IP technology is not only changing the way in which voice is transported across a network, but also the means by which it is delivered to and accessed by end users. Voice communications are merging with other channels, such as e-mail and instant messaging, while wired and wireless infrastructures have virtually equal capabilities to carry simple voice, as well as multimedia-enhanced voice, communications. An increasing familiarity with the concept of unified communications (UC) is motivating organizations to be more strategic about their choices regarding telephony architectures and platforms that can integrate with business processes, as well as support a wide range of multichannel business applications. Just as important is the higher level of scrutiny users are invoking when they choose their telephony suppliers (see "How to Choose an IP Telephony Vendor in a Turbulent Market").

From the development standpoint, many vendors are starting to focus on replacing hardware with software solutions, while at the same time, dealing with how to revise their pricing models. With the telephony market experiencing transformations, users are struggling with questions such as which suppliers will survive? And which new ones will emerge?

Not to be ignored is Microsoft's introduction of a suite of desktop-based voice applications, with new entrants such as IBM, Google and Oracle likely to join this market in the near future. It's never been more important for organizations to look beyond cabinets, rack units, handsets and dial tone to successfully optimize the ongoing value of the telephony architectures, platforms, applications and devices that can best serve their short- and long-term requirements.

In evaluating vendors for this Magic Quadrant (see Figure 1), we outline a number of challenges that need resolving to demonstrate market leadership. Our analysis of positioning in this Magic Quadrant will favor those vendors that address larger corporations and major organizations with more than 1,000 users. However, although this Magic Quadrant provides a valuable decision tool for many organizations, do not automatically exclude vendors not positioned as leaders. Although vendors identified as leaders generally have the largest market presence, visionaries, challengers and niche players should also be considered because their solutions may be more economical while also satisfying specific requirements, vertical applications or regional availability.

Through the next five years, we anticipate that, as a result of transformations taking place in the telephony market, businesses will face new challenges that will influence their short- and long-term enterprise telephony buying decisions. The largest driver will be the demand from enterprises for solutions that enable managing all communications and directories through a single interface. There will be little opportunity for channel-independent products for voice, e-mail, instant messaging and peer-to-peer collaboration without a clear progression toward a unified set of communications.

There is no single solution for UC, but few businesses can afford to do nothing about managing their disparate communications through this period until UC attains greater maturity (see "A Framework for Unified Communications" and "Hype Cycle for Enterprise Communications Applications, 2006"). Consequently, companies still need to make important decisions about the technology that they deploy for voice as well as video and multimedia communications in the near term.

We estimate that, by 2012, enterprise telephony will increasingly be supplied as a function of one of the following channels:

• As a component of a leading enterprise IT platform vendor's business application suite for UC. Microsoft Office Communicator and IBM Sametime are the clearest examples of this. SAP has indicated plans to leverage its acquisition of WiCom and its Netweaver subsidiary to provide communications capabilities. Oracle can be expected to leverage its acquisitions of HotSip and Telephony@Work to enhance its ERP and CRM solutions with communications from within an application. Companies should also expect to see demonstrable examples of communications applications as integrations performed by leading system integrators, which may be best-of-breed chosen as an optimal solution for a particular company. Companies should be able to identify specific business process benefits from any of these propositions to exploit customer service and productivity opportunities from communication-enabled business processes (CEBPs; see "Achieving Agility Through Communication-Enabled Business Processes").
• As an application embedded in data communications networking infrastructure from traditional providers (such as Cisco, HP, Nortel or Juniper) and the increasingly generic, low-cost alternative suppliers (such as Linksys, D-Link and Netgear). Companies are unlikely to see any administration benefit from this type of convergence, and single-vendor selection could mean higher costs of technology acquisition. Competitive tendering is an essential approach with this configuration.
• We expect that the cost of providing telephony will reduce significantly during the next few years as the convergence effect extends beyond voice and data in the same network to the hardware components. We anticipate that enterprises will increase the use of the mobile handset for enterprise telephony and, in some environments, the use of the PC with a softphone will grow. The functionality of media gateways will be incorporated into voice cards inside network routers, with media servers providing audio functions (such as ring tones and music-on-hold). With next-generation networks, termination of voice traffic will move from hardware-based Integrated Services Digital Network (ISDN) port configurations to software-based Session Initiation Protocol (SIP) configurations, thus removing the need for media gateways entirely.

