idc worldwide ent video forecast

Filing Information: March 2010, IDC #221356, Volume: 1Enterprise Communications Infrastructure: Market Analysis

M A R K E T A N A L Y S I S

W o r l d w i d e E n t e r p r i s e V i d e o c o n f e r e n c i n g a n d T e l e p r e s e n c e 2 0 1 0 – 2 0 1 4 F o r e c a s tJonathan Edwards

I D C O P I N I O NEnterprise videoconferencing has been through a number of hype cycles over the past few decades and has failed to become culturally integrated into the fabric of business processes and communications. However, IDC believes that only recently have the technologies delivered to end users' experiences worthy of initiating a videoconference over a phone call or conducting business across locations that in the past required travel. IDC believes the following three factors will shape the enterprise videoconferencing market over the next five years:

Technology capability and market awareness. The ways in which we interact with video (be it YouTube content accessed on our iPhones or a Skype video call with a grandparent) are more abundant and advanced than ever. This trend is only accelerating as partnerships like Skype and HDTV manufacturer Panasonic form. From an enterprise standpoint, quality, productivity, and level of engagement per interaction over video are primary keys to usage and adoption, and only within the past three years has the technology become capable (epitomized by high-end telepresence systems) to deliver here. Furthermore, market awareness has never been greater as vendors like TANDBERG, Polycom, LifeSize, and Cisco have successfully catalyzed awareness and demonstrated the value of videoconferencing to their growing customer bases and to their strategic and channel partners.

Bandwidth availability. The most significant impediment to videoconferencing adoption is bandwidth. Interviews with a major IT systems integrator/consultancy indicated that on average every $1 spent on videoconferencing requires roughly $3 on network upgrades. In comparison with IP telephony, which requires on average $0.80 for network upgrade on every $1 spent, the overall costs of investing in videoconferencing are high. Cisco alone has upgraded its network four times in roughly three years since rolling out companywide access to telepresence and other video endpoints.

Interoperability. While vendors like Polycom and TANDBERG have demonstrated videoconferencing and telepresence interoperability from an equipment standpoint for some time, interoperability between all forms of conferencing systems (Web conferencing, audioconferencing, etc.) will greatly impact the way enterprises evaluate the ROI of the application. There are multiple levels of interoperability that will take time to address, but all will significantly impact adoption and help accelerate the tenets of Metcalfe's law. These levels include system type to system type (e.g., Web based to telepresence), legacy to next generation, vendor to vendor, carrier network to carrier network, and business to business (B2B).

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T A B L E O F C O N T E N T S

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In This Study 1

Methodology ............................................................................................................................................. 1

Situat ion Overview 1

Industry Consolidation .............................................................................................................................. 2Adoption Trends ....................................................................................................................................... 2

Future Out look 3

Forecast and Assumptions ....................................................................................................................... 4Market Context ......................................................................................................................................... 25

Essential Guidance 25

Learn More 25

Related Research..................................................................................................................................... 25

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L I S T O F T A B L E S

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1 Key Forecast Assumptions for the Worldwide Enterprise Videoconferencing and Telepresence Market, 2010–2014................................................................................................ 5

2 Worldwide Enterprise Videoconferencing Revenue and Endpoints, 2009–2014.......................... 23

3 Worldwide Enterprise Telepresence-Only Revenue, Number of Telepresence Rooms/Systems, Room/System Install Base, and Number of Screens, 2009–2014.................... 24

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L I S T O F F I G U R E S

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1 Worldwide Enterprise Videoconferencing Revenue, 2009–2014 ................................................. 23

2 Worldwide Enterprise Telepresence-Only Revenue, 2009–2014................................................. 24

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I N T H I S S T U D Y

M e t h o d o l o g y

The quantitative and qualitative information contained in this study results from IDC's ongoing videoconferencing research. Both primary and secondary sources of information were used in the development of this study. Primary sources include interviews with videoconferencing vendors and IDC survey data. Secondary sources include vendors' publicly registered financial statements, news releases, vendor-provided marketing material, and consultation with other IDC offices.

All revenue figures are IDC estimates that refer only to videoconferencing equipment and exclude services (installation, professional, and managed). Considered videoconferencing equipment includes multipoint control units (MCUs), video codecs, gateways, cameras, screens, and associated audio components. These figures do not include PC/Web-based systems, Webcams, or videophones. The telepresence revenue, room/systems, and screens figures refer only to the highly immersive videoconferencing systems that deliver near-in-person experiences via HD video, wideband audio, echo cancellation, zero latency, and spatial relativity. These systems do not need to be installed as preconfigured room-based units but instead are tracked and forecast based on the experience the infrastructure delivers not the setting or the application. IDC expects the number of applications telepresence technology is brought to in the later years of this forecast will be the primary revenue drivers.

These estimates were modeled based on primary and secondary research. Sources include but are not limited to vendor statements, vendor financials, briefings, press releases, interviews, conferences, and internal forecast models. Shipment information may have been provided by the vendor, when available.

Note: All numbers in this document may not be exact due to rounding.

S I T U A T I O N O V E R V I E W

IDC predicted that 2009 would be the year of the great enterprise video experiment, and given the macroeconomic challenges that enterprises faced this year, the market was able to maintain 16.7% year-over-year growth. IDC considers this prediction to be validated by the success of Cisco (which claims 100% year-over-year growth in telepresence revenue), Polycom, and TANDBERG among others in 2009 as well as the increasing levels of interest in videoconferencing among enterprises validated by end-user interviews, surveys, and conversations with IT communications implementation consultants. In 2009, videoconferencing received a great amount of traction in the media and in marketing materials as a means to cut travel costs and scale human capital. Cisco has also pushed its telepresence line into the mainstream media, with equipment appearances on NBC's 30 Rock as well as in television commercials starring actress Ellen Page.

