KW Predicts: Who Will Own the Web-Conferencing Market?

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1 Strategic Planning, J. Lundy, L. Latham, R. Knox Research Note 21 November 2003 KW Predicts: Who Will Own the Web-Conferencing Market? In the knowledge workplace, voice over IP will revolutionize Web conferencing by reducing traditional telephone charges. Telecom and smart enterprise suite vendors will both fight for Web-conferencing pre-eminence. Core Topic Knowledge & Content Mgmt., Collaboration & E-Learning: E-Workplace Systems and Technology Key Issue How will enterprises improve the operational efficiency of their e-workplace infrastructures during the next five years? Strategic Planning Assumptions By year-end 2008, 60 percent of Fortune 2000 enterprises will have deployed Webconferencing capabilities on an enterprisewide basis (0.7 By year-end 2004, Web-conferencing vendor Centra Software will be acquired (0.8 By year-end 2005, Microsoft will control more than 25 percent of the Webconferencing market (0.8 Smart enterprise suite and collaboration vendors will add Web-conferencing capabilities by year-end 2004 (0.7 By 2008, telecom vendors will control 40 percent of the Web-conferencing market (0.7 By 2006, installed Web-conferencing products will be the dominant deployment model for enterprises (0.7 Note 1 Virtual-Classroom Providers Transform Into Web-Conferencing Vendors Virtual classroom providers such as Centra Software and Interwise have refocused their products and marketing efforts onto the broader Web-conferencing space. The advanced features they offered (such as VoIP, videoconferencing and slide caching based on individual connection speeds) are now recognized as the new benchmark features for Web-conferencing. Smart enterprise suite (SES) providers and telecommunications vendors are racing to gain ownership of the Web-conferencing market. Microsoft was first to declare its intentions by buying PlaceWare in 1Q03. It's only a matter of time before large telecom firms will be forced to commit themselves as well. Prediction Web-conferencing will explode as VoIP telephony takes hold. For the last few years, Web-conferencing has involved participants talking on a telephone bridge while watching slides on their PCs. However, in the e-learning market, virtualclassroom vendors which have since refocused their efforts on the broader Web-conferencing market (see Note 1) have been offering advanced capabilities such as voice over IP (VoIP). Web-conferencing software that uses VoIP technology enables participants to talk via their PCs with no telephone or toll-free numbers involved. This is the model today, but in the future, people will be able to connect to Web conferences via PCs or VoIP-enabled telephones (land lines or cells) that are connected to a VoIP network (that is, the enterprise's, the Web-conferencing provider's or a telecom vendor's VoIP network). Besides the need to have remote meetings with more than just a telephone, the catalyst for Web-conferencing will be VoIP, which will significantly reduce traditional telephone charges if not eliminate them altogether. Enterprises will use their own VoIP networks (keeping them inside their own firewalls) or those of a telecom or other provider. The cost of VoIP Web-conferencing or teleconferencing will fall dramatically in 2004 and It could be more than a 75 percent drop for those enterprises that enable VoIP Webconferencing and eliminate traditional, parallel teleconferencing. Gartner Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

2 Going forward, users may still have a telephone or toll-free number, but it will be much cheaper than today's 7 to 10 cents (or more) per minute per line. For enterprises with their own VoIP networks, it's essentially free today; for those without, telecom vendors will soon offer a drastically reduced rate. Gartner estimates that for many Fortune 2000 enterprises, the savings on toll charges could be in the millions of dollars per month. Strategic Planning Assumption: By year-end 2008, 60 percent of Fortune 2000 enterprises will have deployed Web-conferencing capabilities on an enterprisewide basis (0.7 Begin exploring the advanced functions that Web-conferencing providers offer. These include audio and video capabilities with a short-term focus on VoIP, which can deliver substantial cost savings by eliminating toll calls for participants. If this is a new area for you, consider pilot programs with teams that are open to new ways of conducting meetings. Prediction Web-conferencing vendors will continue to be acquired. To date, Web-conferencing has been predominately consumed as a service, similar to (and tied to) the telephone. The market share leader in this arena is WebEx, which offers Webconferencing only. Other vendors such as Genesys Conferencing, InterCall, Latitude Communications and Raindance Communications have added Web-conferencing to their long-standing audioconferencing and videoconferencing services, which use the public switched telephone network. These services are ancillary to the vendors' core audio and video services, on which the bulk of their revenue rests. The advent of reliable IP voice and video capabilities within wide-area networks, however, undercuts this traditional business model and signals the possibility of a paradigm shift in Web-conferencing. Besides Microsoft's acquisition of PlaceWare, on 12 November 2003, Cisco Systems announced it would acquire Latitude. Cisco sells to telecom providers and directly to end-user enterprises. Its move clearly indicates that the consolidation of the Webconferencing market has begun. Of the remaining vendors, Centra Software and Interwise offer advanced features such as VoIP and, thus, are likely to be high on the list of candidates to be acquired. Strategic Planning Assumption: By year-end 2004, Webconferencing vendor Centra Software will be acquired ( November

