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Frank StinsonPartner & Sr. AnalystIntelliCom Analytics

The Evolving IP Communications Landscape: How UC and Collaboration are Changing How Customers Make Purchase Decisions and Who They Purchase From

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Key Trends That are Driving Transformation of the IP Communications Market:

– Software Centricity in competitive architectures and business models

– Unified Communications (UC) definition, market acceptance, and barriers to broader adoption

– How UC fits into broader Collaboration approaches and CEBP initiatives

– Shifting stakeholders and decision influencers within customer organizations important in driving consideration for these emerging capabilities

How These Dynamics are Altering the Competitive Landscape

Summary and Discussion

Focus Of This Session

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The Business Communications Market Has Entered A New Stage Of Evolution Based On Software-Centric Delivery And Value Models And The Emerging Capabilities That They Enable

Application / Feature User Attach Rates, Annuity Revenues

Devices / Licenses Shipped

Lines / Ports Shipped

Key Business Model Metrics

Business Process Optimization, User Experience, Incremental Business Revenue

and Benefits

Business Process Integration, User

Productivity, ROI / TCO

Reliability, Functionality

Key Customer Decision Attributes

Applications / Solution Design and Integration, Innovation

Services Management

Shared Responsibility Management (Managed and Hosted Services)

MaintenanceServices Focus

Open Servers, SOAs, Communication and

Business Applications w/Integrated Voice Features

Proprietary Servers and Appliances

Central ProcessorSystem Architecture

Enterprise Community / User-Centric

Network and Enterprise-CentricSite-CentricDecision Focus

Voice as a Feature

Voice as an Application

Voice as a System

Position of Voice

TDM IP TelephonyBusiness

Communications Software (BCS)

Source: IntelliCom Market DashboardSM

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Although The Shift Toward BCS Value Models Is Still At An Early Stage, Some Vendors Already Derive A Significant Portion Of Their Product Revenues From Software

Source: IntelliCom Market Performance DashboardSM

, November 2008

Vendor Platform Hardware End User Devices BCS Applications TotalCisco 34% 27% 39% 1,354,708,071$ Avaya 19% 20% 61% 888,298,131$ Nortel 39% 21% 40% 579,979,238$ Mitel 30% 33% 37% 284,378,166$ NEC 31% 35% 33% 246,697,206$ Toshiba 30% 38% 31% 120,481,475$ Siemens 16% 31% 53% 89,567,029$ ShoreTel 33% 29% 38% 82,325,058$

Total Manufacturer Product Revenue North America – YTD (Q1-Q3) 2008

YTD (Q1-Q3) 2008 Percentage of Manufacturer Product Revenue by Value Layer – North America

$-

$200,000,000

$400,000,000

$600,000,000

$800,000,000

$1,000,000,000

$1,200,000,000

$1,400,000,000

Cisco Avaya Nortel Mitel NEC Toshiba Siemens ShoreTel

BCS Applications

End User Devices

Platform Hardware

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Core Call Control Core Call Control PlatformsPlatforms

Supporting Supporting InfrastructureInfrastructure

End User DevicesEnd User Devices

Centralized Centralized Management & Management & ProvisioningProvisioning

Communication- And Collaboration-Enabling Of Specific Business Processes (CEBP) Is Where Customers Will Ultimately Realize The Most Value From BCS Approaches

Unified MessagingUnified Messaging

Presence Presence ManagementManagement

Instant MessagingInstant Messaging

MobilityMobility

Unified ClientsUnified Clients

Comm. & Comm. & Business Apps Business Apps ConvergenceConvergence

Event/Process-Event/Process-Driven AutomationDriven Automation

Reduced LatencyReduced Latency

Creation of New Creation of New Services & Services &

Revenue StreamsRevenue Streams

IP Telephony Unified Communications

CEBP

Infrastructure Convergence

PersonalProductivity

Business Transformation

Business-Specific BenefitsTechnology Driven Benefits

UC Plays an Important, But Not All-Encompassing, Role in This Shift From Traditional Technology Benefits Toward Highly-Specific Business Benefits