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I n d u s t r y C o n s o l i d a t i o n

2009 brought about vendor consolidation, most notably Cisco's October acquisition of TANDBERG (finalized in December). This acquisition not only solidified Cisco's commitment to enterprise video beyond telepresence (particularly but not limited to conferencing) but also is indicative of where the market needs to go, namely the blurring of lines between low- and high-end videoconferencing system silos and the interoperability and interconnectivity between them. Couple TANDBERG with Cisco's WebEx assets, and the networking giant is now capable of offering end-to-end video/Web conferencing solutions.

Another example is PC peripheral provider Logitech (a company with a market cap of nearly $3 billion) acquiring videoconferencing provider LifeSize on December 11, 2009, for $405 million. LifeSize was founded in 2003, currently serves over 9,000 customers in 80 countries, and is known for its affordable telepresence offerings. Logitech on the other hand has been a market leader in Webcams for years and in June 2009 announced its Web-based video call service Vid. While Vid is primarily targeted at consumers and as a complement to Logitech's Webcam business, Skype, Google, and ooVoo's Web-based videoconferencing services are used frequently for business use. Note: While Web-based videoconferencing services are not included in this IDC forecast, these services are aiding the adoption and visibi l i ty of videoconferencing overall and are therefore noteworthy. In contrast with Cisco, which acquired TANDBERG to move downstream from telepresence, Logitech will conversely attempt to move upward from PC-based video calling/conferencing.

Polycom now remains the last major independent market player with a significant videoconferencing install base and an extensive product portfolio. IDC does not expect Polycom to be acquired in the near future as it can play the Cisco-alternative card now that TANDBERG is a Cisco asset and has formed a number of strategic partnerships to support its efforts against Cisco (partnerships include those with IBM, Siemens, Juniper, and BroadSoft). Moreover, some of Cisco's primary competitors in IT/networking (HP) and IP communications (Avaya) have been busy themselves (in 2009, HP acquired 3Com and Avaya acquired Nortel). HP appears to be the most likely suitor though, given the level of disruption in enterprise networking, the convergence of enterprise communications and collaboration applications, and the lucrative opportunities in enterprise video at stake; companies such as Dell and IBM have likely entertained the thought.

A d o p t i o n T r e n d s

Given the trending of an increasingly distributed workforce within a globally interdependent economy, the business case for videoconferencing has never been clearer. The need to reduce travel costs has been a primary driver of adoption in 2009, validating November 2008 (post–economic crash) survey data from IDC's eVideo QuickPoll, which indicated that the number 1 reason for adopting videoconferencing was cost savings/avoidance followed by improving team collaboration, improving customer service, and improving employee work/life balance (sequentially). Because of the bandwidth requirements for videoconferencing, larger companies with higher network capacities have been the heaviest adopters of the

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application, especially the high-end telepresence systems. Larger companies tend to have a greater number of global locations as well, which makes videoconferencing a valuable way to connect distributed employees. Financial services, government, and healthcare have been the most prominent adopting verticals, though the education sector is showing dramatic increases in interest early in 2010.

Beyond cutting travel costs, the soft ROI of scaling human capital across multiple locations in a highly engaging manner is cited as a primary benefit of videoconferencing. 23% of respondents to a recent IDC survey indicated that the top reason they find videoconferencing valuable is it increases the effectiveness of meetings.

Though IDC has seen double-digit growth in videoconferencing revenue over the past three years, significant adoption barriers remain. Bandwidth remains a primary barrier to mass-market adoption, though Polycom for example recently announced its support for H.264 "High Profile" to deliver HD video starting at just 512Kbps. IDC expects coding and compression technology efficiencies to improve significantly within the forecast period.

Beyond bandwidth, cultural adoption has proven to be one of the most difficult obstacles. Unlike Web and audioconferencing, videoconferencing has traditionally been supported by A/V staffs within enterprises and has not integrated with calendaring and scheduling systems for example, making it difficult for end users to reserve or even consider these resources in many cases. Multiple systems integrators and videoconferencing vendors have indicated to IDC that the ability to schedule a videoconference within Microsoft Outlook/Lotus Notes and/or reserve equipment within these applications is one of the initial applications — if not the initial application — integration customers are requesting.

Another cultural barrier is getting employees to consider leveraging videoconferencing resources instead of traveling if and when possible. This aspect of cultural adoption takes time but will accelerate as the number of videoconferencing systems grows (including public sites). This issue should be handled at the C-level, and providing incentives is highly recommended. Other barriers include the inability to videoconference B2B currently in the ways businesses can via audio bridges and dedicated conference lines.

F U T U R E O U T L O O K

The future is bright for videoconferencing vendors, but a number of recently established business models and go-to-market strategies that have yet to be proven may or may not accelerate the pace of adoption.