Through the next five years, this evolution will challenge enterprise communications vendors to move to software-only applications that can be tightly linked to business applications or network infrastructure, with standards-based interfaces for application integration, devices and gateways. Many vendors have started by shifting the emphasis of revenue away from hardware in favor of software, but not actually decreasing the cost. Software pricing brings with it higher maintenance charges, which can increase the total cost of ownership.

However, telephony is now a buyer's market, which puts the enterprise in the driving seat with negotiations. Rather than negotiating on a site-by-site basis, companies should take a strategic approach to telephony, offering up the entire voice estate, which is of significantly more value to the shortlisted vendors. This is especially relevant for all market players when there is little to lose and much to gain in bidding for the enterprise.

The period to 2012 will be a testing time for enterprise telephony players. We expect that fewer players will be capable of addressing the needs of corporate organizations (the intended audience of this Magic Quadrant), and as a result, some vendors will focus on small and midsize businesses (SMBs). Further consolidation in the market as a whole will encourage companies to be more selective about their preferred communications provider (see "How to Choose an IP Telephony Vendor in a Turbulent Market").

The market for corporate telephony can be described as the provision of holistic voice communications for all users, wired and wireless, in large businesses and corporations. Typically, this will include multiple sites in multiple countries, even different geographies.

This Magic Quadrant focuses on technology providers that manufacture and distribute hardware and software products to provide telephony solutions. Architectures include distributed as well as hosted platforms, but they are essentially dedicated for use by a single company. As the market evolves from one of proprietary hardware to one of standards-based software, companies will use IP telephony to deliver business benefits across the organization, while consolidating technologies around a common technology provider or selection of providers. To meet the demands of this market, suppliers must offer scalable solutions using technologies that leverage Internet-based architectures but still provide the high levels of availability, functionality and voice quality demanded by users.

To be included in this Magic Quadrant, vendors need to show one or more of these capabilities in North America:

• Significant market share or, lacking market share, sufficient differentiation to obtain market presence
• Substantive sales and operational presence across the region
• Demonstrable telephony solutions for large businesses and corporations
• The ability to generate significant vendor interest from leading client segments in the market

None

None

Product/Service: Core goods and services offered by the vendor that compete in/serve the defined market. This includes current product/service capabilities, quality, feature sets and skills, whether offered natively or through OEM agreements/partnerships as defined in the market definition and detailed in the subcriteria.

Overall Viability (Business Unit, Financial, Strategy and Organization): Viability includes an assessment of the overall organization's financial health, the financial and practical success of the business unit, and the likelihood of the individual business unit to continue investing in the product, to continue offering the product and to advance the state of the art within the organization's portfolio of products.

Sales Execution/Pricing: The vendor's capabilities in all pre-sales activities and the structure that supports them. This includes deal management, pricing and negotiation, pre-sales support and the overall effectiveness of the sales channel.

Market Responsiveness and Track Record: Ability to respond, change direction, be flexible and achieve competitive success as opportunities develop, competitors act, customer needs evolve and market dynamics change. This criterion also considers the vendor's history of responsiveness.

Marketing Execution: The clarity, quality, creativity and efficacy of programs designed to deliver the organization's message to influence the market, promote the brand and business, increase awareness of the products, and establish a positive identification with the product/brand and organization in the minds of buyers. This "mind share" can be driven by a combination of publicity, promotions, thought leadership, word of mouth and sales activities.

Customer Experience: Relationships, products and services/programs that enable clients to be successful with the products evaluated. Specifically, this includes the ways customers receive technical support or account support. This can also include ancillary tools, customer support programs (and the quality thereof), the availability of user groups, service-level agreements and so on.

Operations: The ability of the organization to meet its goals and commitments. Factors include the quality of the organizational structure, including skills, experiences, programs, systems and other vehicles that enable the organization to operate effectively and efficiently on an ongoing basis.

