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Halfway Through A Bad Year

Allan Sulkin is out with his mid-year numbers for enterprise communications shipments, and as he previewed in a No Jitter blog a week or so back, the second quarter was a pleasant surprise, as revenues rose from 1Q09. However, the full report shows that we're a long way from done with these bad times.Here are a few highlights from Allan's article, and what I think they might mean:

* Cisco stays on top; Avaya claws up: Allan reports that Cisco kept its market leadership position, but that Avaya actually "slightly narrowed the gap." He attributes this to aggressive pricing strategies by Avaya.

This seems like a very healthy dynamic for the industry, and if Avaya gets its hands on Nortel Enterprise, it should nominally take the lead in market share. But the key for Avaya will be not resting on its laurels, but continuing to keep an eye on pricing, because you can bet that Cisco will continue its march forward. But with two very strong market leaders jockeying for top position, the customer should be the winner. The wild card here is, if Avaya acquires Nortel Enterprise, how will they handle pricing and end-of-life strategies for the Nortel product set?

* Nortel hangs on: Allan reports that Nortel kept its third-place position in the North American market in spite of its January bankruptcy filing and resulting first-quarter cliff dive. Nortel pulled out of the tailspin in the second quarter and grew its revenues over the previous quarter.

* Open Source gets on the board: Allan concurs with John Malone of Eastern Management Group that open source PBXs, including but not limited to Digium/Asterisk, are becoming a significant element in the market. Allan doesn't buy into Malone's figure that shows Open Source as 18% of the market (including both SMB and large enterprise), but he does acknowledge that Open Source matters.

Having now heard a similar message from these two veteran observers and counters of the market, I'm persuaded that open source is a force to be reckoned with in the enterprise communications market. What I hope we'll learn, starting with our Open Source Workshop at VoiceCon San Francisco, is what exactly open source means for the market-what role does it really play in the decision-making process for its target market of SMBs, and what is the potential for larger enterprises?

* Market remains fragmented: The number of vendors may be consolidating-or at least, we're on the verge of losing one big player in Nortel. But Allan's research shows that the top 5 market share leaders actually control less of the market this year than they did last year. In 2008, Cisco, Avaya, Nortel, Mitel and NEC collectively owned about 70% of the market; this year, the figures show this closer to two-thirds.

Which leads us to one name you won't find on Allan's leader board: Microsoft. At this point, their shipments apparently haven't been enough for Microsoft to break through the noise among the sub-1%-share competitors. You have to expect that will change eventually, and one question is, will we see a battle of the titans, with Microsoft taking share from Cisco and Avaya but leaving the bit players relatively unscathed? The North American enterprise IP telephony market has been notable in its ability to support a half-dozen or so players at 1%-3% share, and even more at the sub-1% share.

Just how much farther the market rebounds in the second half of 2009 will, of course, depend very largely on what happens in the overall economy.