For example, Tata Communications launched its telepresence managed service and public room offering in 2008. Tata Communications' goal is to remove the high capex of telepresence by offering onsite but Tata Communications–managed equipment and telepresence services as well as public/shared telepresence facilities at hotels and other locations. Tata will also host a telepresence directory listing businesses capable of meeting over telepresence (on- or offsite). While Tata Communications' telepresence business is in its infancy with just 10 public rooms to date and only a

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handful of managed service clients, the prospect of lowering cost barriers to adoption, establishing a global network of connected telepresence systems, and offering telepresence as a managed service with no equipment purchases required is promising. Even more encouraging is Tata Communications' telepresence advisory services it couples with its managed services. Tata Communications, with its partners CWT and AmEx, has demonstrated the ability to help customers drive user adoption and create bottom-line cost savings by layering travel schedules, most commonly collaborating/conferencing city pairings and other data to come up with the most strategic ways in which telepresence can be leveraged within a business.

Cisco has also established a hosted telepresence directory that according to Tata Communications will be cross-listed with the telepresence directory Tata Communications itself hosts. Cisco also has established a SIP-like standard it is calling TIP for enabling telepresence-to-telepresence interoperability at the necessary QoS levels. Cisco demonstrated WebEx/telepresence interoperability at its Collaboration Summit as well, and the extent to which these two solutions can accelerate the adoption of one another remains unknown. Integration between audio, Web, and videoconferencing as well as with application sharing and whiteboarding functionality is already happening, but it will take three to five years before these are fully integrated turnkey solutions.

Another area of this market that has yet to be proven is the extent to which videoconferencing equipment will be leveraged for applications like digital signage, rich media content streaming, and application sharing. Yet another is how integral video will become from a content and knowledge sharing perspective in the way YouTube has on the public Web. Depending on the size and speed of demand for video applications beyond conferencing, the ways in which videoconferencing equipment is deployed and leveraged change the way enterprises will evaluate the ROI of these offerings. IDC does expect the number of applications video/telepresence is brought to over the next five years to dramatically increase beyond the conference room setting. In the outer years of this forecast, IDC anticipates HD video and telepresence technology to be present in, for example, retail banks, fast-food drive-thrus, and concierge services of all kinds.

At CES 2010, both Polycom (with partner IBM) and Cisco demonstrated home telepresence solutions. Cisco will enter U.S. home telepresence field trials this spring, with Verizon as an early partner, and field trials in France will start later in 2010, with France Telecom as Cisco's early partner. If home-videoconferencing/telepresence systems become prevalently accessible (e.g., Skype on Panasonic televisions or Cisco/Polycom–type offerings), the ways in which consumers can interact with businesses, family, and friends from the home changes as well.

F o r e c a s t a n d A s s u m p t i o n s

Table 1 provides the key forecast assumptions for the worldwide enterprise videoconferencing and telepresence market.

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T A B L E 1

K e y F o r e c a s t A s s u m p t i o n s f o r t h e W o r l d w i d e E n t e r p r i s e V i d e o c o n f e r e n c i n g a n d T e l e p r e s e n c e M a r k e t , 2 0 1 0 – 2 0 1 4

Market Force IDC Assumption Impact

Accelerator/Inhibitor/Neutral

Certainty of Assumption

Macroeconomics

Economy Worldwide economic growth will be negative by 2–3% in 2009, although forecasting groups expect 2010 to be markedly better. Through the year, forecasts for 2010 have held up, partly because 2009 has drifted down. IDC will continue to take a mild downside view of GDP forecasts from Consensus Economics. Assumptions for 2010: United States 2.0%, Western Europe 0.2%, and Japan 1%. This means that worldwide, the global economy will drop 2.5% in 2009 and grow 2.0% in 2010.

High. A down economy affects business and consumer confidence, availability of credit and private investment, and internal funding. A rising economy does the opposite.

Fiscal stimulus packages

The economic stimulus plans enacted globally seem to have stemmed the panic and economic freefall of 4Q08 and 1Q09, but they will have little impact on market demand or employment until well into 2010. More of the effects will be seen in 2010. Our assumption at this point is that these plans will bulwark the economy against getting worse than we expect, so we are not changing our basic assumption about GDP growth.

High. The stimulus packages follow in the footsteps of the banking system bailouts by stemming economic panic. They will not immediately jump-start the global economy after such a shock.

Policy IDC expects to see new regulation for financial markets put in place in 2010.

High. New regulations could drive new demand for IT spending; a downside possibility is that this spending crowds out other IT spending, but that wasn't the case in the post-Sarbanes-Oxley years.

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Profits Consensus Economics' estimates of U.S. profit growth have trended up for 2010 (11.9%) since September 2009.

High. Compliance spending seems to be funding itself through better-run business operations and, in fact, is spurring other IT initiatives.

U.S. fiscal policy, deficits, and trade imbalance

These areas affect the long-term economic outlook for the world; however, their short-term impact is muted. IDC assumes these areas will not affect short-term ICT forecasts.

High. A crash of the dollar or the use of economic power to drive U.S. political decisions could affect the world economy.

Inflation Inflation driven by higher oil and commodity prices has been taken off the table. At the same time, worries about deflation have abated.

High. Low inflation keeps interest rates low and leads to more capital spending, including spending on ICT.

Exchange rates The financial crisis has caused gyrations in dollar exchange rates, which went up in the first half of 2009 and are now coming back down. For the purposes of IT forecasts, IDC assumes no major impact on overall demand. There will be a difference in demand growth, however, and "as reported" vendor revenue.

High. A stable, or even steadily falling, dollar makes it easier for vendors to manage supply lines and stabilizes the prices of imports and exports.