Market Understanding: Ability of the vendor to understand buyers' wants and needs and to translate those into products and services. Vendors that show the highest degree of vision listen and understand buyers' wants and needs and can shape or enhance those with their added vision.

Marketing Strategy: A clear, differentiated set of messages consistently communicated throughout the organization and externalized through the Web site, advertising, customer programs and positioning statements.

Sales Strategy: The strategy for selling products that uses the appropriate network of direct and indirect sales, marketing, service and communication affiliates that extend the scope and depth of market reach, skills, expertise, technologies, services and the customer base.

Offering (Product) Strategy: The vendor's approach to product development and delivery that emphasizes differentiation, functionality, methodology and feature set as they map to current and future requirements.

Business Model: The soundness and logic of the vendor's underlying business proposition.

Vertical/Industry Strategy: The vendor's strategy to direct resources, skills and offerings to meet the specific needs of individual market segments, including vertical industries.

Innovation: Direct, related, complementary and synergistic layouts of resources, expertise or capital for investment, consolidation, defensive or preemptive purposes.

Geographic Strategy: The vendor's strategy to direct resources, skills and offerings to meet the specific needs of geographic locations outside the "home" or native location, directly or through partners, channels and subsidiaries as appropriate for that location and market.

Market leaders demonstrate strength and can affect market trends in all criteria on which they are evaluated. Leaders tend to have a broader geographical coverage, which is important for enabling pan-American companies to consolidate their telephony suppliers.

Challengers demonstrate an understanding of the market and often possess a complete product portfolio and a strong market presence. However, they have not shown an understanding of market direction or they are not well-positioned to capitalize on emerging trends.

Visionaries display healthy innovation and a strong potential to influence the direction of the market, but are limited in execution or track record. Typically, their products and market presence are not complete or established enough to challenge the leaders.

Niche players often offer strong products for geographical or vertical market subsets, but they demonstrate weaknesses in one or more important areas.

• VCX Enterprise, 3Com's flagship IP-PBX product for enterprises and large organizations, natively supports SIP as the underlying communications protocol across its IP telephony applications. Native support for SIP means that a separate SIP server is not required to support SIP applications on VCX.
• 3Com's partnership with IBM to sell VCX on IBM Series i servers should help 3Com gain more traction with midsize companies now that most of the channel training has been completed.
• 3Com's Open Systems Networking (OSN) initiative integrates 3Com voice, data, wireless and security applications, along with those of its partners, into its data infrastructure of switches and routers.
• Midsize to large enterprise customers should consider the VCX platform for native SIP-based call control and applications in a distributed IP telephony system that can scale, especially in strong 3Com vertical markets, such as education (K-12 and higher education), local and federal governments, healthcare and retail finance.

• 3Com has been slow in executing its plan to win large customers with the VCX system and still must demonstrate that it can challenge the leading enterprise IP telephony vendors. It needs to develop a new strategy to gain visibility in large-scale accounts.
• 3Com is noted more for SMB sales. It needs to increase visibility in the enterprise telephony market and more effectively sell its VCX systems and associated applications to targeted market segments.

• Alcatel-Lucent (ALU) offers IP-based software solutions (OmniPCX and OmniTouch Unified Communications) that integrate telephony, voice, multimedia messaging, firewall, collaboration and mobility capabilities.
• ALU has global expertise and resources that can satisfy complex, large-scale requirements for custom IP telephony solutions.
• ALU offers a performance-proven product portfolio and has a large installed base in Europe.
• The recent NCR agreement helps extend the reach of ALU and its North American business partners to provide coverage — from a service and support perspective — in previously under-served areas, giving further support for new and global accounts.

• The enterprise business group is a small division of ALU, with only 8% of total company revenue — raising questions about the relevance of enterprise to the overall business. ALU indicates, however, that enterprise is a key focus area, with a growing percentage of company revenue.
• ALU's enterprise telephony market share in North America continues to decline; its sales channel is comprised mainly of small, regional value-added resellers (VARs) of ALU data products.
• ALU has struggled with sales execution and marketing its brand name in North America. To help address this, it has recently increased investments in sales and marketing by 15% — doubling its North American marketing budget and quadrupling its marketing resources.

