There has been a lot of turbulence over the last few years within communication industries globally. A host of external factors and influences have impacted enterprise technology requirements, and 2023 will have its own challenges with macro economic circumstances promising to affect the development of the market.
New Year prediction pieces dominate content creation at the start of any new cycle, so Cavell Group has bought teams from both its research and consulting arms together to gaze into their collective crystal balls and try to predict some of the trends that are likely to have the biggest impact on communications in 2023.
Table of Contents
UCaaS market will continue to go from strength to strength
Compared to the start of 2022, the global economic landscape has changed significantly with the war in Ukraine, inflation, and ongoing fallout from the pandemic impacting businesses everywhere. UCaaS providers have not been immune this and saw valuations in 2022 fall significantly along with the rest of the technology sector. However, the fundamentals of the UCaaS market still remain and Cavell believes that the market will continue on its growth trajectory.
With most of the major legacy PBX vendors pivoting their strategies towards the cloud deployments and enterprises and SMEs moving not just their communication stack to the cloud, but the majority of their applications, the majority of new communications deployments will be cloud-based. Cavell’s latest enterprise research shows this with only 4% of businesses expecting to be using a premises-based PBX in the next five years. Our conversations with channel providers in markets where cloud adoption is still low, like Germany and France, show that where new sales used to be 80:20 in favour of PBX before the pandemic, they are now 60:40 in favour of cloud and we can expect this to increase in 2023. Adoption of voice services within Microsoft Teams will only see the market’s move toward the cloud accelerate, especially in larger enterprise deals. We have been seeing a slowdown in terms of new deals being signed over the past six months, especially in smaller businesses as confidence continues to be eroded by macroeconomic factors, but the trajectory of businesses is clear – the cloud is the future.
Continued M&A activity as providers consolidate positions
Merger and Acquisition (M&A) is a key pillar for all UCaaS providers. The most significant trend that Cavell observed in 2022 was that the continued consolidation of the cloud comms market is influencing M&A strategy. Reasons for this consolidation include the race for scale, with small providers failing to keep up with the feature development race, and consolidation to get better financial returns with a recurring revenue base. Moreover, the scarcity of good cloud assets coinciding with the need to acquire new technology capabilities, such as customer engagement tools, platform assets and integrations, has created an urgency to acquire and thereby contributing to further consolidation of the market.
Cavell predicts that M&A in 2023 will also be influenced by falling valuations in the cloud comms market and an impending recession, on top of this continued market consolidation. With the telecoms sector being worth less, the investment community may move into a period of more conservatism where there are less transformational deals. As such, Cavell believes companies will have to pick their priorities in terms of their M&A strategy, such as choosing the company’s scale or reach. A good example of this is Dstny’s recent acquisition of Easybell, which gave them scale and reach in Germany, versus their decision to acquire Telepo to improve their platform capabilities.
Cavell also predicts that there may be increased M&A activity in new markets in 2023, as countries like the UK and Nordics have fairly high penetration levels. While countries such as Germany and France have traditionally been considered to have high barriers to entry, companies may be more willing to take on market risk and investment in areas where returns are potentially greater than in more saturated markets.
Microsoft’s continued growth in the cloud comms space will also play a role in M&A trends in 2023. Because Microsoft is such a large player, when it comes to companies considering entering into vertical or technology sectors, their purchasing decisions may be determined by whether or not such an acquisition will give them a stronger position alongside or against Microsoft.
Microsoft Teams – Teams Phone Mobile could have a big impact
In 2023, it is likely that Microsoft Teams will continue to see significant growth in its user base taking it well over 300 million monthly active users. The platform, which offers a wide range of collaboration and communication tools, has already seen tremendous success in the enterprise space and is likely to continue to gain traction among businesses of all sizes.
One area in which we may see significant growth in 2023 is in the number of PSTN (public switched telephone network) enabled users on the platform. PSTN connectivity enables users to make traditional phone calls directly from within Teams, via a variety of routes, and it is likely that more and more businesses will adopt this feature as they look to streamline their communication systems, improve productivity, and potentially reduce costs during challenging economic circumstances. We wouldn’t be surprised if Microsoft announced that Teams surpasses 20 million telephony enabled users in 2023.
