InfoTrack for Unified Communications

(1)

InfoTrack for Unified Communications

Impact of Microsoft Lync on the Enterprise Voice Market—2014

June 2014

A T3i Group Market Intelligence Program Focused on Unified Communications

Enterprise and SMB Markets

IP Telephony

Systems UC

Applications Converged Services

(2)

InfoTrack for Unified Communications:

Impact of Microsoft Lync on the Enterprise Voice Market—2014

A T3i Group Series of Primary Research Studies on the Market Demand for Unified Communications Infrastructure and Applications

T3i Group LLC 210 Malapardis Road Cedar Knolls, New Jersey 07927 USA www.InfoTrackResearch.com

T3i Group provides market research, analysis and advisory services to the business communications industry. It has clients in every global region and operates three lines of business:

 InfoTrack monitors and analyzes shipment, revenue and market share data for global enterprise telephony, unified communications, messaging and contact center shipments.

InfoTrack provides a comprehensive view of market sizing and installed base by technology and manufacturer. InfoTrack for Unified Communications provides a demand based view of

customer adoption of unified communications applications over time.

 Tactics provides easy access to detailed feature comparisons for business communications products and services. Tactics’ databases enable users to review product and service feature descriptions and information for over 1,000 telephony, collaboration and unified

communications products. The product profiles are presented in an easy-to-use, side-by-side comparison tool.

 Tarifica is the global leader in Telecom competitive pricing intelligence. Covering 450 operators in 130 countries, Tarifica’s database of PSTN, Leased Line, Ethernet and Wireless voice and data service tariffs is the largest in the world.

Each of these programs is backed by a staff of expert industry consultants who provide clients with insightful analysis, market briefings and advisory services.

For information on this report, or other T3iGroup products and services, please contact: Ken Dolsky at [email protected], 973-602-0109.

Copyright ©1999-2014. All rights reserved. No part of this publication may be reproduced in any material form (including photocopying) or stored in any medium by electronic means and whether or not transiently or incidentally to some other use of this publication without the written prior permission of the copyright owner. Application for the copyright owner’s permission to reproduce any part of this publication should be addressed to the contact and address referenced above.

Every effort has been taken to ensure the accuracy and completeness of information presented in this report. However, T3i Group cannot accept liability for the consequences of action taken based on the information provided.

(3)

LIST of EXHIBITS

Page

Exhibit ES-1 Current Status of Microsoft Lync Trials vs. a Year Ago ... 8

Exhibit ES-2 Microsoft Lync Trials that Include Enterprise Voice vs. a Year Ago ... 9

Exhibit ES-3 Current Plans for Deploying Lync with Enterprise Voice Beyond Trials vs. a Year Ago ... 10

Exhibit ES-4 Top Reasons for Deploying Lync with Enterprise Voice Beyond Trials ... 11

Exhibit ES-5 Perspective on the Costs of Implementing Lync with Enterprise Voice ... 12

Exhibit ES-6 Scope of Planned Deployment of Lync Enterprise Voice vs. a Year Ago ... 13

Exhibit ES-7 Penetration of Lync EV Licenses in the Enterprise Market vs. a Year Ago ... 14

Exhibit ES-8 Penetration of Lync EV Licenses in the SMB Market vs. a Year Ago ... 15

Exhibit ES-9 Projected Penetration of Lync EV Licenses ... 16

Exhibit ES-10 Preferred Vendor for IP-PBXs – Before Microsoft Entered the Market vs. Currently ... 17

Exhibit ES-11 Preferred Vendor for UC Apps – Before Microsoft Entered the Market vs. Currently ... 18

Exhibit 1 Distribution of Participating Enterprises by Size... 20

Exhibit 2 Distribution of Participating Enterprises by Type of Decision-Maker ... 21

Exhibit 3 Distribution of Participating Enterprises by Type of Industry ... 22

Exhibit 4 Enterprise Position on Microsoft Software Products and Services... 23

Exhibit 5 Current Status of Enterprise Trials of Microsoft Lync ... 24

Exhibit 6 Percent of Enterprise Microsoft Lync Trials that Include Enterprise Voice... 25

Exhibit 7 Enterprise Perception of Microsoft Capabilities for Enterprise Voice ... 26

Exhibit 8 Performance of Enterprise Voice during Microsoft Lync Trials ... 27

Exhibit 9 Enterprise Perspective on Startup Costs of Implementing Lync with Enterprise Voice ... 28

Exhibit 10 Enterprise Perspective on Ongoing Costs of Implementing Lync with Enterprise Voice ... 29

Exhibit 11 Enterprise Plans for Deploying Lync with Enterprise Voice Beyond Trials ... 30

Exhibit 12 Enterprises’ Top Reasons for Deploying Lync with Enterprise Voice Beyond Trials ... 31

Exhibit 13 Factors that Fell Short of Enterprises’ Expectations in Deploying Lync with EV ... 32

Exhibit 14 Enterprise Problems in Scaling Lync with Enterprise Voice ... 33

Exhibit 15 Current Status of Licenses for Lync with Enterprise Voice—Medium Enterprise ... 34

Exhibit 16 Current Status of Licenses for Lync with Enterprise Voice—Large Enterprise ... 35

Exhibit 17 Enterprise Projected Deployment of Licenses for Microsoft Lync with Enterprise Voice ... 36

Exhibit 18 Enterprise Scope of Planned Deployment of Microsoft Lync with Enterprise Voice ... 37

Exhibit 19 Enterprise Scope of Planned Deployment of Microsoft Lync with Enterprise Voice ... 38

Exhibit 20 Enterprise Ratings of Microsoft Dealers in Terms of Voice Expertise ... 39

Exhibit 21 Resources Used Extensively During Deployment of Lync with Enterprise Voice ... 40

Exhibit 22 Enterprise Familiarity with Enhancements to Microsoft Lync ... 41

Exhibit 23 Perception of Whether Enhancements Meet Enterprise Needs ... 42

(6)

Exhibit 24 Likelihood of Enterprises Implementing Enhancements to Microsoft Lync ... 43

Exhibit 25 Effect of Skype Acquisition on Decision to Implement Lync with Enterprise Voice ... 44

Exhibit 26 Likelihood of Implementing Skype functions during Next Few Years ... 45