• Avaya's (see Note 1) Communication Manager-based products provide a consistent user interface, can be seamlessly integrated, and support many redundancy and wireless options. The line includes the highly scalable Linux-based 87XX platform with high-availability options, and media servers and gateways designed to be cost-effective for locations with 25 to 20,000 users.
• Avaya has wide-ranging experience implementing large-scale voice networking solutions for enterprises.
• Avaya Global Services' broad portfolio of professional and managed services includes remote support for multivendor networks and communications applications.
• The planned buy-out by Silver Lake and TPG is an opportunity for Avaya to evolve its business in favor of software (see "Acquisition of Avaya Will Allow It to Evolve 'Below the Radar'").

• Since its formation, Avaya has demonstrated an excellent ability to anticipate the changing needs of the enterprise telephony market in North America by offering a wide range of products and services. It will take some time to determine what effect, if any, the merger with Silver Lake and TPG will have on Avaya's ability to maintain this vision.
• Poor sales support and account management have generated negative feedback from Avaya customers during customer evaluation and procurement processes.

• Cisco Systems continues to execute well in the North American enterprise telephony market and is the global market share leader in IP-PBX line shipments. It is a market leader in the deployment of large IP telephony solutions to multisite organizations, especially in the retail, banking and government sectors.
• Cisco has excellent dealer-certification programs.
• With UC Manager 6.0, Cisco adds to the overall functionality of a system that provides call processing, video, mobility, and presence services to IP phones, voice over IP (VoIP) gateways, mobile devices and multimedia applications.
• Cisco has been successful selling UC Manager to Cisco data customers who generally tend to be aggressive in deploying new technology, are opening new facilities or are looking to replace traditional telephony systems, particularly in strong Cisco vertical markets, such as government, financial services, healthcare and manufacturing.

• For the most part, Cisco still uses proprietary line-side protocols to support its IP telephony products; however, Cisco has added line-side SIP, SIP trunk, station and presence support in recent releases.
• The levels of integration between Cisco UC Manager and Cisco's messaging and contact center products can be complex and difficult for some organizations.
• Cisco UC Manager is not as robust or full-featured a telephony solution as traditional time division multiplexing (TDM)-based systems or some of the competitors, but it continues to evolve with each subsequent system release.

• Digium's software-based, Asterisk open-source PBX — the only open-source solution featured in this Magic Quadrant — includes third-party software integration, a formal service and support infrastructure, and software development tools at a significantly lower price point than standard solutions.
• The industry is moving from a hardware model to a software model, bringing with it additional software support costs while using standard servers. In this process, the leading vendors need to aggregate their solutions, because most require different servers to accomplish different solutions. Asterisk's architecture inherently includes all functions, such as PBX, and can be distributed and clustered or disaggregated and specialized.
• In the past, Asterisk has targeted organizations with a strong IT operation and a culture for developing and customizing applications in-house. This is changing as Digium grows Asterisk's appeal to enterprises through enhancements such as setup wizards for administrators, 24/7 monitoring tools, operator graphical user interfaces (GUIs), single-click software upgrades and others.
• Digium has been a profitable company since 2002.

• It is still early in the life cycle for the open-source Asterisk solution, so it is not yet a mature product for enterprise businesses and has a limited number of enterprise users to date.
• Digium has typically relied on partnerships with many suppliers, which an enterprise had to manage using its own resources for a total solution. Digium is changing that approach by partnering with enterprise resellers and integrators as a single point of contact for the solution.

• The Inter-Tel 7000 shows promise for improving Inter-Tel's penetration of larger businesses (up to 2,500 users per site), especially those interested in leveraging open standards (SIP compliance) for addressing changing business requirements.
• For organizations seeking conservation of capital and a fixed monthly bill, Inter-Tel offers low-risk, turnkey-managed-service programs that include equipment, applications, local and long-distance services, plus planning and provisioning consultation services.
• Inter-Tel has developed numerous applications that are specific to such vertical market segments as financial services, real estate, transportation services, healthcare, retail and others.

