UC buying decision criterion: Enterprises are attracted to UC for its potential business value, but
UC buying decisions are driven by an enterprise‟s investments in voice telephony, enterprise instant messaging, and enterprise email. This buying decision criterion for UC favors incumbent firms in the business email, enterprise instant messaging and enterprise voice telephony markets.
Email and network effects: Email is a heavily penetrated enterprise communication tool with
direct network effects. However, due to interlinking these network effects are not proprietary to any single vendor.
Enterprise email market: Microsoft and IBM are the top two vendors in the enterprise email
market, which is highly concentrated. Email platforms from both these vendors foster development of complementary applications. In the two-sided market (of email users and email complement developers), both firms subsidize developers by providing free tools. Microsoft‟s dominance in enterprise email is not due to demand side network effects; rather, Microsoft‟s dominance stems from superior feature set built through product evolution, ease of use, competitive pricing, and bundle pricing. Both Microsoft and IBM leverage their email installed base for UC but Microsoft‟s strengthening market position in business email more strongly supports its UC position.
Consumer instant messaging (IM) and network effects: IM is highly penetrated in North
American consumer market. Consumer IM exhibit proprietary network effects as interlinking is through ad hoc federation. Consumer IM is a two-sided platform that subsidizes IM users but charges advertisers. Microsoft is among the largest consumer IM network and thus has favorable federation position (compared with IBM which does not compete in the consumer IM market).
Enterprise instant messaging (EIM) market: Microsoft and IBM are the top two vendors in the
enterprise IM market, which is highly concentrated. Within businesses, EIM decisions are made centrally so usually all users within one enterprise either have one particular EIM or they have none. But the network effects within consumer IM spill over to enterprise IM as, (1) many EIM networks are restricted within firm boundaries and are not interconnected (2) many businesses still do not have EIM so the employees in such businesses use consumer IM. So, EIM systems federate with consumer IM systems to increase the number of users reachable. Thus Microsoft‟s large user base and its federation relationships in the consumer IM market, gives it an advantage in the EIM market.
Microsoft’s leadership in EIM: Although Microsoft has a reachability advantage in EIM market
over IBM due to Microsoft‟s large consumer IM user base, it surpassed early leader IBM not through demand side network effects but through product evolution, ease of use, and pricing.
Microsoft’s EIM installed base critical within UC: Microsoft‟s EIM installed base is critical to its
UC strategy. First, it has bundled its voice telephony platform within the IM server so Microsoft‟s EIM installed base also gets the voice platform as these users upgrade to newer versions. Second, IBM has made its EIM Sametime the centerpiece of its UC strategy so it is critical for Microsoft to maintain or enhance its share within EIM to thwart IBM‟s UC strategy.
Enterprise voice telephony and network effects: Voice telephony exhibits direct network effects
but because of nearly universal interlinking over standard protocols, these effects are not proprietary to particular vendors.
Enterprise voice telephony market: The enterprise telephony was traditionally dominated by
Avaya and Nortel in North America but Cisco was able to become a strong player because of the technological shift to IP-based software powered systems. Microsoft has entered the voice market with entrenched platform vendors.
Video communication and strategic failures: Video communication provides many examples of
strategic failures spread over many episodes that can be valuable to a student of technology strategy. The stated goal of many video vendors during each episode has been to replace face-to-face communication although many studies have shown that users find audio-video communication to be closer to audio-only communication rather than face-to-face communication. Video communication exhibits both direct and indirect network effects. In fact, the failure of AT&T‟s Picturephone in 1970s led Jeffrey Rohlfs to do his seminal work on network effects. AT&T failed to solve the startup problem for Picturephone as the regulatory regime made it impossible to use penetration pricing or other costly acquisition strategies. Intel also failed miserably with its video strategy for ProShare as Intel ignored the existing standard and created an offer based on Intel‟s proprietary standard. Intel‟s goal in entering the video communication market was to foster the market for a complement that could utilize its innovations in processor technology. Intel partnered with telecommunication firms and computer manufacturers to bring down the price of ProShare.
However, its lack of coordination with existing video communication vendors, its use of proprietary protocol, and its low pricing ended up harming the video communication ecosystem.
Cisco and Microsoft within video communication: At the present time, Cisco and Microsoft are
two UC vendors whose video strategies should be of interest. Cisco has adopted a strategy that is similar in details to AT&T‟s Picturephone strategy. Cisco has created a video communication platform Cisco Telepresence system that is very high priced and requires high network bandwidth to operate. Cisco‟s goal with Telepresence is to substitute face-to-face meetings. Microsoft in its video strategy seems to be focused on substituting audio-only meetings. Microsoft has created a video camera RoundTable that is priced so that departments within US enterprises can afford to purchase RoundTable. Moreover, Microsoft has integrated video communication in its productivity suites to provide ready use-cases for its video communication platform. Microsoft‟s video communication strategy is most promising in our view and will strengthen Microsoft‟s UC position.