More Business Disruption: Telecom’s Move to IP

In the late Nineties, the Telecom business was dominated by big companies who had built their phone network over many years using switching technology. But a massive storm was on the horizon as the same IP technology which helped revolutionize commerce on the world wide web started to be applied to phone-based voice communications. Early attempts at Voice over IP were primarily targeted to the long distance market. International long distance calling was expensive, so a number of startups began to bypass the traditional long distance network with a much lower cost IP network. The quality wasn’t great, but the price per call over international routes dropped dramatically and IP infrastructure and solutions gathered momentum.

The early leader in IP protocols for voice was the H.323 protocol developed within the traditional standards group for phone networks, the International Telecommunications Union (ITU). But competitive protocol models were also on the rise. The Internet Engineering Task Force (IETF) developed a new IP communications protocol, the Session Identification Protocol (SIP) and both the IETF and ITU worked on a softswitch protocol called Megaco (later standardized by the ITU as H.248).

Around 2001, two important organizations endorsed SIP and the train which would ultimately displace much of the traditional switched phone network was set in motion. Microsoft had been an early user of H.323 and had added it to their instant messaging client support and included multi-point data sharing using T series protocols from the ITU. But Microsoft decided their future communications would be SIP-based and quickly phased out use of H.323. Then, the Third Generation Partnership Project (3GPP), a standards group which had specified the very popular second generation wireless protocol GSM, said that they would be using SIP to build their next generation network and shift both data and voice services over to IP.

But first, the core SIP protocol needed to be finished. IETF participants likely spent millions of manhours and devised an updated version of SIP which got standardized in June, 2002 as RFC 3261, along with 4 other RFCs for related methods and operations. But this was just the beginning. In the time since, the IETF has produced at least 100 SIP-related documents which are either standards track or informational to guide SIP developers.

On the business side, it took quite a while, but the current public phone networks have largely cut over to IP, although there are still elements of the switched network in place.  In the world of mobile communications, the fourth generation network specified by 3GPP was the first to use SIP in its core. The related Long Term Evolution (LTE) network has been deployed throughout the world, although the voice portion of the network (Voice over LTE) has lagged behind. The move to LTE and SIP has required a massive investment in new capital equipment and software by mobile service providers and most of that deployment dates from about 2012. On the business side the industry has experienced lots of turmoil during the period between 2001 and 2012.  One of the biggest equipment vendors, Nortel, declared Chapter 11 and chunks were sold off to other companies before the company went out of business. Many of the remaining vendors have gone through multiple mergers and acquisitions, greatly reducing both the number of telecom related companies and the number of employees.

The other major SIP endorser from 2001, Microsoft, has shifted its IP voice communications strategy numerous times, but one of it’s flagship offerings,  Skype for Business, is predominately based on SIP.  Microsoft’s use of SIP is primarily within enterprises, though they have also been a strong advocate of SIP Trunking, which enables enterprises to connect to the service provider IP phone network. In the meantime, Microsoft has many competitors in the enterprise voice and communications space, but SIP remains a dominant technology. Vestiges of circuit-based phone systems remain, but all of the major players have long since switched their current product and service offers to be IP-based.

IP and SIP are doing well, but voice is now a much smaller portion of the communications business and service providers make much of their money from data services. The era of premise-based equipment is also winding down, as the shift to IP has enabled companies to move both service provider and enterprise applications to the massive conglomeration of servers known as The Cloud. I’ll be writing more in future posts about lessons learned from the Telecom move to IP and on how the move to the Cloud is also causing major business disruptions.

If you or your company participated in the Telecom move to IP, feel free to weigh in with comments. If you’d like to explore strategies on how to evolve your application solutions or other products and services to in the face of rapid business and technical change, you can reach me on LinkedIn or on our web site.

 

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Reshaping Enterprise Communications: A Tale of Two Companies

In my last few posts, I’ve described several factors which have encouraged communications solution providers to transition away from hardware and focus on software-based application solutions.

Let’s consider two companies and how they adjusted the path of their technical and business models to address these directions. Avaya is an example of a company whose solutions had a substantial amount of proprietary hardware around the time they split off from Lucent in the year 2000. Avaya had a leading market share in multiple markets targeted to enterprises, including PBXs, which provided telephone infrastructure for enterprises, and Call Centers, which used Avaya components to meet customer needs for highly scalable inbound and outbound communications. But the advent of IP-based technology and new protocols such as SIP began to change all of that. The mantra of IP-based communications was that voice was just another application that ran on an IP stack. This massive technical change was a major challenge for Avaya, since they’d built their business based on selling PBX and call center solutions based on their own hardware, but the cost of sustaining this business model was high. So starting around 2002, they executed a pivot to adjust to the new situation. First, they introduced new IP-based versions of their PBX technology ranging from IP phones to an IP-based PBX and a suite called IP Office for small to medium sized businesses. In parallel, they told potential partners that they wanted to move out of the hardware business and focus on value provided by their software. Third, they created a partner program, the Avaya DeveloperConnection program (later shortened to DevConnect), and encouraged partners to either build on or connect to Avaya solutions. As a result, Avaya was able to cultivate relationships with hardware appliance companies for products like media gateways and focus more on building out their application software. The DevConnect program also fit well with Avaya’s increased role as an integrator. Solutions for customers could be built using not only Avaya technology, but also DevConnect certified products. So Avaya had an approach to building out software-based solutions using IP, but they also had a large installed-base of hardware-based solutions, so they were not as nimble as some of their competitors.

The advent of SIP helped to encourage new market entrants into the communications software space. A prominent example was Microsoft. Starting around 2007, Microsoft introduced it’s new communication solution, Office Communication Server 2007 or OCS.  OCS used SIP as its backbone protocol and touted the ability for enterprises to eliminate the cost of a PBX and replace it by software running on Commercial Off the Shelf (COTS) servers. Enterprises still needed to connect to the telephone networks run by service providers, which were heavily based on circuit-switched technologies, so Microsoft started its own partner and certification program to qualify 3rd party products such as media gateways. Microsoft also had a lot of marketing muscle, since their applications such as Microsoft Office were widely used within enterprises, so they had a ready audience among the information technology managers at customers. In 2010, Microsoft -re-branded their offer and called it Microsoft Lync. Microsoft quickly became a big player in the new Unified Communications market and began to take market share away from traditional PBX vendors such as Avaya. Microsoft also continued to be aggressive in cultivating relationships with 3rd party hardware partners, who added support for Lync compatible IP phones and newer IP-based products such as Session Border Controllers (SBCs). Microsoft has since re-branded Lync to be Skype for Business, but the underlying technology and business model is an evolution of Lync.

The market battle for leadership in communications for enterprises continues, but the momentum has shifted heavily to software-based solutions and most hardware components are provided by other vendors. One exception to this direction is Cisco. They have maintained a strong presence in the hardware side of communications by virtue of their leading market position in routers and have incorporated additional functions such as media gateways and SBCs upon their routers. However, Cisco also has built their own software-based Unified Communications suites and Contact Center solutions, so they use the software-based applications model, but pair it up with Cisco network components to create their solutions.

In summary, the advent of SIP is one of several factors which have radically changed the landscape for communications solutions. In this post, we’ve considered how Avaya and Microsoft built their business strategies based on the strong move to IP-based software solutions over the last decade. In my next post, I’ll talk about another important technology development, virtualization, which is in the process of re-shaping how both application software and communications infrastructure products are being developed and brought to market today.

If you participated in the evolution described here, please feel free to weigh in with your comments. If you’d like to explore strategies on how to evolve your application solutions or other communications products, you can reach me on LinkedIn.