Wild cards We are assuming that there will be wild-card events, but we are predicting no single one. As one scientist has put it, there is a high probability of a low-probability event taking place.

Moderate. Uncertainty and political malaise could lead to a fall in business and consumer confidence, which could affect ICT spending.

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Global megatrends

Cloud services Cloud services is IDC's name for what we believe will become a new paradigm of computing over the next several decades — the logical evolution of what we have called "dynamic IT" for years. It entails shared access to virtualized resources over the Internet. A detailed definition of and research about cloud services can be found at idc.com. IDC predicts that cloud services (public cloud) will increase 35% in 2010 to nearly $25 billion, or about 1.6% of IT spending. That percentage should increase to 2.6% by 2013.

High. The key advantage to cloud services should be the ability of IT organizations to shift IT resources from maintenance to new initiatives. This, in turn, could lead to new business revenue and competitiveness.

Convergence Convergence is a complex phenomenon working at many levels — convergence of the telephone network and the Internet; communications and IT technologies; consumer and enterprise technologies; and even storage, routing, and processing in the datacenter. Of these, perhaps the most overarching is the convergence of voice, video, and data communications. IDC assumes that this convergence is a permanent phenomenon and that it will pick up pace as the decade wears on. One measure is that IDC expects 1.9 billion users on the Internet and 3 billion users of the phone network by 2012. The overlap will be significant.

High. Convergence will drive new competitive dynamics, offer new applications and functions to customers, and strain the legal and regulatory systems. It will also drive increased ICT spending.

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Software industry transformation

The software industry is going through a major transformation, from basic architecture (service-oriented architecture [SOA]) and the way software is written (composite applications) to the way software is delivered (software as a service) and even funded (advertising based). IDC assumes that this transformation will take a decade but that it will, when done, allow for much faster and more dynamic delivery of software functionality.

High. The new software creation and delivery models should allow for a quantum increase in the ability to deliver and integrate new software functionality to ICT systems. This should increase overall spending even as it lowers costs.

Service industry transformation

This is a long, slow process involving the rise of offshore IT services, the increased integration of IT services inside business services, and the advent of new service delivery models. Most firms have developed a multishoring capability and blended pricing model and are now working on ways to standardize on technologies and methodologies, deliver services online or in new form factors, invest in datacenters, and expand into business services. Despite the race to automate service creation and delivery, there is a looming talent shortage. The economic crisis will be good for outsourcing markets but bad for project-based services.

High. These trends portend new competitive dynamics in the industry — software and online services competing with traditional IT services — as well as new thresholds for delivery. Online delivery models and operational standardization, from new technologies to remote infrastructure services, will allow faster and more efficient translation of service labor to client deliverable.

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The changing IT domain

The IT domain that was once the care and feeding of mainframes has evolved over the years to include the management of enterprise applications, deployment of software and applications to the workforce, and desktop automation. Now it is evolving again to take on responsibility for the phones, building automation, sensors, and RFID, and sometimes even physical security as proprietary systems migrate to TCP/IP networks. Other new applications, such as Web 2.0 and real-time business analytics, are driving IT-based applications to the point of customer or employee contact and becoming mission critical along the way. This could increase the need for IT to be so close to the business units that it becomes part of them rather than merely a service organization.

High. This migration will generate new staffing and skill set demands on IT organizations, which will create challenges but create more ultimate demand for ICT.

Green IT This term refers to a basket of technologies and practices designed to minimize power costs, carbon output, or hazardous waste. IDC's coverage of green IT can be found in numerous documents. The major impact of green IT will be on technology choices based on low power, more attention to asset disposal, and some change in vendor selection. Depending on the country, voluntary adherence to green IT principles could become law. The search for sustainability in areas outside IT will lead to opportunity for IT vendors.

High. The adoption of green IT products and practices should increase demand for new IT products and services.

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Technology/service developments

10GbE adoption 10GbE is becoming a staple in the high-end datacenters —even into the aggregation layer in networks with server clusters and very high-end users. Products will continue to mature with declining ASPs owing to new product introductions by existing vendors with greater port densities as well as new vendors entering the market. 10GbE will also benefit as a low-cost alternative to SONET transport in the WAN.

High. 10GbE enables the aggregation of numerous gigabit ports in high-end environments. In the near term, the most significant revenue impact of 10GbE will be to drive sales of gigabit ports in server clusters as well as those being used by carriers for the Internet core backbone. 10GbE will continue to play a significant role in the datacenter movement toward consolidated and dense datacenters, while storage, grid, and WAN applications will begin to add significant growth in the later years of the forecast period.

Gigabit Ethernet (1,000Mb)

Gigabit Ethernet is primarily a server connectivity technology today. The bulk of development efforts in the switch, OEM, and semiconductor vendor communities are focused on 10GbE and Gigabit Ethernet. Most importantly for Gigabit Ethernet, new traffic types such as video and software as a service are beginning to drive utilization rates up and, as a result, enabling Gigabit to truly challenge Fast Ethernet in the wiring closet.

Moderate. Gigabit ports will represent 60% of spending on Ethernet switches. While most customers are not significantly bandwidth constrained in the wiring closet, the security, wireless, and traffic control features found in newer (most often Gigabit) switches are very attractive. Video is the most likely candidate to pressure network capacity to the desktop. Additionally, server virtualization and dense computing is clearly driving Fast Ethernet out of the datacenter in favor of Gigabit connections.