• Inter-Tel 7000 and the smaller 5000 platform do not integrate seamlessly.
• A new strategy is required to help Inter-Tel gain visibility in large-scale accounts.
• Inter-Tel and Mitel Networks are not strong in the large enterprise telephony segment, so both need to continue to leverage their respective strengths to develop platforms and financial offerings that meet large-business requirements.

• The Mitel Applications Suite includes mobility, messaging and teleworking capabilities that provide a single phone number and mailbox for multiple devices, as well as an integrated point-and-click directory that can be displayed and accessed using a Mitel IP phone.
• Complementing Mitel's suite of collaboration and desktop applications, Mitel's partnership with Microsoft enables it to offer products, such as the Mitel Live Business Gateway, which, with the use of open standards (such as SIP, XML and CSTA), integrates its flagship 3300 Integrated Communications Platform (ICP) with Microsoft applications, such as Office Communications Server (OCS).
• Mitel's dealer network includes experienced personnel covering a large geographic area.
• Mitel focuses on vertical markets, such as education, government, healthcare, retail, financial services and hospitality, supported by a range of industry-specific applications and devices.

• Mitel is not strong in large enterprise telephony (more than 1,000 users) within North America, but the introduction of Rel 8 of the 3300 ICP increases the capacity of a single controller to 5,000 registered users, giving Mitel the opportunity to increase penetration in this market.
• Mitel and Inter-Tel are not strong in the large enterprise telephony segment, so both need to continue to leverage their respective strengths to develop platforms and financial offers that meet large business requirements.

• NEC's SV7000 supports backward and forward IP telephony compatibility with NEC's series of NEAX platforms, while offering various levels of converged network capabilities, robust features, scalability, redundancy and investment protection.
• Large organizations can work directly with NEC sales and technical support personnel. A substantial dealer network targets the SMB market, with some dealers certified to sell large-scale systems.
• As a diversified global organization, NEC has the resources to provide global solutions for large organizations with a range of business requirements. NEC enjoys an excellent reputation in the education, hospitality and healthcare markets.
• Gartner views NEC's announced acquisition of Sphere Communications as more of a technology play to enhance the UC integration and customization capabilities of NEC's portfolio.

• NEC's marketing strategy is confused and too focused on the SMB market segment. Its North American-based organization needs more autonomy from NEC Corporation to address market needs in North America.
• NEC needs to improve its market penetration among large organizations by increasing the number of dealers certified to represent NEC's enterprise-level product portfolio.

• Although Nortel's main telephony platform for the enterprise is the CS 1000, it offers the CS 2100 for large enterprises serving up to 150,000 users. The CS 2100 is one of the few Class 5 IP telephony central office-type softswitches available for highly resilient enterprise-based applications.
• Nortel's strategic partnership with Microsoft, the Innovative Communications Alliance (ICA), provides Nortel with a strong partner and the potential for growth in telephony and UC, giving the company direction in a market where its future had been uncertain. ICA is focused on providing technology integration for customers looking to coordinate desktop software suites with business communications solutions.
• When investment protection is foremost for Nortel customers moving to IP telephony, Nortel offers strong redundancy and survivability features.

• Past corporate financial problems have weakened Nortel's standing with its channel and partners, although Nortel has made recent significant improvements in its channel and dealer programs; it is a two-year plan and the company is six months into it.
• Technical support and product development have suffered from Nortel's cost-cutting measures.
• Uncertainty about Nortel's future direction with Microsoft is weighing on end users.

• The ShoreTel system uses a highly scalable, distributed IP architecture and has very intuitive system management and user interfaces.
• ShoreTel has increased its market visibility, winning new customers and cultivating new channel partners.
• ShoreTel is a smaller vendor with a growing installed base of small to midsize customers and good customer satisfaction ratings; it needs to further penetrate large-scale organizations.
• With steadily increasing revenue, net income and customers, ShoreTel has successfully issued an initial public offering.

• ShoreTel must continue to grow its channel presence, domestically and globally, and work to be added to more organizations' shortlists of potential vendors. ShoreTel's overall visibility in the enterprise telephony market is still relatively low, but growing.
• ShoreTel channel partners consist mainly of regional, but established, VARs of voice and data products.