3 The Web-conferencing market is consolidating, starting with the acquisition of small vendors. For your own safety, you should build protections into your contracts. For any new contracts signed in the short term, clauses should clearly specify that the product selected will be supported for the life of the contract, regardless of any acquisitions that may take place. The contract also should protect you when it comes to upgrades, migration and ongoing service and support. Prediction Microsoft will have a significant effect on the Web-conferencing market. Microsoft appears to be focusing on the Web-conferencing arena. Since buying PlaceWare, it has changed the name of the Conference Center offering to Microsoft Office Live Meeting and begun marketing it aggressively. We expect Microsoft to put significant price pressure on entrenched vendors such as WebEx and Raindance; this alone should entice these vendors to merge or be acquired. Strategic Planning Assumption: By year-end 2005, Microsoft will control more than 25 percent of the Web-conferencing market (0.8 Given the expected turmoil in the Web-conferencing market, you should evaluate Microsoft Office Live Meeting and compare prices against those of current hosted Web-conferencing vendors (for example, Raindance and WebEx). Also, ask Microsoft to disclose its product road map for Office Live Meeting, and what the intersection points will be with Microsoft Office Live Communications Server 2003 (an installed application). We expect that Microsoft will soon embed Web-conferencing capabilities within Live Communication Server. Prediction Web-conferencing will become a key element of a smart enterprise suite. SESs combine portals, content management and collaboration. So far, the powerhouse vendors (that is, SAP, Oracle, PeopleSoft and IBM) have focused on the foundation layers of the collaboration stack: instant messaging and, particularly, presence, driving presence awareness into applications such as Lotus Notes, Microsoft Office and Microsoft Outlook. IBM Lotus Instant Messaging and Web-conferencing (Sametime) and Microsoft Windows Messenger started as instant-messaging clients. Now, however, IBM and Microsoft are expanding into 21 November

4 "true" Web-conferencing capabilities, including presentation delivery, screen sharing, whiteboards and, ultimately, VoIP and videoconferencing over IP. Although most instant-messaging clients offer peer-to-peer VoIP capabilities, the peer-to-peer restriction limits them to one-on-one interactions, which isn't suitable for true Web-conferencing. In group contexts, the only interaction is via text chat. One reason for Microsoft's acquisition of PlaceWare was to fill this gap while Microsoft migrated full conferencing functionality into its Live Communications Server to create a modern replacement for the original NetMeeting (a pioneer in this space). Oracle (and other SES vendors, such as Documentum's eroom and Open Text's Livelink) also is building presence-aware conference and collaboration functions into its Collaboration Suite. In each case, as with IBM Lotus, the conference function is combined with team-support collaboration tools that include shared folders and document stores for joint document and business process development. This is such a valuable combination that we expect other SES or collaboration vendors (including SiteScape and Vignette) to add native Webconferencing capabilities. Strategic Planning Assumption: Smart enterprise suite and collaboration vendors will add Web-conferencing capabilities by year-end 2004 (0.7 When evaluating Web-conferencing products, remember that they'll eventually be part of a larger, more-comprehensive suite. In some cases, it may be a collaboration suite; in others, it may be part of an SES. Pricing will vary based on the suite and the product bundle. You should explore this area carefully, because we expect there will be a significant amount of leverage in the pricing of the suites that vendors offer and in the discounts they'll be forced to offer as more vendors fight to own the Webconferencing market. Prediction Telecom vendors will be serious Webconferencing contenders. Many telephone companies resell the WebEx service. Telecom vendors also provide this function, but they appear to be late in buying or building their own Web-conferencing capabilities. However, teleconferencing vendors such as Genesys, InterCall and Raindance have made significant moves to expand into this arena from their traditional audioconference roots, although most of them don't offer robust VoIP capabilities. Telecom vendors will 21 November

5 consider these teleconferencing vendors as candidates for acquisition. Telecom vendors have more to lose from a revenue perspective than software providers do. However, many are just biding their time, and as the market continues to grow, the major telecom vendors will first partner (with the likes of Cisco, for example) and eventually buy into the Web-conferencing market. Few telecom vendors have been successful with software; many will wait to acquire a Web-conferencing vendor until there is more of a mainstream move to adopt Web-conferencing throughout the enterprise. However, by the time telecom vendors finally make some acquisitions, they'll most likely have to pay a premium price for the vendors they want. Strategic Planning Assumption: By 2008, telecom vendors will control 40 percent of the Web-conferencing market (0.7 The fundamental disparity between telecom and SES providers is the delivery model. Telecom offerings, including those from teleconference specialists, are (with the exception of Latitude's) overwhelmingly delivered as externally hosted services. SES vendor offerings are delivered as products installed on premise and managed by the enterprise's IS organization. In the past, the former has predominated, but the cost-effectiveness of installed solutions is beginning to outweigh the convenience of the service model, and enterprises will increasingly purchase and install conferencing products in-house. By 2006, installed Webconferencing products will be the dominant deployment model for enterprises (0.7 CIOs must monitor their software and telecom teams to ensure that no one makes redundant Web-conferencing decisions. Although it's not uncommon for major enterprises to have multiple Web-conferencing offerings, mindful CIOs will avoid signing large contracts with multiple vendors. Bottom Line: In 2004, smart enterprise suite vendors (Microsoft in particular) and telecommunications vendors will be fighting for control of the Web-conferencing market. Enterprises should begin experimenting with voice over IP capabilities so they can achieve significant, long-term savings in telephone costs. 21 November