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Impact of WLAN on edge

WLAN access devices are deployed at a ratio of 1:10 or more users. In facilities where WLAN becomes the primary method of network access, demand for edge switch ports will wane late in the forecast period. This downward pressure on ports is somewhat offset by a rise in the importance and demand for advanced capabilities in the remaining ports.

Moderate. Enterprise adoption of WLAN is growing. Most importantly, WLAN as the primary network access technology is taking hold in education and healthcare. As the number of enterprise and small business clients provisioned only on a WLAN begins to accelerate, demand for switch ports at the edge of the network will decrease slightly despite some buttressing from wired devices that require more bandwidth or more reliable connections than a wireless network can provide (IP phones, IP video surveillance, graphics and engineering workstations, and RFID readers).

Impact of WLAN on LAN switching

Enterprise adoption of WLAN will grow over the next five years. Increasing coverage and additional applications on the WLAN will increase enterprise reliance on the network as a whole and drive new investments in network intelligence in both the core and edge of the network.

Low. Enterprise WLAN deployments are still largely overlay networks that are not heavily integrated with the wired network. Despite the current state, WLAN is now a mature enough technology to influence the deployment strategies of wiring closet switches. WLAN-induced traffic changes in the form of mobility, identity management, and RF management demands will continue to drive network intelligence investments at the edge and traffic into the core.

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IP voice Deployment of IP voice on enterprise networks will drive significant sales of new and upgraded network equipment.

High. Most customers still plan on upgrading the network before a full IP voice rollout. However, we believe network spending directly tied to voice deployments will decrease as tools to assess voice readiness proliferate and voice preparation becomes part of normal network planning.

IP video Video is finally here. Nonbusiness consumption of Internet video from sites such as YouTube.com and IP video surveillance are clearly leading the charge in the near term. IDC believes that in the 2009–2014 time frame, video on the enterprise network will become a significant form of enterprise communications including training, telepresence, and conferencing, as well as internal and external corporate communications. All of these video types are growing quickly and placing a more significant burden on the network.

Moderate. These applications are all in early stage formal use in many companies, but the move to IP voice could hasten the ability to deploy increasing levels of video on the network. However, continued network upgrade and management costs as well as WAN bandwidth and storage costs remain a concern for this market. If travel delays from security threats spike beyond the current trends of continued intensity, the demand for video will rise faster than that presented in IDC's current forecast.

Unified communications

UC is a common infrastructure to deliver, manage, and support a wide range of communications applications, including IP telephony calling and management; Web, audio-, and videoconferencing; voice, email, and text messaging; presence/IM; click-to-dial and event-driven communications.

Moderate. VoIP applications are increasingly becoming the predominant driver for IP telephony adoption. Businesses are looking to increase productivity and collaboration and believe that such applications are the solution. Companies will not only adopt more communication-rich applications but also seek to integrate other primary business-critical operation solutions with this new communication infrastructure.

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Voice, video, and data application integration

VoIP applications are increasingly becoming the predominant driver for IP telephony adoption. Businesses are looking to increase productivity and collaboration and believe that such applications are the solution. Companies will not only adopt more communication-rich applications but also seek to integrate other primary business-critical operation solutions with this new communication infrastructure. Vendors will begin to acquire voice-centric solution vendors.

High. If applications vendors and systems integrators can build the necessary APIs for integration efforts, they will grant themselves access to a large installed base of users and businesses that have already deployed common business applications.

Mobile PBX extensions

Many enterprises also lack corporate control over mobile devices that are being used in the corporate environment. First, there is rarely a standard corporate account and/or centralized billing for corporate mobile phone usage. Second, the independence of employees and their mobile phones does not allow for true separation of personal and professional phone usage. This makes enterprises particularly vulnerable in the case of the loss of an employee through termination or move to another job. The mobile device is rarely recaptured, and the phone number assets are often lost to the enterprise.

Moderate. IDC suggests that if enterprises are looking to provide greater mobility to their employees while leveraging the robust functionality of their IP PBXs, they should look toward those off-the-shelf mobile PBX solutions that allow for single-number dialing that can help them begin to regain control of their enterprise mobility costs.

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VoIP application development platforms

As the number of voice applications on the network grows, the focus on voice in the IT realm will be to segregate into two areas of responsibility. The first area is to maintain a high level of reliability for dial tone and quality of service. The second area will be to develop, grow, and manage the IP voice system as a platform for application development. Major network vendors will either partner or acquire VoIP development platform solutions that allow customers to quickly build and deploy applications over their converged networks. (Examples are Avaya's Communications Enabled Business Processes [CEBP] platform and Cisco's Unified Application Environment [UAE].)

High. Start-ups like LiteScape, IPcelerate, and Cistera Networks are helping VoIP customers build applications over their converged networks to maximize their customers' return on IP telephony investment. These communications mashups and integration with existing business applications efforts are fairly small applications that drive significant hard-dollar ROI. Given the skill sets needed across industry-specific business issues, communications technologies, and IT expertise, vendors, consultants, and those with the ability to bring these capabilities to market will be highly disruptive.

Server architectures

Enterprise customers are building mission-critical architectures on commodity servers, virtual servers, and blade servers. In addition, blade servers and server virtualization will drive the importance of server connections up as the growth in physical servers slows, while growth in virtual servers increases.

Moderate. LAN switch infrastructures that support server farms and clusters require higher bandwidth and individual support for each virtual machine. New applications that require greater levels of computational power will be supported by Gigabit connections aggregated with 10GbE uplinks. Increased use of commodity servers and virtualized servers places a focus on the costs of redundancy and management operations in the network.