Exhibit 27 Enterprise Plans for Replacing/Retaining Existing Telephony Systems During Lync Deployment ... 46

Exhibit 28 Enterprise Distribution of Endpoints on Deployed Lync Systems with Enterprise Voice ... 47

Exhibit 29 Primary Method for Enterprises Connecting to the PSTN for Lync with Enterprise Voice .. 48

Exhibit 30 Agreement Regarding Use of 3^rd Party Session Border Controllers/Enhanced Gateways .... 49

Exhibit 31 Enterprise Plans for Voicemail on Lync with Enterprise Voice... 50

Exhibit 32 Enterprise Preferred Vendors for IP-PBXs—Before Microsoft Entered the Enterprise Voice Market vs. Currently ... 51

Exhibit 33 Enterprise Preferred Vendors for UC Apps—Before Microsoft Entered the Enterprise Voice Market vs. Currently ... 52

Exhibit 34 Distribution of Participating SMBs by Size ... 53

Exhibit 35 Distribution of Participating SMBs by Type of Decision-Maker ... 54

Exhibit 36 Distribution of Participating SMBs by Industry... 55

Exhibit 37 SMB Position on Microsoft Software Products and Services ... 56

Exhibit 38 SMB Status on Trialing Microsoft Lync ... 57

Exhibit 39 Percent of SMB Microsoft Lync Trials that Include Enterprise Voice ... 58

Exhibit 40 SMB Perception of Microsoft Capabilities for Enterprise Voice ... 59

Exhibit 41 Performance of Enterprise Voice during SMB Trial of Microsoft Lync ... 60

Exhibit 42 SMB Perspective on Startup Costs of Implementing Lync with Enterprise Voice ... 61

Exhibit 43 SMB Perspective on Ongoing Costs of Implementing Lync with Enterprise Voice ... 62

Exhibit 44 SMB Plans for Deploying Microsoft Lync with Enterprise Voice Beyond Trials ... 63

Exhibit 45 SMB Top Reasons for Deploying Lync with Enterprise Voice Beyond Trials ... 64

Exhibit 46 Factors that Fell Short of SMBs’ Expectations in Deploying Lync with Enterprise Voice .... 65

Exhibit 47 SMB Problems in Scaling Lync with Enterprise Voice ... 66

Exhibit 48 Current Status of Licenses for Lync with Enterprise Voice—Small Business ... 67

Exhibit 49 Current Status of Licenses for Lync with Enterprise Voice—Medium Business ... 68

Exhibit 50 Projected SMB Deployment of Licenses for Microsoft Lync with Enterprise Voice ... 69

Exhibit 51 Scope of Planned SMB Deployment of Microsoft Lync with Enterprise Voice ... 70

Exhibit 52 SMB Organization Responsible for Decision to Deploy Lync with Enterprise Voice ... 71

Exhibit 53 SMB Ratings of Microsoft Dealers in Terms of Voice Expertise ... 72

Exhibit 54 Resources Used Extensively During Deployment of Lync with Enterprise Voice ... 73

Exhibit 55 SMB Familiarity with Enhancements to Microsoft Lync ... 74

Exhibit 56 Perception of Whether Enhancements Meet SMB Needs ... 75

Exhibit 57 Likelihood of SMBs Implementing Enhancements to Microsoft Lync ... 76

Exhibit 58 Effect of Skype Acquisition on SMB Decision to Implement Lync with Enterprise Voice ... 77

Exhibit 59 Likelihood of SMBs Implementing Skype functions during Next Few Years ... 78 Exhibit 60 SMB Plans for Replacing/Retaining Existing Telephony Systems During Lync Deployment79

(7)

Exhibit 61 Distribution of Endpoints on SMB Deployed Lync Systems with Enterprise Voice ... 80

Exhibit 62 Primary Method for SMBs Connecting to the PSTN for Lync with Enterprise Voice ... 81

Exhibit 63 SMB Agreement on Use of 3^rd Party Session Border Controllers/Enhanced Gateways ... 82

Exhibit 64 SMB Plans for Voicemail on Lync with Enterprise Voice ... 83

Exhibit 65 SMB Preferred Vendor for IP-PBXs—Before Microsoft Entered the Enterprise Voice Market vs. Currently ... 84

Exhibit 66 SMB Preferred Vendor for UC Apps—Before Microsoft Entered the Enterprise Voice Market vs. Currently ... 85

(8)

38%

34%

23%

5%

14%

28%

52%

6%

Have completed trial

Currently conducting trial

Planning to conduct trial

No plans to conduct trial

Enterprise

Current A year ago

16%

18%

46%

20%

8%

21%

52%

19%

SMB

1. EXECUTIVE SUMMARY

How Have Plans to Trial Microsoft Lync Changed Since A Year Ago?

In February 2012, T3i Group published the first in-depth primary research and analysis of the potential impact of Microsoft Lync on the market for Enterprise Voice (EV) systems. That report framed the two opposing sides of the ongoing debate regarding Microsoft Lync:

 “Microsoft has the opportunity to dominate the UC market and take a significant share of the voice IP-PBX market via Lync”

 “Many businesses may be trialing Lync EV, but actual implementation of Lync will be mainly IM and Presence”

That report analyzed the implementation plans of more than 300 Enterprises and SMBs and concluded that Microsoft Lync should be recognized as a significant risk to incumbent IP-PBX vendors. In June 2013, we published our second research study on Microsoft Lync, which clearly confirmed the findings in the first report. For this 2014 study, we again surveyed over 300 IT and business leaders who are involved in the decision process regarding the adoption and usage of Lync. In this Executive Summary, we compare the results of the current 2014 study with those of the second study from last year.

Currently, 72% of the participating U.S. Enterprises, companies with 500+ employees, were either conducting or had completed trials of Microsoft Lync. That was a huge increase compared to 42% of U.S.

Enterprises that were in that position a year ago. Only 5% of the Enterprises indicated they had no plans to trial Lync.

Among U.S. SMBs (Small/Medium Businesses with 5 to 499 employees), there was just a modest increase, with 34% having completed those trials or currently conducting them, compared to 29%

a year ago. However, we could see a significant increase next year, with almost half of the SMBs indicating that they were planning to conduct a trial of Microsoft Lync.

