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Office 365 and G Suite gain market share for cloud telephony services

Cloud office suites are growing in popularity among organizations buying enterprise telephony services, according to the latest UCaaS Magic Quadrant report.

Katherine Finnell
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Published: 14 Aug 2019

More organizations are looking to buy their cloud telephony services through cloud office suites, such as Microsoft Office 365 and Google G Suite, according to Gartner's latest Magic Quadrant report for unified communications as a service.

The convenience of buying cloud telephony services directly from an office suite vendor that provides messaging, video and other productivity tools is appealing to organizations, said Daniel O'Connell, Gartner analyst and co-author of the report.

"All businesses are getting Office 365 or G Suite, and if you can have the same vendor do a credible job and replace an on-premises PBX, that's definitely something worth investigating," he said.

Enterprise cloud telephony services within cloud office suites are increasing in maturity, according to the report. Microsoft has been converting its Office 365 users to Teams Enterprise Voice as its users remove their PBX systems. The report noted that Microsoft has an extensive ecosystem of service providers, hardware vendors and consulting partners to support Teams telephony.

Enterprise Google Voice, which became generally available in the second quarter of 2019, offers PBX functionality and fills a telephony gap in Google's unified communications as a service (UCaaS) offering. G Suite has a smaller market share than Office 365, but if Google continues to innovate, then it can compete against larger UCaaS players better, O'Connell said.

Gartner expects both Microsoft Teams and Google Voice to increase their telephony market share over the next year.

Business size defines UCaaS requirements

UCaaS has exceeded on-premises UC in certain areas, including functionalities, research and development. The gap between on-premises UC and UCaaS will widen through 2019 and 2020, according to the report.

Most SMBs with fewer than 1,000 employees continue to prefer the cloud as their delivery model for UC. However, the report noted two exceptions that would keep SMBs on premises.

First is SMBs that lack extensive network connections to UCaaS providers. The second exception is SMBs between 500 and 999 employees that have fixed telephony requirements for the next five years and have the staff to manage on-premises infrastructure.

Enterprises between 1,000 and 5,000 employees are best suited for UCaaS, according to the report. However, some enterprises may be forced into a hybrid cloud environment as they need to maintain on-premises infrastructure in markets with restrictive regulatory requirements or poor networking connections.

Hybrid deployments can be tricky because not every UCaaS vendor can support a hybrid deployment. Enterprises that opt for a hybrid deployment will look for a vendor that can handle both the cloud and on-premises infrastructure.

"When you have different stacks, it's complicated to manage," O'Connell said.

Large enterprises with more than 5,000 employees that are still invested in on-premises infrastructure need to evaluate the value of the cloud. The on-premises UC they buy today will not see significant enhancements over the product lifecycle, as most enhancements today are delivered in the cloud.

UCaaS provider ranking shake-up

Microsoft moved into a leadership position in the report as it strengthens its cloud telephony service in Teams. Cisco, 8x8 and RingCentral were also named market leaders.

Gartner also revamped how it evaluates UCaaS providers by including only vendors that develop, manage and control their own proprietary UCaaS application stacks. As a result, cloud service providers and systems integrators that run UCaaS stacks on their networks, such as Verizon and AT&T, are no longer included in the report.

"The real emphasis on R&D and new apps and features are really in these pure application stacks," O'Connell said.

Cisco, for example, has nearly 7 million end users on its Hosted Collaboration Solution platform and continues to support HCS for customers and service provider partners. But most of the vendor's investment is in its suite of Webex Teams, Meetings, Calling and Contact Center, he said.

Fuze was named a visionary in the report, while Google and Mitel were named challengers. StarBlue, a rebranding of Star2Star and Blueface following their merger in 2018, was named a niche player. Vendors added to the report were ALE, Dialpad, LogMeIn and Windstream. In addition to Verizon and AT&T, vendors dropped from the report include BT, Masergy, NTT Group, Orange and West.

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