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Server virtualization

The worldwide virtual machine software (VMS) market grew to over $1.78 billion in 2007, up from $1.05 billion the year before. This was a robust 69% growth from 2006 to 2007, which equaled the 69% growth recorded from 2005 to 2006.IDC believes the growth in this dynamic market will continue as organizations increasingly deploy VMS as a means of decoupling the application stack from the underlying hardware and driving increased "mobility" of virtual machines. IDC views VMS as a foundational technology to the creation of dynamic, agile IT environments and expects robust growth in this market. Networking service delivery will begin to incorporate this new form factor and create multiple deployment options for customers and suppliers.

High. Server virtualization is reshaping the IT and network landscape. The use of server virtualization to virtualize desktops is creating demand for WAN application delivery products at the remote branch and datacenter. Additionally, form factors for WAN application delivery and datacenter Layer 4–7 are changing to leverage the benefits of server virtualization. Branch platforms are emerging that will enable multiple virtual network and IT services to coexist on a single consolidated server.

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Convergence of routing and switching

With Layer 3 Ethernet switches capable of performing routing functions and an increasing number of WAN interfaces available for what have traditionally been switches designed to create local area networks, IDC believes the lines between what is a LAN switch and what is a router will blur over time. Today, a router remains a device whose primary responsibility is focused on the WAN interface, but a growing number of products are clearly capable of and sometimes sold to accomplish both tasks. IDC believes this long-standing assumption will continue to hold true throughout the forecast period.

Low. Products exhibiting router and LAN convergence fill needs from Cisco Catalyst 6500 with WAN services serving as high-capacity headend routers to Force 10's datacenter-focused SONET interface on its E-Series to Adtran's NetVanta 1000 Series for small locations. The end result is a consolidation of footprint and generally decreased spending on routers, while the switch becomes the focal point for the network spend as Ethernet becomes a fixture in both the LAN and the WAN environment.

Management Management capabilities will continue to lag behind customer needs. During this economic downturn, network managers will increasingly look to network management tools to optimize capacity planning and minimize capital expenditures.

Moderate. Voice, security, wireless, telepresence, and all the rest of the networking buzzwords are for naught if networking vendors cannot significantly drive down the cost of running the network and providing IP services.

Application networking

Application networking is evolving the key technology that enables the network to provide business value to the organization. In 2009, the market for application networking was $1.8 billion worldwide.

High. The network is on a course to deliver a broad base of services to the datacenter. Application networking will drive the datacenter to be more responsive in real time to the business.

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Datacenter networking

The datacenter network traditionally consisted of three networks: Ethernet, Fibre Channel, and InfiniBand. IDC believes that over time Ethernet will begin to capture a greater share of the network traffic in the datacenter as IT increasingly looks to deploy a holistic datacenter architecture built on one unified network.

Moderate. Ethernet will begin to capture new greenfield datacenters and new application growth. But the specialized high-performance requirements of HPC applications will continue to rely on InfiniBand for the forecast period. Ethernet will capture the growth in storage traffic both with FCoE and unstructured content types, but Fibre Channel will remain in the datacenter throughout the forecast period.

Fibre Channel over Ethernet

FCoE aims to bring together the predictability of the FC transport and the ubiquity of Ethernet infrastructure, making possible for datacenters to consolidate FC and Ethernet cabling for increasingly virtualized server pools. The FCoE standard bypasses the TCP/IP stack, directly maps the FC protocol over Ethernet, and allows SAN traffic to run natively on low-latency 10GbE.

Moderate. Mainstream adoption of FCoE for server connects will start to climb in 2010 but will not be significant till 2011. Most of these servers will access FC SAN–based storage via gateway facilities. Broad availability on storage systems will not happen until the 2011–2012 time frame. FCoE will not generate substantial new demand and will ultimately replace FC SAN, but not until well after 2013.

IT and application consolidation

Geographically dispersed business locations and/or mobile/remote workforces are driving both enterprises and small businesses to Web enable and centralize their business application infrastructures and provide end-user access via the Internet and/or corporate WANs. This IT/application infrastructure model enables enterprises to reduce operational costs, improve regulatory compliance, and enhance efficiency and performance.

High. The movement to consolidate and centralize is increasing the dependence on the network. IT organizations are willing to pay for network equipment and services that offer a higher level of resiliency and performance. This is one of the key drivers of network equipment market growth.

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Storage centralization

Storage centralization provides for both site-specific business continuity and disaster recovery and operational recovery. IDC sees increasing levels of adoption of centralized backups of remote office data.

High. These storage applications are driving demand for storage network over Ethernet and application intelligence such as WAN application delivery.

Labor supply

IT talent From 2010 to 2013, IT employment, now at 35 million, will grow by a factor of 1.2 worldwide. This is a constraint in an industry that will grow by a factor of 1.1 in spending, but by more than 2 in devices managed, 5 in information created, and 8 in networked interactions between customers. IDC views this as a long-term structural constraint. The current recession has tightened that constraint.

High. The availability and the skill level of talent have a direct impact on markets as diverse as network security and outsourcing. The availability may affect some markets or adoption rates, such as the development of SOA, but in general, there will be other, more immediate gating factors. In the long run, the optimization of the slow-growth labor pool argues for cloud computing.