Exhibit ES-1 Current Status of Microsoft Lync Trials vs. A Year Ago

Source: InfoTrack: End-user Primary Research, 2Q2014

(9)

Do the Trials of Microsoft Lync Include Enterprise Voice?

The previous exhibit indicated significant increased interest in Microsoft Lync as a potential platform for UC applications, but what about Enterprise Voice? We asked the survey respondents that were trialing Lync whether Enterprise Voice was being included in their trials. With Enterprise Voice, Lync can provide the type of important telephony features that are generally available on current IP-PBXs.

As shown in Exhibit ES-2, 89% of the U.S. Enterprises indicated that Enterprise Voice had been or will be included in their Lync trials.

That represents a 13 point increase from 76% a year ago. Among U.S.

SMBs, 63% said that their trials of Lync included Enterprise Voice, up from 54% last year.

Microsoft and its partners make it relatively easy to trial Lync with Enterprise Voice. Firms are provided Lync-certified SIP phones or softphones on a temporary basis and do not have to install Lync servers for the trials. That is one of the reasons why such a high percentage of trials include Enterprise Voice.

Exhibit ES-2 Microsoft Lync Trials that Include Enterprise Voice vs. a Year Ago

89% 76%

11% 24%

Enterprise

No, Trials Do Not Include Enterprise Voice Yes, Trials Include Enterprise Voice

63% 54%

37% 46%

SMB

(10)

What Is the Anticipated Adoption Rate of Lync Enterprise Voice?

The decision-makers in this research were also asked about their plans for actually deploying Lync with Enterprise Voice (EV). Exhibit ES-3 depicts their responses.

Last year, 15% of U.S. Enterprises had begun to deploy Lync with Enterprise Voice beyond the trial stage, and another 44% were in the planning stages of deployment. It appears that more than half of those that were in the planning stages last year have actually begun their deployment, thus increasing the current total to 44%, tripling the 15% from a year ago. Only 21% of the Enterprises were either waiting for the results of their trials before deciding whether to deploy Lync EV or had no plans to deploy. That represents a 20 point reduction in the percent of “Undecideds” or “No Plans” from last year. Only 4% of the U.S. Enterprises we surveyed indicated that they had no plans to implement Microsoft Lync Enterprise Voice.

The percent of SMBs that were actually deploying Lync EV beyond trials also increased in the past year, but only from 9% to 12%. 31% of SMBs were currently planning to deploy Lync with Enterprise Voice, up from 27% last year. 57% were either undecided awaiting trial results, or don’t plan to deploy, compared to 64% a year ago.

It is extremely significant that almost half of U.S. Enterprises have begun to deploy Lync EV. This is the market segment in which Microsoft has traditionally developed the strongest relationships with IT decision-makers. These results show that those relationships are paying off.

Exhibit ES-3 Current Plans for Deploying Lync with Enterprise Voice Beyond Trials vs. A Year Ago

44%

35%

17%

4%

15%

44%

34%

7%

Currently deploying

Planning to deploy

Undecided; depends on results of trial

No plans to deploy Microsoft Lync for Enterprise Voice

Enterprise

12%

31%

43%

14%

9%

27%

48%

16%

No plans to deploy Microsoft Lync for Enterprise Voice

SMB

(11)

Why are Businesses Deploying Lync with Enterprise Voice?

We asked the decision-makers who were currently deploying Lync EV or planning to deploy, to rank the top reasons for that decision. The results are shown in Exhibit ES-4.

The number one reason among both Enterprises and SMBs was that Lync Enterprise Voice’s total cost of ownership (TCO) is lower than PBX based solutions. This was also the top reason provided in last year’s survey responses. Microsoft prices Lync very attractively for firms that use other Microsoft applications. Licenses for access to Lync are bundled in the Enterprise CAL Suite with licenses of other popular Microsoft applications including Exchange, SharePoint and Windows. Firms who want to add Enterprise Voice can upgrade for an additional incremental charge. Microsoft’s Enterprise Agreement offers volume pricing discounts for licenses, as well.

The effectiveness of Microsoft’s bundling strategy is reflected in the second reason both Enterprises and SMBs gave for moving to Lync Enterprise Voice -- Facilitates voice feature integration with other Microsoft applications.

The next three reasons demonstrate the effectiveness of Microsoft’s incremental pricing strategy:

 We have already adopted Microsoft Lync for IM and Presence

 We have already adopted Microsoft Lync for Web Conferencing

 Lync EV is a natural extension of our commitment to Lync for UC The Microsoft IP-PBX competitors may argue that Enterprises are mainly implementing Microsoft Lync just as a platform for UC, simply because they were already using Microsoft for IM or web conferencing.

But IP-PBX vendors face an even greater risk if Enterprises adopt Lync for UC, because Exhibit ES-4 shows that Enterprises will implement Microsoft Lync as a platform for Enterprise Voice, largely because they had already begun using Microsoft Lync for UC.

Exhibit ES-4 Top Reasons for Deploying Lync with Enterprise Voice Beyond Trials

Among Enterprises & SMBs Deploying/Planning to Deploy Lync with Enterprise Voice

Top Reasons ENT SMB

Total cost of ownership (hardware, software, service support) is lower than

PBX based solutions 1 1

Facilitates voice feature integration with other Microsoft applications, e.g.,

Sharepoint, Exchange, Office 2 2

We have already adopted Microsoft Lync for IM and Presence 3 4

We have already adopted Microsoft Lync for Web Conferencing 4 3

Lync Enterprise Voice is a natural extension of our commitment to Microsoft

Lync for UC 5 5

The Lync Client is superior to the user interface provided by other UC vendors 6 6

(12)

How Did Actual Costs Compare with Expectations for Implementation of Lync EV?

In the preceding Exhibit, Enterprises and SMBs both indicated that their number one reason for implementing Microsoft Lync for Enterprise Voice was because its Total Cost of Ownership (TCO) was lower than PBX based solutions. But were they really considering all of the costs or were they focused primarily on start-up costs? In the early stages, the costs may be lower because much of the initial cost of Lync EV was an incremental extension to the investment that they had already made in implementing a broader suite of Microsoft applications.

