying high growth rates.

Unsurprisingly as many enterprises are embracing the hybrid work model, the on-premise portion of the collaboration market has met a steady decline from 30% of the market in Q2 2020 to about 20% in Q2 of this year.

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— Kelsey Kusterer Ziser, Senior Editor, Light Reading

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