In the history of communications space there has never been a new product roll-out supported by over 50 other companies. Until October 16, 2007, that is. I write this article while on a returning flight from San Francisco, CA, where I got to hear Microsoft CEO Bill Gates and Business Division President Jeff Raikes speak about how Microsoft will change business communications forever through the introduction of a suite of unified communications software, products and services. And yes, over 50 other companies also announced related products and services.
Bill Gates explained to an extremely large audience that this announcement is about applying the magic of software to phone calls. He continued to explain the PBX is like the mainframe and Microsoft will add flexibility to this model, allowing powerful servers to lower costs and make companies more efficient.
Gates went on to explain that customer records have been digitized and there has been a veritable digitization of the economy. He pointed out that phone calls are outside this structure.
Another point he made was that mobile devices have become intelligent and we can now do amazing things with them. He contrasts this to how terrible office phones are and further questioned who if anyone even uses the buttons on today's phones.
As he continued, he took an indirect swipe at Avaya - Microsoft's phone system supplier - by saying it costs Microsoft $700 to put a phone in an office and takes a week's lead time. "This is just like the computer industry before the PC," he exclaimed.
With an eye to the future Gates helped the audience imagine a world where speech and video recognition, along with smart bots, will help the world better serve customers.
He pointed out that Microsoft RoundTable (a $3,000 conferencing phone with a 360-degree camera) and their collaboration solutions will reduce travel and presence-enabled applications will get people off hold.
Perhaps the best news according to Gates is that the equipment we need to
take advantage of this technology - computers and screens - already sit on
users' desks. In other words, the products we already use to take care of our
asynchronous communications will subsidize the more advanced real-time
communications that are on the way.
There are two final points he made which are worth sharing:
- UC software is transforming business communications the same way email transformed asynchronous communications in the 1990s.
- We need a single identity for people: phone numbers are an artifact of technological limitation.
My take on all of this? Gates and Company are 100% on the money. In fact, over ten years ago when Microsoft announced TAPI (Telephony Application Programming Interface) the reasons given for the API were very similar to those accompanying this new product suite. Most of what Gates said on stage is exactly what has been said in the computer telephony/CTI market for over a decade. I often wrote about how CTI technology will change communications the way the typewriter was replaced by the word processor.
In addition, Gate's comments about software being the future of the PBX are accurate and software-based PBXs have been around for years. SIP-based phones have also been around for years and these devices have opened up the PBX market.
So while I agree with every word Gates said I also think the company is late - very late to the game. I wish Bill Gates would have made this speech in the 1990s when the Redmond-based software leader entered telecom for the first time.
Why? Because we need Microsoft as an industry. It actually doesn't matter that Microsoft is late to the game. They were late to mobile phones but they are doing well. They were late to the graphical user interface, and yet Windows is the leading desktop OS. They were late to market with a word processor, spreadsheet, database, and video game console. Need I go on?
The value Microsoft brings to the table is not introducing the world to software-based phone systems or opening the PBX. The importance is communications integration into Microsoft applications and legitimizing the unified communications market.
There have been pundits who claim Microsoft's entry into the communications space will destroy the PBX vendors but I don't think this is the case - at least not for the next few years. As an example, RIM and Nokia seem to still be thriving although they both compete with Microsoft.
Every company suddenly needs unified communications if only because Microsoft and over 50 of their partners are touting it. Instead of picking up a $150 office phone from Costco, a small business now needs to consider UC. However, the last time I looked, UC systems cost thousands of dollars. So, the cost of entry level phone systems could leap by a factor of 10 or more! And who will be supplying products to these SMB customers? Why, today's telecom equipment firms, that's who.
Medium-sized and larger companies will all enjoy a productivity surge as they adopt UC. Knowledge workers, for example, will be more productive than ever. The spend on Microsoft solutions and partner products will be huge.
Who is most at risk in this scenario? Cisco, Avaya and PBX players who don't have a carefully planned UC migration plan. Cisco and Avaya were curiously absent from the day's festivities and corporate customers who use Microsoft solutions may start asking Avaya and Cisco some hard-hitting questions.
Who is positioned well as a result of this news? Nortel, NEC, Mitel and a few others. Nortel is especially well-positioned as their employees are tightly integrated into Microsoft's offices.
For now, just about every PBX supporting SIP can interoperate with Microsoft's solutions. What Microsoft's internal people tell me, however, is that Nortel has an R&D advantage over the rest of the players. They feel this could lead to a competitive advantage over the next few years.
I spoke with many Microsoft partners and their enthusiasm was absolutely incredible. They said they really believe Microsoft is 100% behind the communications space and there will be a huge wave the whole industry will ride. These companies also say it will take about three years for Microsoft to have any significant impact on the market.
I tend to agree as we at TMC have been beta testing all of Microsoft's UC products and, while they work fantastically well, they are also complicated to configure. As time goes on, these challenges will go away. Additionally, there is no guarantee the current Microsoft channel will be able to sell and support telephony effectively. As much as the magic of software makes communications better, when a communications server goes down while your CEO is on the phone, someone is going to be fired. That rarely happens when there's an email glitch.
So, thank you Microsoft, because your entry into the UC space will help adoption rates grow by leaps and bounds. Companies of all sizes will become more productive. Customers will get better levels of service and there will be an opportunity for the industry as a whole to make much more money as the value of business communications increases dramatically
Which PBX Manufacturers will Survive?
There are many PBX companies - well over 25. I am surprised how many of these
companies survive "under the radar" thanks to their strong dealer network.
Telephony is an interesting business in that relationships can be more important
than technology and, oftentimes, price.
Having said that, it is obvious that more and more companies will start looking for UC solutions and not just a plain vanilla IP-PBXs. This means every PBX company must immediately have ready UC solutions either capable of adding value on top of Microsoft's solutions or else sold as a viable alternative. They must find a way to position themselves for the future and convince customers they are leading, not trailing, in UC technology.
From there, they need to start producing leading-edge software. In fact, the PBX business is becoming a software business. Over time, PBX companies will either adapt or go away. Microsoft will tell you that partners make $3 for every UC dollar they make. This is great news for partners but it does not mean that the PBX business won't go away. It likely will, over time.
A secondary strategy is systems integration. PBX companies will have to beef up their UC SI and consulting practices.
If the PBX can be likened to the modern equivalent of the mainframe, and if we are confident that it will soon meet the same fate, let's look at how the King of Mainframes, IBM, managed to keep evolving. Interestingly, IBM continues to grow rapidly despite the decline in mainframe revenue. That's because IBM is now much more a software and consulting business relying heavily on open-source. What we can learn from this is that there is a great deal of money to be made in these spaces and software to make Microsoft's solutions better is another great area you can play in.
Of course, one problem with this latter strategy is that if you're really successful, Microsoft will likely compete with you in future releases.
So the business communications business will not go away; it will, however, transform. In some ways, Microsoft coming into the space from the desktop angle blunts Cisco's network-based approach. This means PBX vendors can leverage Microsoft to sell a PBX as a strong Cisco alternative.
It is certainly difficult to predict precisely how this market will evolve but we know for certain the market will continue to transform at speeds never before seen. Just like natural selection in Nature, only those companies that can adapt to rapidly changing conditions will survive.
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