In this year’s survey we asked the respondents to distinguish between start-up costs and ongoing costs. Half of the Enterprises that were currently deploying Lync EV or preparing to deploy it indicated that the start-up costs were in line with what they had expected. Almost as many, 42%, said the same thing about ongoing costs. One-third of the Enterprises admitted that there were some additional ongoing costs that they had not anticipated. But that was only slightly more than the 28% who said the same thing about the start-up costs. 19%

of Enterprises felt that the ongoing costs were actually lower than they had expected, versus 15% who felt that way about start-up costs.

A significant percentage of Enterprises encountered some surprises with both the ongoing costs of deploying Lync EV and the start-up costs. Interestingly, the attitude of SMBs toward ongoing costs vs.

start-up costs was almost identical to that of their Enterprise counterparts. However, despite these unanticipated additional costs, the scope of deployment of Microsoft Lync with Enterprise Voice is continuing to increase, as shown in the next exhibit.

Exhibit ES-5 Perspective on the Costs of Implementing Lync with Enterprise Voice

50%

28%

15%

7%

42%

32%

19%

7%

The costs are in line with what we had expected

There were some additional costs that we had not anticipated

So far the costs are lower than we had expected

It is too early in the process to make a determination on costs

Enterprise

Startup Costs Ongoing costs

58%

26%

12%

4%

55%

31%

14%

0%

The costs are in line with what we had expected

There were some additional costs that we had not anticipated

So far the costs are lower than we had expected

It is too early in the process to make a determination on costs

SMB

Startup Costs Ongoing costs

(13)

7%

24%

29%

24%

16%

7%

27%

34%

15%

17%

Selected individuals

At selected locations as the need arises (e.g., replace outdated PBX)

Throughout specific departments or business units

Throughout your home country

Globally

Enterprise

Current A year ago 14%

22%

31%

33%

0%

23%

17%

28%

25%

7%

Selected individuals

At selected locations as the need arises (e.g., replace outdated PBX)

Throughout specific departments or business units

Throughout your home country

Globally

SMB

How Extensively Are Firms Planning to Deploy Lync Enterprise Voice?

We asked the firms that were deploying or planned to deploy Lync Enterprise Voice to characterize the scope of their deployment from an array of five approaches that range from enabling selected individuals to full-scale global deployment. Among the current/future implementers in last year’s study, 32% of those Enterprises were planning a company-wide deployment of Lync Enterprise Voice that would cover either their U.S. operations (15%) or their entire global Enterprise (17%). That represented 19% of all Enterprises that took part in last year’s study. Certainly, that could have a substantial impact on the PBX market both within the U.S. and globally.

Since then, Enterprises have begun to deploy Lync 2013 which offered significant improvements over Lync 2010. As a result, the percent of projected company-wide deployments among the current/future implementers has jumped to 40% (24% nationwide and 16% globally).

Measured against a base of 79% of Enterprises which are currently deploying or planning to deploy, that represented 32% of all Enterprises that participated in this year’s study.

33% of U.S. SMBs that are currently deploying or plan to deploy Lync Enterprise Voice expect nation-wide or global deployment. That is just one point higher than the 32% of the SMBs in last year’s study.

These SMBs planning company-wide deployment represent 14% of all SMBs that participated in this study, up slightly from 12% of SMBs last year.

In the 2013 InfoTrack for Unified Communications (IUC) forecast report, we estimated that Microsoft had achieved a 14.9% market share of IP Telephony shipments to U.S. Enterprises in 2012 and 3.6%

share for SMBs. Based on the results of this study, we can expect to see a significant increase in Microsoft’s Enterprise market share for 2013, with perhaps a flat or declining share in the SMB market.

Exhibit ES-6 Scope of Planned Deployment of Lync EV vs. A Year Ago

Among Current/Future Implementers

(14)

What is the Actual Penetration of Lync EV Licenses Within All Employees of U.S.

Enterprises?

To measure the penetration of Lync Enterprise Voice licenses that are actually in use in the U.S. Enterprise segment of the market, we asked the decision-makers the following series of questions about the number and status of their Lync licenses in the U.S.:

 How many total Lync licenses does your company have?

 Of those, how many are Plus CAL for Enterprise Voice?

 What % of those are in actual use by employees?

 What is your company’s total number of employees in the U.S.?

As noted earlier, Enterprises may have a number of Lync licenses that were bundled as part of Microsoft’s Enterprise CAL Suite of licenses.

In this year’s study, the total Lync licenses represented 15% of their employees in the U.S., up sharply from 11% a year ago. 45% of those licenses were Plus CAL for Enterprise Voice, somewhat more than last year. The percent of Plus CAL licenses that had been activated for actual use was also about the same as last year, 51% vs. 54%.

These active Plus CAL licenses represent 3.4% of total U.S. Enterprise employees, a significant increase from 2.5% in last year’s study.

Exhibit ES-7 Penetration of Lync EV Licenses in the Enterprise Market vs. a Year Ago

Current

15%

45% 51%

3.4%

11%

42% 54%

2.5%

A year ago

Lync licenses as

% of total employees

Plus CAL as

% of Lync Licenses

% Plus CAL licenses in actual use

Lync Enterprise Voice licenses in use as % of total

employees

(15)

What is the Actual Penetration of Lync EV Licenses Within Employees of U.S. SMBs?

To measure the penetration of Lync Enterprise Voice licenses that are actually in use in the U.S. SMB market, we used the same methodology that was described on the preceding page and applied it to the responses of the SMB participants in this year’s survey.

The total Lync licenses among the SMBs this year represented 15% of their employees in the U.S., compared to 11% a year ago. 50% of those licenses were Plus CAL for Enterprise Voice, down somewhat from 53% last year. The percent of Plus CAL licenses that had been activated for actual use by SMB employees was 35%, about the same as the 37% a year ago.

These active Plus CAL licenses represent 2.6% of total U.S. SMB employees, up from 2.2% in last year’s study.

Exhibit ES-8 Penetration of Lync EV Licenses in the SMB Market vs. A Year Ago

Current

15%

50%

35%

2.6%

11%

53%

37%

2.2%

A year ago

Lync licenses as

% of total employees

Plus CAL as

% of Lync Licenses

% Plus CAL licenses in actual use

Lync Enterprise Voice licenses in use as % of total

employees

(16)

What is the Projected Penetration of Lync EV Licenses Over the Next Few Years?

