The Frost Radar: North American UCaaS Market, 2022

Frost Radar Competitive Environment

As the North American unified communications-as-a-service (UCaaS) market matures and competition intensifies, it is becoming increasingly important for market participants to accelerate innovation and develop sustainable growth strategies. This market analysis provides a perspective on key market trends as well as an assessment of 30 growth and innovation leaders. The Frost Radar plots the selected UCaaS providers based on a set of 10 growth and innovation criteria, which comprise both qualitative and quantitative factors.

The quantitativemetric used to evaluate providers’ performance in thismarket is 
hosted Internet Protocol (IP) telephony/cloud private branch exchange (PBX) or UCaaS seats. The size of the providers’ North America UCaaS installed bases is used to determine the top 30 market participants to include in this evaluation.

Both technology developers leveraging their own proprietary platforms to deliver services and resellers providing their own branded UCaaS offers based on third-party platforms are included in this analysis. Services based on both pure-cloud/multi-tenant and multi-instance platforms are taken into account when evaluating providers’ market position and innovation and growth capabilities. Certain industry classifications recognize hosted offerings as true “cloud” only when a high degree of automation is present. For the purposes of this study, we consider all multi-instance andmulti-tenant hosted IP telephony and unified communications offerings to be cloud solutions.

The supporting infrastructure can 
be hosted in a servicer-provider or third-party data center or in a public cloud environment (e.g.,Amazon Web Services, Google Cloud, Microsoft Azure). The research service does not include customer premises-based multi-instance solutions or hosted single-tenant solutions. Also, this research service does not include cloud VoIP services that are primarily targeted at consumers and residential users—such as those delivered by Skype and Google.

Strategic Imperative

Innovative businessmodels are reshaping the UCaaS industry and compelling providers to adapt to
boost their competitive edge.More specifically, the following key trends are determining long-term
success amongmarket UCaaS participants:

Integrated platforms delivering UCaaS, CCaaS and CPaaS are at the foundation of nextgeneration
business communications solutions. To address customer needs holistically and tailor
functionality for different user personas, providers must leverage integrated, micro-servicesbased
platforms with flexible APIs.

Increasing disintegration of the value chain (apps + connectivity) is creating new challenges and
opportunities for service providers. Provider strategies must capitalize on their core
competencies to deliver both complete UCaaS and tangential services (e.g., connectivity, direct
inward dial (DID) numbers, calling plans, managed services) for third-party UCaaS.

Fixed-mobile convergence (FMC) is in the spotlight again with the rise of highly distributed
organization. Each UCaaS solution must provide some form of FMC, whether app-based or
native/core-based to enable anywhere access to communications.

Growth Environment

Advancedmarket maturity is resulting in slower installed-base and revenue growth due to slower
adoption amongmore conservative buyers and net new seats representing a smaller percentage of the
base. Furthermore, we expect to see worsened political andmacro-economic conditions in the near
term, primarily due to the aftermath of the COVID-19 restrictions and the war in Ukraine. Fear of
stagflation or recession is likely to dampen the momentum the industry has garnered in the past couple
of years. Strong recognition of UCaaS benefits—including improved business continuity and enhanced
remote/hybrid workforce productivity—is likely to be offset by budget tightening, delayed investments,
and re-evaluating technology investment priorities.

However, we expect most available ICT budgets in North America to be allocated to cloud services,
including UCaaS, due to its ability to improve business continuity and allow flexible capacity adjustments
in uncertain times. This may be in contrast with other world regions, where security and provider origin
or viability concerns may favor on-premises deployments for the near term.

Organizations embracing flexible work styles and supporting a large number of remote and hybrid
workers are leveraging UCaaS and cloud collaboration solutions to enable flexible and cost-effective
connections among employees and between employees and various external parties. Increased diversity
of offerings in terms of features, price, design, and architecture, including mobile UCaaS and highly
customizable solutions, are driving broad penetration among the entire customer spectrum. Improved
performance in terms of security, reliability, and quality of service, due to leverage of software-defined wide area network (SD WAN) services, redundant data centers, andmaturing technologies, is enhancing
UCaaS appeal amongmore demanding buyers.

Diverse businessmodels, including fully digital customer journeys, white-glove customer engagements and a variety of reseller/partner models (agency, whitelabel wholesale, strategic partnerships, and bring your-own carrier (BYOC)), are also expanding providers’ market reach. Enhanced value propositions, including vertical/frontliner-workflow
improvements and talent-utilization optimization, are boosting UCaaS adoption in organizations
pursuing broad digital transformation.

Overall, UCaaS adoption will remain strong throughout the forecast period. Although churn among
UCaaS providers is expected to be relatively high, churn away from UCaaS to other types of solutions—
e.g., premises-based enterprise telephony systems, consumer services or free/freemium
communications solutions—will remain extremely low.