Shared Shared WorkspacesWorkspaces

Converged Converged ConferencingConferencing

TelepresenceTelepresence

Enterprise Social Enterprise Social NetworkingNetworking

Collaboration

WorkforceProductivity

Source: IntelliCom Market DashboardSM

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N = 1384, IntelliCom Analytics/TMCnet Survey, September 2008

Per

cen

tag

e o

f B

usi

nes

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Occupational Role – Global Decision Makers

Despite Considerable Vendor Positioning Efforts, More Than Half Of All Global Businesses Still Have No Plans For Deploying UC, Underscoring The Ongoing Confusion Existing At The Market Level

No plans to deploy UCNo plans to deploy UC

Already have started Already have started deploying UCdeploying UC

Planning to deploy UC Planning to deploy UC within the next 12 within the next 12 monthsmonths

Planning to deploy UC Planning to deploy UC within the next 12-24 within the next 12-24 monthsmonths

Planning to deploy UC Planning to deploy UC in the 24 months and in the 24 months and beyond timeframebeyond timeframe

What Are Your Organization’s Plans For Deploying UC?All Global Regions

By Size of Business

All Businesses

over 1000 Employees

501-1000 Employees

251-500 Employees

101-250 Employees

21-100 Employees

<20 Employees

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

All Businesses

over 1000 Employees

501-1000 Employees

251-500 Employees

101-250 Employees

21-100 Employees

<20 Employees

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Larger SMBs and Very-Large Enterprises Have The Most Aggressive Deployment Plans

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0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

All Global RegionsBy Job Function

IT Management End User

Telecom Management

LOB Management

All Respondents

N = 1384, IntelliCom Analytics/TMCnet Survey, September 2008

Per

cen

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e o

f B

usi

nes

ses

Occupational Role – Global Decision Makers

What Are Your Organization’s Plans For Deploying UC?

LOB Decision Makers Indicate The Highest Potential Receptivity To UC, But Remain Mixed In Terms Of Influence On Purchasing Decisions Today

No plans to deploy UCNo plans to deploy UC

Already have started deploying UCAlready have started deploying UC

Planning to deploy UC within the Planning to deploy UC within the next 12 monthsnext 12 months

Planning to deploy UC within the Planning to deploy UC within the next 12-24 monthsnext 12-24 months

Planning to deploy UC in the 24 Planning to deploy UC in the 24 months and beyond timeframemonths and beyond timeframe

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Individual Individual UserUser

LOB LOB ManagementManagement

ITITApplicationsApplicationsDevelopmentDevelopment

Benefits Benefits DerivedDerived

UC UC ExposureExposure

UC UC SelectionSelectionInfluenceInfluence

High

Medium Low

Medium

Medium

Low Low

High

Voice Voice System System ManagerManager

Low

Medium

IT IT InfrastructureInfrastructure

ManagerManager

Low

High

Medium

Business Business Value FocusValue Focus Low Low

CIOCIO

Medium

Medium

Medium

Medium

Medium

High

Functional Functional ManagementManagement(e.g. Sales)(e.g. Sales)

Medium

Low

High

MediumHighHigh

UC BenefitsTraditional Voice Benefits

A Fundamental Disconnect Between Where Voice Decisions Have Traditionally Been Made And Where The Benefits Of UC Are Most Likely To Be Felt Is A Key Barrier To Broader Adoption

While BCS Is Partly a Technology and Cost Discussion, the New Capabilities That These Architectures Will Enable are Best Evaluated in Terms of Business Impact

Medium

Source: IntelliCom Market DashboardSM

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Some Vendors Are Positioning UC As A “Bolt-On” To Traditional Communication Silos, While Others Are Advocating It As Part Of A Fundamental Delivery Model Change