We asked the study participants a similar set of questions about their future deployment plans in order to calculate the projected penetration of Lync EV Licenses.

Among U.S. Enterprises, the projected penetration of active plus CAL licenses was 5.7% by the end of 2015. That was up significantly from the 3.4% penetration at the end of 2013, as presented in Exhibit ES-7.

By the end of 2017, the penetration of active Plus CAL licenses was projected to reach 8.3% of U.S. Enterprise employees.

Penetration of Lync EV licenses in the U.S. SMB market was projected to lag that of the U.S. Enterprise market. By the end of 2015, the projected penetration of active plus CAL licenses was 3.6% of U.S.

SMB employees. That was a significant increase from the 2.6%

penetration computed for the end of 2013. The rate of SMB penetration was expected to accelerate over the following two years, reaching 4.6% of SMB employees by the end of 2017.

Exhibit ES-9 Projected Penetration of Lync EV Licenses

3.4%

5.7%

8.3%

2.6%

3.6%

4.6%

2013 2015 2017

Enterprise SMB

(17)

27%

52%

0%

4%

17%

15%

34%

38%

4%

9%

Avaya

Cisco

Microsoft

Cloud-based Hosted Service Provider

Other Vendors

Enterprise

Before Currently

30%

20%

0%

6%

44%

26%

16%

15%

6%

37%

Avaya

Cisco

Microsoft

Other Vendors

SMB

Before Currently Source: InfoTrack: End-user Primary Research, 2Q2014

Where Does Microsoft Rate Among Preferred Vendors for IP-PBXs?

Participants in this study were asked to identify the one company that was currently their preferred vendor for IP-PBXs or the functionality of IP-PBXs. They were also asked to identify who that preferred vendor was before Microsoft entered the Enterprise Voice market.

The responses to these questions have been summarized in Exhibit ES-10.

About half of the U.S. Enterprises indicated that Cisco was their Preferred Vendor for IP-PBXs before Microsoft entered the Enterprise Voice market. This was followed by Avaya with 27%.

17% of the Enterprises preferred one of the other telephony systems vendors.

In response to the question regarding their current Preferred Vendor for IP-PBXs, 38% of the Enterprises selected Microsoft.

This was substantially higher than the 25% in last year’s study. It was somewhat surprising that the percentage of Enterprises that picked Microsoft was higher than Cisco. On the other hand, we noted in Exhibit ES-3 that 44% of the Enterprises were currently deploying Microsoft Lync with Enterprise Voice. And in Exhibit ES-6, we saw that 40% of Enterprises expected company-wide deployment of Microsoft Lync EV. We should note that the format of this question in the survey limited Enterprises to one selection for Preferred Vendor currently. So of the Enterprises that had begun to deploy Microsoft Lync but still had mostly Cisco IP-PBXs, some could have decided to pick Microsoft as their one response to this question. As a result, Cisco dropped from 52% to 34%, while preferences for Avaya declined 12 points to 15%.

Among SMBs, 15% selected Microsoft as their currently preferred IP- PBX vendor. SMBs that preferred Avaya declined from 30% to 26%, while preferences for other telephony systems vendors went from 44%

to 37%. Cisco dropped from 20% to 16% among these SMB decision- makers.

Exhibit ES-10 Preferred Vendor for IP-PBXs – Before Microsoft

Entered the Market vs. Currently

(18)

Where Does Microsoft Rate Among Preferred Vendors for UC Apps?

Participants in this study were also asked to identify the one company that is currently their preferred vendor for UC applications. In addition, they were asked to identify who that preferred vendor was before Microsoft entered the Enterprise Voice market. The responses to these questions have been summarized in Exhibit ES-11.

43% of the U.S. Enterprises indicated that Cisco was their Preferred Vendor for UC Apps before Microsoft entered the Enterprise Voice market. At that point in time, Microsoft was already considered to be the Preferred Vendor for UC Apps by 27% of the Enterprises, followed by Avaya at 15%.

In response to the question regarding their current Preferred Vendor for UC Apps, 40% of the Enterprises selected Microsoft.

This was a gain of 13 points for Microsoft, while Cisco dropped 7 points to 36%, which put them in 2^nd place behind Microsoft. Avaya declined 6 points to 9%.

Among SMBs, before Microsoft entered the Enterprise Voice market they were the 3^rd most popular vendor for UC apps. But currently, 29% of the SMBs chose Microsoft as their Preferred Vendor for UC Apps, a gain of 17 points. That put them ahead of Avaya which declined from 23% to 17%, and Cisco which dropped from 20% to 17%

among these SMB decision-makers.

The bottom line here is that Microsoft is now the highest rated vendor for both UC Apps (40%) and IP-PBXs (38%) among U.S. Enterprises that participated in this survey. They have also moved into the top spot as Preferred Vendor for UC Apps among SMBs (29%).

Exhibit ES-11 Preferred Vendor for UC-Apps – Before Microsoft Entered the Market vs. Currently

15%

43%

27%

2%

13%

9%

36%

40%

3%

12%

Avaya

Cisco

Microsoft

Other Vendors

Enterprise

23%

20%

12%

9%

36%

17%

29%

11%

26%

Avaya

Cisco

Microsoft

Other Vendors

SMB

(19)

2. INTRODUCTION AND METHODOLOGY

Scope of InfoTrack for Unified Communications (IUC)

InfoTrack for Unified Communications is a research program that addresses demand for evolving communications technologies and the impact of significant market shifts. Our analysis focuses on understanding decision-makers’ perceptions of the solutions being marketed to them, and their resulting buyer behaviors.

In the first half of 2014 we published reports on 1) New Trends and Changes in Customers’ UC Buying Behavior and 2) Transformative Technologies – Enterprise and SMB Outlook on how UC can Transform how they do Business. This current report is the 3^rd annual report on the Market Impact of Microsoft Lync.

In June 2014 we will publish our annual in-depth forecast of the IP Telephony and Unified Communications (UC) application markets.

Program Leadership

The program directors for IUC are Ken Dolsky ([email protected]) and Terry White ([email protected]).

