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Eric Krapf
Eric Krapf
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Another Way To Kill The Desk Phone

How do Cisco and Avaya not surrender the IP phone as a high-margin sale?

In her latest blog at No Jitter, Melanie Turek of Frost & Sullivan gives a synopsis of some recent research on IP endpoints that shows IP phones-hard and soft-both proliferating in the enterprise, with the obvious caveat that current economic conditions are taking something of a toll.The findings that Melanie cites suggest that some of us shouldn't be so quick to write off the IP desk phone.

"Largely due to declining prices and clear productivity benefits, IP desktop phones are rapidly proliferating in the enterprise, displacing their analog and digital predecessors," Melanie writes.

A couple of things there, however, suggest that what's good news for IP phones isn't necessarily good news for vendors, at least the platform guys. In the traditional world, desk phones provided a nice margin and revenue stream, not to mention a source of vendor lock-in. In the IP world, all three of those--margin, revenue stream and lock-in--are threatened. Indeed, when Gurdeep Singh Pall closed his VoiceCon Orlando keynote by holding up a netbook and an IP phone and asked which you'd rather spend $300 on, my first reaction wasn't, "Oooh! Oooh! I know this one! It's the netbook!" My reaction was, "IP phones only cost $300 now?"

And what about the softphone? Melanie Turek writes that, "Enterprise soft clients have been relentlessly penetrating the market in the last two years," with market size more than doubling, from 1 million shipped in 2007 to 2.4 million in 2008. The catch is that a lot of these softphones are just bundled into system shipments so that, as Melanie notes, "Frost & Sullivan estimates that less than 45 percent of total enterprise soft clients shipped in 2008 are being used as a primary tool for voice communications."

Still, when you think about it that means that in 2008 perhaps 1.08 million softphones did wind up as the end user's primary communications tool, which would represent an 8% growth rate over the previous year's 1 million number. And that growth rate of 8% is probably artificially low, since no doubt a chunk of the 2007 shipments also represent bundled deals in which the soft clients never actually got used-in other words, the actual implementation in 2007 was probably well below 1 million.

So if IP desk phones are commoditizing or at least can be had at bargain prices in these days when vendors are desperate to make system sales, then maybe even after the economy recovers, enterprises will be inclined to scrutinize this line item more closely. In some cases, they may already own unused softphone licenses, as Melanie's data suggests, so they have an option to buy fewer hard phones anyhow. Also, hardware isn't supposed to go up in price-is anyone really going to be willing to pay more for an IP desk phone in 2011 than they paid in 2009?

Finally, make no mistake: Microsoft is coming for your desk phone. They want it gone, even if they just signed a deal with HP that includes HP manufacturing IP phones (see these posts from Interop).

It's also an open secret that Microsoft's next release of OCS is intended to be a full-fledged PBX replacement, which means the chunk of the market that it takes will not generate a commensurate bump in the IP phone market.

Under those circumstances, what do Cisco and Avaya and the rest of them do? How do they not surrender the IP phone as a high-margin sale? And if it's no longer a high margin sale, how can they justify it being a high-function item?How do Cisco and Avaya not surrender the IP phone as a high-margin sale?

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