Traditional Communication Silo Delivery Model With UC Bolted On

TraditionalPBX/IP-PBX

Platform

Unified Messaging Platform

Presence/IM Server

Converged Conferencing

Platform

Contact Center

Platform

Source: IntelliCom Market DashboardSM

Business Applications

UC Applications

Traditional Communication

ApplicationsIntegrated and customizable software-based architecture delivered on common industry-standard hardware and infrastructure

Call Control Software

Business Communication Software (BCS) Delivery Model

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0%

20%

40%

60%

80%

100%

Knowledge Worker

IT Management Telecom Management

LOB Management

Total Population

N = 1360, IntelliCom Analytics/TMCnet Survey, May 2008

Per

cen

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e o

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usi

nes

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Occupational Role – North American Decision Makers

Which Architectural Approach Will You Implement If Deploying UC?

About Half Of Those Customers Implementing UC Indicated That They Would Pursue A BCS Approach, But Roughly One-Third Of This Group Plan To Migrate From A Bolt-On Model Over Time

Implement standalone (“bolt-on”) UC solutions as a long-term solutionUtilize a phased adoption with standalone UC today, but migrate to a software-based (BCS) architecture over timeMove rapidly to a software-based architecture for IPT/UC to receive the benefits of tighter integration with business applicationsMove rapidly to a software-based architecture for IPT/UC to enjoy lower costs from industry-standard hardware and devicesNo plans to implement UC at the present time

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IntelliCom Market Dashboard: Enterprise Segment* Scores

Deficient

Challenged

Competitive

Well-Positioned

Differentiated

ApplicationsInfrastructure

Index

ApplicationsPositioning

Index

Siemens

CiscoAvaya

3Com

Nortel

Alcatel-Lucent MicrosoftNEC

ShoreTel

Mitel

IBM

*Enterprise Segment = 1,000+ UsersSource: IntelliCom Market DashboardSM

, January 2009

In Light Of This, Some Enterprise Providers Are Moving Quickly Toward BCS, While Others Have Adopted A Bolt-On Approach – At Least In The Short Term

Bolt-On

Approach

BCS

Approach

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All Global RegionsBy Size of Business

All Businesses

over 1000 Employees

501-1000 Employees

251-500 Employees

101-250 Employees

21-100 Employees<20 Employees

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

“We have no plans for using SOA in any aspect of our technology environment“

“We are currently using SOA in our overall IT environment, and will consider it for voice feature integration two or more years from now”

“We are currently using SOA in our overall IT environment, but have no plans to use it to integrate voice features into our business processes”

“We are currently using SOA in our overall IT environment, and are planning to start utilizing it for voice feature integration within the next 12 months“

“We are currently using SOA in our overall IT environment, and will consider it for voice feature integration within the next 24 months”

N = 827, IntelliCom Analytics/TMCnet Survey, September 2008

While Enterprise Customers With Multiple LOBs And Separate, But Functionally Similar, Applications Are More Likely To Consider CEBP Implementation, Larger SMBs Indicate Surprising Receptivity

Per

cen

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IntelliCom Market Dashboard: SMB Segment* Scores

Deficient

Challenged

Competitive

Well-Positioned

Differentiated

ApplicationsInfrastructure

Index

ApplicationsPositioning

Index

*SMB Segment = 20-250 UsersSource: IntelliCom Market DashboardSM

, January 2009

But Traditional Packaging Approaches Are Even More Prevalent In The SMB Segment, As Most Providers Tend To Place Greater Emphasis On The Ease Of Implementing Core Capabilities

Bolt-On

Approach

BCS

Approach

Siemens Cisco

Avaya

3Com

Nortel

Alcatel-Lucent

MicrosoftNEC

ShoreTel

Mitel

IBM

Toshiba

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Much Like UC, Collaboration Means Different Things To Different People, Although Some Combination Of Web And Video Conferencing Scores High Across All Occupational Roles

Per

cen

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e o

f R

esp

on

den

ts

What Specific Point Applications Best Define Collaboration?