In addition to telephony, Microsoft Teams is also likely to continue to expand its capabilities in other areas in 2023. The platform already offers a wide range of features such as video conferencing, file sharing, and real-time collaboration, but it is likely that we will see new features and integrations that will make it even more versatile and useful for businesses. Emerging areas such as the realms of virtual reality may appear gimmicky but there are some genuine use cases for collaborating in mixed reality settings and the combination of Mesh, Microsoft’s mixed reality collaboration platform, and Teams is likely to explore these during the year.
Furthermore, Microsoft is expected to further expand the use of AI-based capabilities in Teams to enhance the user experience and make it more intuitive. The company has been investing heavily in AI and machine learning, and we may see new features such as automatic transcription and translation, intelligent search, and more in Teams in 2023. Recent news of the general availability of Azure’s OpenAI Service confirms this.
One area that could have a huge impact is within mobility. Teams Phone Mobile, the mobile network equivalent of Microsoft Teams’ PSTN capabilities, will gain traction as the solution goes live with more providers and could potentially gain significant user base, even among smaller businesses that are generally less likely to adopt collaborative technology. One reason for this is that the COVID-19 pandemic has accelerated the shift towards remote work, and many businesses are now looking for ways to improve their communication and collaboration capabilities for a remote workforce. Teams Phone Mobile offers a convenient and easy-to-use solution for making and receiving phone calls directly from a mobile device using mobile networks, which can be especially useful for employees who are working from home or on the go.
The full impact of Teams Phone Mobile is yet unknown, with the solution’s first providers only taking commercial solutions to market at the end of 2022. The exact levels of business adoption, across vertical markets and business sizes, will only become clear once the solution has been live in the market. Demand however already appears to be significant. Cavell Group’s own enterprise focused research, a study of 400 Microsoft Teams buyers, revealed that 97% of buyers would be interested in assigning mobile numbers to Teams users and allowing them to make calls over mobile networks.
Overall, 2023 is shaping up to be a big year for Microsoft Teams, and we expect to see continued growth and innovation on the platform driving further adoption. As more and more businesses adopt the platform and take advantage of its many features, and new initiatives such as Teams Phone Mobile, Teams is likely to become an even more significant player within the communications landscape.
Mobility continues to grow in importance
One of the core areas of growth Cavell tracked in 2022 was the rise in enterprise mobility which has created demand for fixed-mobile convergence. Defined as a combination of fixed and wireless technologies to allow fixed-line calling onto mobile devices, FMC has become a crucial component to enterprise communication post-pandemic with the rise of remote and disparate workforces. In response to this, major vendors have made product updates to their enterprise mobility solutions as they attempt to tackle this growing market.
At Webex One in 2021 Cisco officially introduced Webex Go, their Webex Calling mobile solution which extends the business line natively to a mobile phone. Microsoft then announced Teams Phone Mobile, formerly Operator Connect Mobile, back in March 2022 and have since added 5 partners, including BT in the UK and Verizon in the U.S. Pan-European providers such as Dstny and Enreach are also doubling down on their mobility strategy as they look at acquisitions to develop core capabilities in this area. Cavell expects RingCentral’s partnership with Vodafone to start to pay dividends over 2023 as well enabling mobile-first users across Europe.
With this rise in FMC, Cavell Group now include current and forecasted Mobile PBX users in their UCaaS data in their Cloud Comms market reports. This has greatly impacted the penetration rates in certain countries, such as Spain and Italy, and has the potential to be a real growth area in historically underpenetrated fixed-line markets in Africa, Asia, and South America.
Cavell anticipate further product updates and launches in 2023 around mobility. Crucially, 8×8 and Zoom have been, so far, reticent on the matter. The trend has also been largely pushed by global vendors and it will be interesting to see how smaller local providers decide to respond to this trend in 2023 as softphone applications become less desirable for communication on the go.