They are responsible for all primary research involving the market demand for unified communications among U.S. and international businesses and institutions. To support these primary research efforts, T3i Group has established two research panels, one consisting of more than 7,000 Enterprise decision-makers and a second panel with more than 6,000 SMB decision-makers.

Primary Research Methodology

Analyses presented in this study were driven by comprehensive primary research, which was conducted specifically for this report.

This primary research included a mix of web-based surveys and telephone interviews, with key industry players, including:

 Decision-makers for both IP Telephony and UC applications

 Leading suppliers of IP Telephony systems and UC apps.

The research covered both Enterprises (entities with 500 or more employees) and SMBs (entities with 5 to 499 employees). Results for each group are provided in separate sections.

(20)

3. ANALYSIS OF ENTERPRISE PLANS FOR MICROSOFT LYNC ENTERPRISE VOICE

Demographics of Enterprise Survey Participants

The exhibits in this section of the report are based on responses from U.S. business and institutional entities with 500 or more employees.

IUC refers to these entities as Enterprises. During April 2014, surveys were completed with over 150 qualified Enterprise managers who are key decision-makers or key influencers regarding adoption and usage of Microsoft Lync. The same survey also received responses from 150 managers at SMB sized companies (499 employees or less) with the same responsibilities. The results from the SMB managers are described later in Section 4.

Exhibit 1 below shows the distribution of the participating U.S.

Enterprises based upon their size. 23% of the respondents represented Enterprises with 500 to 999 employees, and 27% were Enterprises with 1,000 to 2,499 employees. Throughout the analysis, these two size categories, comprising 50% of the respondents, are referred to as Medium Enterprises (ME).

36% of the respondents were from Enterprises with between 2,500 and 9,999 employees. Enterprises with 10,000 or more employees accounted for 14% of the Enterprise participants. These two size segments comprise the Large Enterprise (LE) segment, representing 50% of the respondents.

Exhibit 1 Distribution of Participating Enterprises by Size

23%

27%

36%

14%

500 – 999

1,000 – 2,499

2,500 – 9,999

10,000 +

U.S. Enterprises

(21)

Distribution of Participating Enterprises by Type of Decision Maker

Exhibit 2 contains two graphs that show the distribution of titles and decision-making responsibilities among the Enterprise decision- makers who participated in this study.

44% were Executives who are responsible for business decisions, including CEOs, CFOs, COOs and Line of Business Managers. These executives are becoming more involved in the UC decision process, which justified their significantly higher representation in this year’s survey.

CIOs, Information Systems Managers and Applications Managers, who are responsible for IT (information technology) decision-making, accounted for 49% of the participants in this study.

The remaining 7% were Telecom Managers and Data Network Managers whose primary decision-making responsibilities involve communications systems and networks.

Exhibit 2 Distribution of Participating Enterprises by Type of Decision Maker

44%

49%

7%

Business Information Communications 1%

6%

1%

33%

15%

12%

13%

19%

Telecom Manager Data Network Manager Applications Manager Info Systems Manager CIO LoB Manager CFO or COO CEO

(22)

Distribution of Participating Enterprises by Type of Industry

Exhibit 3 shows the industry segment distribution of the Enterprise decision-makers who participated in this study. The participants represented 10 different industries.

The top three industries accounted for almost half of the Enterprise respondents, led by Manufacturing with 20%, Retail/Wholesale at 15%

and Professional Services at 10%.

The next five industries represented roughly 40%of the total, including Healthcare, Telecommunications, Business Services, Financial Services/Insurance and Education.

Exhibit 3 Distribution of Participating Enterprises by Type of Industry

20%

15%

10%

9%

8%

7%

6%

5%

2%

9%

Manufacturing Retail/Wholesale Professional Services Healthcare Telecommunications Business Services Financial Services/Insurance Education Government Utilities Other

(23)

Enterprise Position on Microsoft Software Products and Services

Exhibit 4 shows the position taken by Enterprises toward Microsoft as a provider of products and services. Enterprises surveyed were strongly inclined toward reliance on the company, with 96% of Large Enterprises and 94% of Medium Enterprises describing themselves as

“Microsoft shops” for at least some software.

Of those, MEs were more likely to depend primarily on Microsoft for key products and services (72% of MEs versus 63% of LEs), while LEs were more likely to buy only selected products and services from Microsoft (33% of LEs versus 22% of MEs). Among those few that characterized themselves as not a Microsoft shop were 4% of LEs and 6% of MEs.

Exhibit 4 Enterprise Position on Microsoft Software Products and Services

72%

22%

6%

63%

33%

4%

Our company is primarily a “Microsoft shop” for key software products

and services

Our company is a

“Microsoft shop” for selected software products and services

Our company is NOT a

“Microsoft shop” for key software products and

services

Medium Enterprise Large Enterprise

(24)

Enterprise Status on Trialing Microsoft Lync

As in last year’s report, Enterprise decision-makers were then asked about their plans to trial Microsoft Lync without reference to any specific functionality. Exhibit 5 shows the results.

72% of the Medium Enterprises have trialed or are currently trialing Microsoft Lync. This figure is up from 40% last year. As a result, the percent of MEs who said they were Planning to conduct a trial decreased from 52% last year to 22% this year. The category with the largest increase was Have completed trial which is now 33%, up from 10% last year.

Similarly, 72% of the Large Enterprises indicated they have trialed or are trialing Microsoft Lync. Last year the figure was 43%.

Consequently, the percent of LEs who said they were Planning to conduct a trial decreased from 52% last year to 24% this year. Once again, the largest increase was in the Have completed trial category which increased from 17% last year to 43% this year.

Microsoft trials are very accessible, which may be the reason for the high interest. Microsoft channel partners can use Microsoft’s Proof of Concept and secure Web access to enable trials of Lync Enterprise Voice. Firms are offered softphones or Lync-certified SIP phones on a temporary basis and do not have to install Lync servers for the trials.