Small office/home office (SOHO) networking

SOHO environments will not invest in learning about networking, preferring instead to depend on product vendors to supply more turnkey, easy-to-use, and easy-to-manage devices that provide connectivity and performance without incurring significant maintenance and management costs.

Moderate. Deploying and managing a network can be a daunting task. A number of vendors will work to simplify the process of deploying networks for the SOHO environment. Many SOHO environments are turning to WLAN as the primary mode of connectivity. In these cases, the few ports of switching functionality are integrated into the router.

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Enterprise networking

Enterprise customers will continue to invest in educating staff on new networking technologies and protocols.

Moderate. The widespread availability of general networking expertise as well as automation and remote diagnostics lends confidence to businesses investing in network infrastructures and reduces the cost of training specialists in niche or emerging technologies.

Distribution of talent

The swing to emerging geographies is evident. The number of scientists and engineers in the United States and Western Europe is falling compared with the number of scientists and engineers in China and India, while the growth in the number of IT-related employees in those countries is three times the world average.

High. The migration will increase the overhead costs of finding, recruiting, and managing talent from global pools. It should, however, also lower costs and may even lead to more innovation.

Telecom and IT The days of telecom as a separate operating entity within the enterprise or even as one operating within facilities is coming to an end as companies fold those responsibilities into IT. Even if an IT shop decides not to migrate to IP telephony, that staff transition could impact the purchasing power and direction of the classic customer for telephony gear.

Moderate. IT departments that decide to hold off on IP telephony and video may embrace used equipment as a short-term fix to holding on to legacy systems.

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Market characteristics

Hardware Hardware markets, down more than 8% in 2009, should rebound to show spending growth closer to 4% in 2010 and 7% in 2011. The rebound will be dominated by PC spending and, to a lesser extent, telecom equipment.

High. Hardware spending, about 40% of total IT spending, drives spending in software and services as well.

Software Software markets, down to about 1% growth in 2009, should rebound to show growth closer to 4% in 2010 and 6% in 2011. The rebound will be strongest in infrastructure software, in part because of growth in operating systems (Windows 7), but more because of growth in security software.

High. Software spending, about 20% of total IT spending, can drive spending in both hardware and IT and business services.

Services Services markets, down to 0% growth in 2009, should rebound to growth of 3% in 2010 and 4%+ in 2011. The rebound will be strongest in operations management in 2009 and 2010 (e.g., outsourcing), but spending on implementation services will kick in the most new money in 2011 as new projects come online.

High. IT services spending can affect the rate of overall solution adoption as well as the migration to dynamic IT. It accounts for about 40% of IT spending.

Telecom The telecom industry, in its size and utility, is somewhat insulated from sudden economic swings — or at least it has significant inertia. But IDC expects worldwide telecom services growth in 2010 to be lower (2.4%) than in 2009 (3.8%). The fall is related to market saturation and the long-term impact of depressed capital spending.

High. The IT industry has already factored the telecom industry spending into its internal forecasts; the key is the pace at which convergence takes place.

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The Internet Internet adoption is still going strong, especially in emerging economies. In the next four years, 640 million new users will come online and commerce will double as will mobile users. IDC does not expect the current crisis to affect Internet adoption.

High. Analysts and pundits may underestimate the impact of the Internet because the "buzz" is gone, despite the hype over Web 2.0. It will be an enabler for both new markets and new business models.

Market ecosystem

Telepresence outside the conference room

Telepresence technology is primarily being used to recreate across-the-table-type meeting experiences.

High. Bringing telepresence to other applications and settings like telemedicine and high-touch customer interaction endpoints will drive innovation and adoption of the technology far beyond conferencing.

Public telepresence facilities

Telepresence facilities are currently being rolled out to public facilities like hotels and conference centers.

Moderate. Driving utilization and awareness of these facilities as well as the business models to support them will be the key to success.

Managed services for videoconferencing and telepresence

Capex constraints will continue to be primary barriers to videoconferencing and telepresence adoption, but managed services that ease those barriers will allow capex-constrained businesses to invest in the technology.

High. The MS business for videoconferencing and telepresence is still in its infancy and will take time to develop. However, given the nature of MS as a means to lower-cost barriers to adoption,IDC expects this model to drive videoconferencing down market.

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Consumption

Metcalfe's law and interoperability

Metcalfe's law states that the value of a telecommunications network is proportional to the square of the number of connected users of the system. The extent to which each level of interoperability can take place and at what pace will greatly impact the value of videoconferencing and will therefore significantly impact adoption.

High. Every major vendor is committed to interoperability but political battles remain, and IDC expects each layer of interoperability to take three to five years time at minimum. The speed at which B2B videoconferencing happens will be a primary inflection point for Metcalfe's law to take hold.

Network upgrades The majority of enterprise networking deals will be upgraded to existing network infrastructure.

Moderate. The importance of the network in an organization grows along with the number of applications on the network.

Legend: very low, low, moderate, high, very high

Source: IDC, 2010

Table 2 shows worldwide videoconferencing revenue and endpoints, and Figure 1 shows videoconferencing revenue, for 2009–2014. Table 3 shows worldwide telepresence-only revenue, number of telepresence rooms/systems, room/system install base, and number of screens, and Figure 2 shows telepresence-only revenue, for 2009–2014.

