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February 16, 2012

Has Hosted/Cloud Rebooted IP Comm M&A?

By Doug Mohney, Contributing Editor

ShoreTel's recent acquisition of M5 Networks opens up a gateway of possibilities for sparking a new wave of IP communications mergers and acquisitions.  It's all a part of a light bulb moment among pure product hardware and software companies that they need to offer hosted services -- or someone else will.

Sparking all this is a realization that hosted IP communications services provide recurring revenue for whomever the service provider may be on one side of the equation, and businesses realizing that subscribing through hosted services -- voice, call center, UC, video, WaaS (Whatever as a service) -- makes a lot more business sense on the capital and operational expense when conducted on a subscription/per-seat basis.

With everyone moving to the cloud, the larger trend is a decline in number of IP PBX (News - Alert) appliances and hardware sold in the small to medium-sized business segment. The medium- to large- sized enterprise segment will also see some shifts, but service providers may find themselves being less successful due to Layers 8 (money) and 9 (Politics). The IT department may find valid excuses to keep voice in-house, but those expenditures are going to require more justification every year as maintenance and overhead costs (staff, power) continue to rise.

The growing landscape of cloud-based IP communications services now reshapes companies into potential buyers and sellers. Each will have their own merits and needs. And there's also a question of if companies plan to offer their own "house" brand and/or white label services.

You can put into the “buyers” category Avaya (News - Alert), Cisco, Digium, and maybe Microsoft. Avaya talked a lot about the cloud at IT EXPO East earlier this month, so it can't be totally clueless to the fact that businesses are going to turn more to hosted services. Cisco has some cloud-based services already along with joint offerings with service providers.  Digium (News - Alert) is likely looking around at this point because it may find that it needs to provide a hosted solution to its reseller base. Microsoft has been promoting hosted everything by everyone, so it may not want to upset its current relationships and offer its own-branded service to compete against its channels.  

BroadSoft, Metaswitch, and Polycom are also worth watching. The companies have white-label offerings for service providers and may seek to buff up their in-house services by snapping up smaller, established service providers

Sellers may be a tighter category. A public company and having celebrated 25 years in operation, 8x8 is unlikely to sell cheap. Junction Networks/OnSIP, Whaleback Systems (News - Alert), and VidTel all have interesting and unique features that would make them attractive to the right buyer. There is a longer list of independent ITSP/Cloud Communications firms ranging from Broadcore to SimpleSignal and Telesphere (News - Alert) that could prove to be attractive and affordable.

Regardless of who is selling and who is buying, mergers and acquisitions in the IP Communications are going to be far more interesting in the next 24 months than they have been in the last four to five years.

Doug Mohney is a contributing editor for TMCnet and a 20-year veteran of the ICT space. To read more of his articles, please visit columnist page.

Edited by Rich Steeves
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