Exhibit 5 Current Status of Enterprise Trials of Microsoft Lync

33%

39%

22%

6%

10%

30%

52%

8%

Medium Enterprise

Currently A year ago

43%

29%

24%

4%

17%

26%

52%

5%

Large Enterprise

Currently A year ago

(25)

Percent of Enterprise Microsoft Lync Trials that Include Enterprise Voice

Exhibit 6 shows the percentages of completed, current and planned Enterprise Microsoft Lync trials that included Enterprise Voice. As shown previously in Exhibit ES-2, 89% of the U.S. Enterprises who have trialed or are currently conducting trials or plan to trial indicated that Enterprise Voice had been, is or will be included in their Lync trials. That represents a 13 point increase from 76% a year ago.

88% of MEs said their trials include or will include Enterprise Voice.

This compares with 68% who said this in last year’s report.

Similarly, 90% of LEs said they have trialed or will trial Enterprise Voice. This compares with 84% who said this in last year’s report.

Both segments of Enterprises have shown a significant increase in their interest in trialing Lync Enterprise Voice, especially among MEs.

Microsoft and its partners make it relatively easy to trial Lync with Enterprise Voice. Firms are provided Lync-certified SIP phones or softphones on a temporary basis and do not have to install Lync servers for the trials.

Exhibit 6 Percent of Enterprise Microsoft Lync Trials that Include Enterprise Voice

Among those who have completed, are currently trialing or plan to trial

88%

68%

12%

32%

Medium Enterprise

90% 84%

10% 16%

Large Enterprise

(26)

Enterprise Perception of Microsoft Capabilities for Enterprise Voice

Exhibit 7 shows how trials affected Enterprises’ perception of the capabilities of Lync Enterprise Voice.

For Large Enterprises, trialing led to an improvement in the perception of the capabilities of Lync Enterprise Voice. Those believing that Microsoft is better than most traditional voice system manufacturers increased from 43% before trials to 57% after. The 14% that changed their views were accounted for by 7% of those that had previously believed Microsoft was as good as the competition and 7% who no longer believed it was worse. Trialing had a very positive effect on the perceptions of LEs.

The perceptions of Microsoft’s Enterprise Voice capabilities were equally as positive among Medium Enterprises, with 57% believing that Microsoft is better than most traditional voice system manufacturers after the trials, up from 50% before trials.

This was a significant turnaround for the ME segment. A year ago we reported that 15% of the ME respondents had revised their perception downward, from “better than most” to “as good as any,” post-trial.

This year 7% of the MEs revised their perception upward after the trial from “as good as” to “better than.” This indicates that Microsoft had significantly improved their Enterprise voice capabilities in their new release of Lync 2013, compared to the previous Lync 2010 (or at least managed to change customers’ perceptions).

Exhibit 7 Enterprise Perception of Microsoft Capabilities for Enterprise Voice

50%

48%

2%

57%

43%

0%

Microsoft is better than most traditional voice system manufacturers

Microsoft is as good as any of the traditional voice system manufacturers

Microsoft is not up to par with traditional voice system manufacturers

Medium Enterprise

Pre-Trial Post-Trial

43%

46%

11%

57%

39%

4%

Microsoft is better than most traditional voice system manufacturers

Microsoft is as good as any of the traditional voice system manufacturers

Microsoft is not up to par with traditional voice system manufacturers

Large Enterprise

Pre-Trial Post-Trial

(27)

Performance of Enterprise Voice during Microsoft Lync Trials

This increased satisfaction with the Enterprise Voice capabilities of Microsoft Lync was further confirmed in Exhibit 8. We asked the Enterprise decision-makers about the performance of Enterprise Voice during Microsoft Lync trials. 100% of the Medium Enterprises (ME) and 98% of the Large Enterprises (LE) said it had met or exceeded their expectations.

59% of the Large Enterprises (LE) indicated that the performance of Enterprise voice had exceeded their expectations, as did 43% of Medium Enterprises (ME).

Only LEs expressed any degree of dissatisfaction, with 2% noting that it did not meet their expectations during the trials.

Exhibit 8 Performance of Enterprise Voice during Microsoft Lync Trials

43%

59%

57%

39%

0% 2%

Medium Enterprise Large Enterprise

Exceeded expectations Met expectations Did not meet expectations

(28)

Enterprise Perspective on Startup Costs of Implementing Lync with Enterprise Voice

Exhibit 9 shows enterprises’ views on the relationship between the startup costs of implementing Lync with Enterprise Voice and their expectations about those costs.

Roughly half of the Enterprises indicated that the startup costs were in line with what they had expected. 14% of Medium Enterprises and 16% of Large Enterprises actually felt that the startup costs were lower than they had expected. However, approximately twice that many -- 29% (ME) and 27% (LE) -- admitted there were some additional costs that they had not anticipated.

The next Exhibit examines the ongoing costs of implementing Microsoft Lync with Enterprise Voice.

Exhibit 9 Enterprise Perspective on Startup Costs of Implementing Lync with Enterprise Voice

5%

14%

29%

52%

It is too early in the process to make a determination on startup costs So far the startup costs are lower than we had expected There were some additional costs that we had not anticipated The startup costs are in line with what we had expected

Medium Enterprise

9%

16%

27%

48%

It is too early in the process to make a determination on startup costs So far the startup costs are lower than we had expected There were some additional costs that we had not anticipated The startup costs are in line with what we had expected

Large Enterprise

(29)

Enterprise Perspective on Ongoing Costs of Implementing Lync with Enterprise Voice

We also asked the Enterprise decision-makers about the ongoing costs of operating and managing Lync with Enterprise Voice. Exhibit 10 provides a view of their responses.

A little over 40% of the Enterprises indicated that the ongoing costs were in line with what they had expected. But almost as many Large Enterprises (38%) revealed there were some additional costs that they had not anticipated. 26% of Medium Enterprises agreed that there were additional ongoing costs, but that was only slightly more than the 23% of MEs that actually felt the ongoing costs were lower than they had expected. 14% of LEs also said they had encountered lower ongoing costs than they had expected.

The results in Exhibits 9 and 10 indicate some improvements regarding the Enterprise perspective on costs compared to the results of the study we conducted a year ago. In that study, only 10% of MEs and none of the LEs experienced lower total costs than expected. While 42% of LEs and 25% of MEs expressed concerns that there were additional costs that they had not anticipated. In that study, the vast majority of MEs (65%) and LEs (58%) felt that the total costs were in line with what they had expected.