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T A B L E 2

W o r l d w i d e E n t e r p r i s e V i d e o c o n f e r e n c i n g R e v e n u e a n d E n d p o i n t s , 2 0 0 9 – 2 0 1 4

2009 2010 2011 2012 2013 2014

Videoconferencing revenue ($M) 1,892 2,742 3,877 5,308 6,947 8,755

Growth (%) 16.7 45.0 41.4 36.9 30.9 26.0

Endpoints (000) 218 300 405 533 686 845

Growth (%) 5.4 37.4 35.0 31.5 28.9 23.2

Note: See Table 1 for key forecast assumptions.

Source: IDC, 2010

F I G U R E 1

W o r l d w i d e E n t e r p r i s e V i d e o c o n f e r e n c i n g R e v e n u e , 2 0 0 9 – 2 0 1 4

0123456789

10

2009 2010 2011 2012 2013 2014

($B

)

Source: IDC, 2010

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T A B L E 3

W o r l d w i d e E n t e r p r i s e T e l e p r e s e n c e - O n l y R e v e n u e , N u m b e r o f T e l e p r e s e n c e R o o m s / S y s t e m s , R o o m / S y s t e m I n s t a l l B a s e , a n d N u m b e r o f S c r e e n s , 2 0 0 9 – 2 0 1 4

2009 2010 2011 2012 2013 2014

Telepresence-only revenue ($M) 581 1,019 1,678 2,594 3,670 4,789

Growth (%) 84.0 75.4 64.7 54.6 41.5 30.5

Telepresence rooms/systems (000) 4 7 13 21 33 49

Growth (%) 112.0 92.8 77.2 67.6 56.3 48.4

Room/system install base (000) 5 12 25 46 79 127

Number of screens (000) 8 13 21 32 43 64

Note: See Table 1 for key forecast assumptions.

Source: IDC, 2010

F I G U R E 2

W o r l d w i d e E n t e r p r i s e T e l e p r e s e n c e - O n l y R e v e n u e , 2 0 0 9 – 2 0 1 4

0

1

2

3

4

5

6

2009 2010 2011 2012 2013 2014

($B

)

Source: IDC, 2010

©2010 IDC #221356 25

M a r k e t C o n t e x t

In videoconferencing and telepresence, the market is in the midst of a transition —from meeting over video as an option of last resort to an alternative that's preferred over traveling. While telepresence systems carry significant price tags for deploymentand operation for example, the cultural shift toward video as a good enough "across the table" replacement for in-person meetings will accelerate swiftly through the next decade.

The extent to which video calling/conferencing can become an impromptu communication tool in the way instant messaging (IM) and voice are is unlikely in the next five years. IDC expects the usage of videoconferencing to be primarily driven by scheduled meetings, corporate communications, and training activities.

E S S E N T I A L G U I D A N C E

IDC believes videoconferencing vendors must do more to maximize the number of capable endpoints. Integration with legacy systems as well as with commonly used Web conferencing systems and collaboration tools like instant messaging clients dramatically increases the value of these systems and demonstrates to clients a commitment to enterprise unified communications and collaboration (UC&C), not just video. Vendors should also help their customers drive usage via usage behavior analysis and best practices. Polycom for example has taken a leadership role in articulating the value of integrating video into UC&C environments and is focused on delivering visual functionality to multivendor UC&C environments.

Enterprises should demand high- to low-end integrateable solutions that do not create application or technology silos. As communications infrastructure components converge, the last thing any enterprise should consider is placing videoconferencing systems and equipment on an island. Phased pilot deployments are also recommended to ensure that investments in videoconferencing are rolled out appropriately to the right locations and to the right business units. Furthermore, the adoption of videoconferencing is accelerating just as all things enterprise communications are quickly becoming IT assets. Therefore, enterprises must consider videoconferencing in the same context as larger IT initiatives including virtualization, unified communications, and how video will be used beyond conferencing.

L E A R N M O R E

R e l a t e d R e s e a r c h

Tandberg Acquisition Puts Cisco's Money Where Its Vision Lies (IDC #lcUS22028909, October 2009)

Video in the Enterprise Proliferates: An Updated Snapshot of Current and Planned Adoption (IDC #219871, September 2009)

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Will 2009 Become the "Year of the Great Enterprise Video Experiment"? (IDC #lcUS21762909, March 2009)

S y n o p s i s

This IDC study discusses the worldwide enterprise videoconferencing and telepresence market. Enterprise videoconferencing revenue is slated for double-digit growth through 2014, with an IDC-estimated CAGR of 36%. Despite previous hype cycles that have produced inflated forecasts of this market, IDC believes that only recently have enterprise networks and videoconferencing technology (epitomized by telepresence systems) been capable of delivering experiences worthy of initiating a videoconference over a phone call or hopping on a plane. In a suffering economy, videoconferencing gained much traction in 2009, and IDC expects significant growth of this market over the next five years.

"IDC predicted that 2009 would be the year of the great enterprise video experiment, and despite difficult economic conditions, the worldwide market for videoconferencing and telepresence grew 17% year over year and will eclipse the $1 billion mark in 2010." — Jonathan Edwards, research analyst, IDC's Unified Communications and Enterprise Communications Infrastructure programs

C o p y r i g h t N o t i c e

This IDC research document was published as part of an IDC continuous intelligence service, providing written research, analyst interactions, telebriefings, and conferences. Visit www.idc.com to learn more about IDC subscription and consulting services. To view a list of IDC offices worldwide, visit www.idc.com/offices. Please contact the IDC Hotline at 800.343.4952, ext. 7988 (or +1.508.988.7988) or [email protected] for information on applying the price of this document toward the purchase of an IDC service or for information on additional copies or Web rights.

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