• Siemens' SIP-based HiPath 8000 uses the same source code as the carrier-based hiQ 8000 and provides a technological foundation for large enterprises seeking a centralized, scalable voice server that is capable of supporting integration with other communications applications.
• Siemens' collaboration products — most notably OpenScape — highlight Siemens' long-term vision for the direction of the enterprise communications market.

• HiPath 4000 users moving to the HiPath 8000 can expect some feature differences: the HiPath 4000 utilizes CorNet IP signaling; the HiPath 8000 supports native SIP signaling.
• Siemens' prolonged plans to sell or spin off its enterprise communications business has created uncertainty among customers about the long-term viability of the company's currently offered products.
• The market perception is that Siemens' services and maintenance prices are high.
• Although visionary, the HiPath 8000 has little market penetration in North America.

• Sphere features a software-based IP-PBX called Sphericall (release 6.0) that supports key decision points for midsize and large organizations — scalability, distributed architecture, standards support (including SIP), multimedia applications, Web services integration with business applications in the context of SOA, vertical market customization, and a long list of supported, third-party SIP station devices.
• Sphere's alliance program with other IP telephony and VoIP technology providers has certified more than 30 different IP, USB and Wi-Fi devices for telephony. Sphere has achieved JITC PBX1 Certification by the U.S. Department of Defense — a stringent requirement for government PBXs that ensures reliability, security and interoperability.
• Sphere is strong when requiring a standards-based, IP-PBX software solution that operates well within the context of an enterprise SOA. Sphere can provide a customer reference with as high as 20,000 end users in a networked configuration.

• Sphere continues to have low visibility in enterprise telephony, especially in Europe, the Middle East and Africa, although it has been launching VoIP customer deployments for about 10 years.
• Sphere is privately held, with minimal investments in marketing, sales, channel development and operations. Sphere maintains that its software-centric approach to telephony and UC will open up new channels of development for the company through independent software vendors and consultants already involved in reselling and customizing business applications.

• Toshiba has a long-established reputation for providing reliable operations, cost-effective price points and investment protection via strong migration capabilities to its SMB customers; it's strong in retail, automotive, banks/financial and government vertical markets.
• Toshiba has a large selection of authorized dealers covering the entire U.S. A national accounts program offers uniform pricing of products and services for customers that require deployment across multiple locations.
• Toshiba's long-term strategy includes the development of a 1,200-port system (Spring 2008) and a future multithousand line system. Toshiba is also embracing SIP, UC, development of presence capability, and Microsoft LCS and OCS integration.

• The Linux-based Strata CIX IP telephony system (Toshiba's flagship product) is not typically used to support deployments for locations exceeding 600 users. However, networking multiple systems to operate as one can provide a viable, large system solution until the planned deployment of Toshiba's larger switches.

• Vertical Communications is a public company arising from the merger of the following four companies: Artisoft, with its TeleVantage solution for SMB customers; the original Vertical Networks, with its InstantOffice solution for large, distributed enterprise customers; and Comdial and Vodavi with their legacy key telephone systems and PBX systems. These combine to provide Vertical with a large channel in North America for selling telephony solutions. Vertical's overall strength is in the SMB market, but it has demonstrated the ability to support large, distributed customers with complex telephony and application requirements.
• Wave is the company's new flagship IP-PBX product for large retailers and retail-like distributed enterprises. Wave is InstantOffice-enhanced and now available. It represents the upgrade path for Vertical's large-enterprise end users.
• InstantOffice/Wave is appealing to organizations with numerous distributed locations with up to 500 users per site (IP or TDM), especially in retail (its strongest market) and financial and healthcare markets. Its "sweet spot" is networked corporate branch offices and retail stores with hundreds or thousands of 10- to 50-user locations.

• Vertical's challenge is to gain visibility and market share in IP telephony; it is currently stronger in traditional TDM-based solutions.
• Vertical's recent acquisitions have enabled it to approximately break even from a profitability standpoint, although the past two quarters have been cash-flow positive from operations (excluding noncash charges). To increase profitability, the company is banking on legacy customers to migrate to Wave products.