Customer experience becomes a key priority for enterprises and SMBs
2022 saw significant growth in investment and deployment of AI and analytics in UCaaS and CCaaS solutions alike, resulting in a new standard among advanced software providers such as RingCentral, Webex and Zoom who all boast similar AI features. These generally include some form of transcription, meeting summaries, language translation, background noise removal, etc. It will be interesting in 2023 to hear more about how these technologies are being adopted and implemented in enterprises, and whether they make a crucial difference to their customer experience (CX) strategy. Microsoft is also developing its offering in this space and the integartion with its collaboration platform Microsoft Teams could impact the wider CX market.
Agent experience became a very real focus point from contact centre providers in 2022 as they seek to address the problem of agent churn. According to Cavell Group’s 2022 Enterprise research, more than 50% of organisations surveyed said that they had seen more than third of their contact centre agents or users churn within the last 12 months. Improving the situation for agents by providing wellbeing tools, scheduled breaks, and better support are all features designed to help contact centre operators retain their staff. This will continue to be a priority for CX providers in 2023.
Cavell Group expect CPaaS and the concept of the ‘composable enterprise’ to become more of a concern for enterprises in 2023. While most enterprises make use of software integrations that are offered by most CX platforms, the idea of developing specific tools through no-code/low-code applications has still not seen great traction from enterprises. The concept of coding and building out applications is still regarded as a technical expertise that’s not in the grasp of most companies. However, with significant impetus from larger providers to make this process easier for enterprises, Cavell expect this trend to accelerate in 2023 as companies become more creative with their software estates.
Cloud Networking – 2023 will see further cloud networking growth
The cloud networking industry is leaving a period of uncertainty (2020-2022) and moving into a more solidified growth market. However, this is not unrestricted or unrestrained growth. The uncertainty about remote working and how much office space would be maintained is starting to fade as strategies harden, meaning that networking projects that were paused for those offices will be restarted.
This growth has to be understood in the broader context of a market that is facing economic downturn, and one where security and remote access products are drawing spend away from networking only projects. After all, if people can’t connect securely, does it matter if that connection is high-quality?
But offices are still intact, and they still have large networking needs. Added to this is a growing need for low-latency high-reliability connectivity into a wide-variety of cloud services. Critical latency sensitive cloud services compete directly for resources with non-sensitive cloud services. Companies are turning to SD-WAN to control these systems and enable the right service to consume the right network resources at the right time.
Combined with these trends has been a deepening understanding of the leading SD-WAN players, and a better grasp of what SD-WAN tools can actually do for businesses. This is giving more and more businesses the confidence to deploy SD-WAN secure in the knowledge that they are picking a tried and tested market leading deployment method, rather than being a beta customer for a new area.
2023 promises a much clearer understanding of network needs, coupled with further clarity on the capabilities of cloud networking technology and a better grasp of security’s role in the cloud networking ecosystem. All of these factors mean that the industry is ready to see a solid period of growth based on strong fundamentals and demand.
AI comes into the mainstream
The industry has been talking about AI for a long time and has seen many UCaaS providers make investments into AI companies, predominately into the contact centre space where conversational AI is driving adoption in chatbots. 2023 is where Cavell expects it to reach a mainstream audience and start to be used across businesses to drive greater productivity gains.
A clear example of this is at the end of 2022, Open AI launched Chat-GPT which gained over 1 million users in the first week. What is fascinating about this launch was the number of non-technology people that we’ve spoken to who have started to use the service within their jobs and personal lives. Microsoft have announced that they will plan to build ChatGPT features into all products to help to drive employee productivity. Generative AI capabilities will become a central part of productivity in multiple roles and it is likely that this will push UCaaS providers to see where AI can help to enable better conversations internally and externally as well. Considering what has happened over the last 6 months, mainstream AI usage has ballooned with new use cases emerging and companies embedding AI into their applications and we expect 2023 to be the year of AI.