0%

20%

40%

60%

80%

100%

UC Personal Productivity

Web 2.0 Integration

Social Networking

Video Conf./Telepresence

Document Storage/Search

Web Conf./Whiteboarding

N = 745, IntelliCom Analytics/TMCnet Survey, October 2008

Occupational Role – North American Decision Makers

User/Knowledge Worker

IT Infrastructur

e

LOB ManagerTelecom Manager

IT Apps Development

Total Respondents

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Business Users Currently Tend To View Collaboration As Either A Luxury For Executive Management Or As A Tool For Customer-Facing Employees Rather Than An Enabler Of Internal Interaction

N = 1077, IntelliCom Analytics/TMCnet Survey, October 2008

Per

cen

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esp

on

den

ts

Occupational Role – North American Decision Makers

Which Job Functions Will Derive The Most Value From Collaboration?

Cross-functional Teams

R&D

Customer Svc./Support

Sales

BU Leadership

Executive Leadership

0%

20%

40%

60%

80%

100%

User/Knowledge Worker

IT Infrastructure

LOB ManagerTelecom Manager

IT Apps Development

Total Respondents

This Perception Runs Counter to Most Vendor Value Propositions

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They Also Tend To View The Utility Of Collaboration Through The Lens Of The Business Processes Most Relevant To Their Specific Job Functions

Per

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Which Business Processes Will Benefit The Most From Collaboration?

0%

20%

40%

60%

80%

100%

Operations Monitoring

Employee Administration

Product/Service Development

Shipment Tracking

Financial Analysis

Customer Service/Support

Order Entry/Status

N = 1129, IntelliCom Analytics/TMCnet Survey, November 2008

Occupational Role – North American Decision Makers

User/Knowledge Worker

IT Infrastructure

LOB ManagerTelecom Manager

IT Apps Development

Total Respondents

Customer Support Scores Consistently High, While Product/Service Development and Order Entry/Status Vary Significantly Based on the Functional Role of the Respondent

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SaaS & Hybrid

Voice Apps

Open Source

Enterprise Apps

Core Voice

The BCS Evolution Combined With The Need To Extend Collaboration Tools To Business Partners And Customers Will Increasingly Shift The Competitive Landscape Toward “Coopetition”

Incremental Value/Benefits Alternate Delivery Approaches

User Devices

Open Hardware

Source: IntelliCom Market DashboardSM

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These Dynamics, Combined With The Current Macroeconomic Situation, Mean That Existing Providers Must Make Major Business Model Changes While Also Adjusting To New Competition

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Mainly Nortel

Environment

Partial Nortel Environment

Not Currently Nortel

Customer

Concerned about a possible breakup, but moving forward with existing plans

Not considering new solutions from Nortel

Concerned about a possible breakup, and halting plans until situation clarifies

Confident that Nortel will emerge intact and moving forward with deployment plans

How Does the Nortel Restructuring Announcement Impact Your Deployment Plans?North American Results

By Customer Environment

N = 1780, IntelliCom Analytics/TMCnet Survey, January 2009

Nortel’s North American Base Expresses Initial Vote of Confidence in Restructuring

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UC and Collaboration tools have the potential to deliver significant business value, but customers are confused by all the noise in the market and significant differences in how vendors position these terms

This value will ultimately be best appreciated by individual lines of business and end users – stakeholders that have not traditionally had a seat at the table for voice decisions

With few exceptions, providers have not adapted their go-to-market approaches to effectively reach this broader audience

A handful of providers are aggressively pursuing software-centric BCS delivery models, while others attempt to extend traditional, proprietary packaging approaches through incremental bolt-on capabilities

Business model shifts, macroeconomic factors, ownership changes, and new players are significantly altering the competitive landscape – this will only accelerate as UC and Collaboration move out of the early adoption phase

Summary Points

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Frank Stinson

fstinson@intellicom-analytics.com