Exhibit 10 Enterprise Perspective on Ongoing Costs of Implementing Lync with Enterprise Voice

10%

23%

26%

41%

It is too early in the process to make a determination on ongoing costs So far the ongoing costs are lower than we had expected There were some additional costs that we had not anticipated The ongoing costs are in line with what we had expected

Medium Enterprise

5%

14%

38%

43%

It is too early in the process to make a determination on ongoing costs So far the ongoing costs are lower than we had expected There were some additional costs that we had not anticipated The ongoing costs are in line with what we had expected

Large Enterprise

(30)

Enterprise Plans for Deploying Lync with Enterprise Voice Beyond Trials

Exhibit 11 shows the plans of all Enterprises surveyed regarding the deployment of Lync with Enterprise Voice currently compared to a year ago.

In last year’s study, almost equal percentages of LEs (43%) and MEs (44%) were planning to deploy Lync EV. But this year, those are the type of percentage of LEs (49%) and MEs (39%) who are actually deploying Lync EV. Last year, only 18% of LEs and 11% of MEs had started deploying Microsoft Lync with Enterprise voice. Thus, there has been a huge increase in the percent of U.S. Enterprises that are now deploying Lync EV.

In addition, 37% of MEs and 33% of LEs indicated that they were currently in the planning stages of deploying Lync with Enterprise Voice and had proceeded beyond the trial stage.

24% of the Enterprises and 18% of the Large Enterprises were either waiting for the results of their trials before deciding whether to deploy Lync EV or had no plans to deploy. This represents a 21 point reduction in the percent of “Undecideds” or “No Plans” from last year.

It appears that the positive results that Enterprises are experiencing during their trials of Lync EV have had a significant impact on their plans to move forward with deployment.

Exhibit 11 Enterprise Plans for Deploying Lync with Enterprise Voice Beyond Trials

(Among all Enterprises)

39%

37%

20%

4%

11%

44%

38%

7%

No plans to deploy Microsoft Lync for Enterprise Voice

Medium Enterprise

49%

33%

14%

4%

18%

43%

31%

8%

No plans to deploy Microsoft Lync for Enterprise Voice

InfoTrack for Unified Communications

InfoTrack for Unified Communications

Impact of Microsoft Lync on the Enterprise Voice Market—2014

June 2014

A T3i Group Market Intelligence Program Focused on Unified Communications

Enterprise and SMB Markets

InfoTrack for Unified Communications:

Impact of Microsoft Lync on the Enterprise Voice Market—2014

A T3i Group Series of Primary Research Studies on the Market Demand for Unified Communications Infrastructure and Applications

TABLE of Contents

LIST of EXHIBITS

Enterprise

SMB

1. EXECUTIVE SUMMARY

How Have Plans to Trial Microsoft Lync Changed Since A Year Ago?

Exhibit ES-1 Current Status of Microsoft Lync Trials vs. A Year Ago

Do the Trials of Microsoft Lync Include Enterprise Voice?

Exhibit ES-2 Microsoft Lync Trials that Include Enterprise Voice vs. a Year Ago

Enterprise

SMB

What Is the Anticipated Adoption Rate of Lync Enterprise Voice?

Exhibit ES-3 Current Plans for Deploying Lync with Enterprise Voice Beyond Trials vs. A Year Ago

Enterprise

SMB

Why are Businesses Deploying Lync with Enterprise Voice?

Exhibit ES-4 Top Reasons for Deploying Lync with Enterprise Voice Beyond Trials

How Did Actual Costs Compare with Expectations for Implementation of Lync EV?

Exhibit ES-5 Perspective on the Costs of Implementing Lync with Enterprise Voice

Enterprise

SMB

Enterprise

SMB

How Extensively Are Firms Planning to Deploy Lync Enterprise Voice?

Exhibit ES-6 Scope of Planned Deployment of Lync EV vs. A Year Ago

What is the Actual Penetration of Lync EV Licenses Within All Employees of U.S.

Enterprises?

Exhibit ES-7 Penetration of Lync EV Licenses in the Enterprise Market vs. a Year Ago

What is the Actual Penetration of Lync EV Licenses Within Employees of U.S. SMBs?

Exhibit ES-8 Penetration of Lync EV Licenses in the SMB Market vs. A Year Ago

What is the Projected Penetration of Lync EV Licenses Over the Next Few Years?

Exhibit ES-9 Projected Penetration of Lync EV Licenses

Enterprise

SMB

Where Does Microsoft Rate Among Preferred Vendors for IP-PBXs?

Exhibit ES-10 Preferred Vendor for IP-PBXs – Before Microsoft

Entered the Market vs. Currently

Where Does Microsoft Rate Among Preferred Vendors for UC Apps?

Exhibit ES-11 Preferred Vendor for UC-Apps – Before Microsoft Entered the Market vs. Currently

Enterprise

SMB

2. INTRODUCTION AND METHODOLOGY

Scope of InfoTrack for Unified Communications (IUC)

Program Leadership

Primary Research Methodology

3. ANALYSIS OF ENTERPRISE PLANS FOR MICROSOFT LYNC ENTERPRISE VOICE

Demographics of Enterprise Survey Participants

Exhibit 1 Distribution of Participating Enterprises by Size

U.S. Enterprises

Distribution of Participating Enterprises by Type of Decision Maker

Exhibit 2 Distribution of Participating Enterprises by Type of Decision Maker

Distribution of Participating Enterprises by Type of Industry

Exhibit 3 Distribution of Participating Enterprises by Type of Industry

Enterprise Position on Microsoft Software Products and Services

Exhibit 4 Enterprise Position on Microsoft Software Products and Services

Our company is primarily a “Microsoft shop” for key software products

and services

Our company is a

“Microsoft shop” for selected software products and services

Our company is NOT a

“Microsoft shop” for key software products and

services

Enterprise Status on Trialing Microsoft Lync

Exhibit 5 Current Status of Enterprise Trials of Microsoft Lync

Medium Enterprise

Large Enterprise

Percent of Enterprise Microsoft Lync Trials that Include Enterprise Voice

Exhibit 6 Percent of Enterprise Microsoft Lync Trials that Include Enterprise Voice

Medium Enterprise

Large Enterprise

Enterprise Perception of Microsoft Capabilities for Enterprise Voice