Digital Voice Dominance

The 2005 VARbusiness Annual Report Card (ARC) is the first time VARBusiness has broken out voice and data networking into two separate categories. While Cisco Systems finished behind Hewlett-Packard's ProCurve and Juniper Networks in Data Networking, it was the company's market leadership in that category that helped make it the hands-down winner in the Voice Networking space.

If there's one reason Cisco has dominated the voice space in the eyes of solution providers, it's the emergence of VoIP as one of the IT industry's most buzzworthy technologies. By leveraging its data-networking expertise, market share and newly acquired or developed IP-telephony solutions, Cisco has positioned itself as the IP-telephony leader.

By comparison, HP and Juniper lack Cisco's comprehensive range of voice solutions. Similarly, ARC voice-networking sector also-rans 3Com and Nortel each have an array of voice solutions that are not as strong as Cisco's.

Most observers project VoIP will have as high as 60 percent penetration into enterprise markets by 2008. According to market research firm Infonetics, revenue from worldwide IP-telephony products was 55 percent higher in the second quarter of 2005 over the same quarter in 2004. Total revenue was $614 million, an 18 percent increase over one quarter earlier. By 2008, Infonetics projects IP-telephony product revenue to be $5.7 billion.

With plenty of room in the market left for growth, Cisco's VoIP competition will come from numerous other companies besides 3Com and Nortel. Rivals such as Avaya, AT&T, Mitel, Meru Networks and Juniper have developed, or are working on, VoIP solutions that will squarely challenge Cisco's offerings. To keep pace, Cisco has continued its buying spree. In April, it bought Sipura, a developer of consumer VoIP technology.

As enterprise VoIP penetration increases, the technology also has begun moving downstream into the SMB and home spaces. Infonetics predicts that VoIP will have 24.3 million residential subscribers by 2008, a huge increase over the 1.1 million it had last year.

The SMB and home markets are where Cisco may face problems because it can't leverage its data-networking leadership there. SMB and residential VoIP installations can use existing phones that access VoIP via network adapters.

The potentially huge SMB opportunity for VoIP means a raft of new competitors will try to make their mark. Lesser-known vendors, such as AltiGen, Covad, Ecuity, NetFabric and Switchvox, all are developing SMB-focused VoIP solutions and devices.

How these particular companies influence solution providers depends on the state of their nascent channel programs. None of them will topple Cisco from the top ARC spot in 2006, but they will allow VoIP solution providers to partner with vendors that offer an alternative.

One such up-and-comer in the VoIP space is ShoreTel. In August, the company was recognized by market researcher InfoTech as the fastest-growing IP PBX vendor in the United States after its shipments increased by 96 percent between 2004 and 2005. ShoreTel is on the sixth generation of its IP-telephony solutions, and it launched a new channel-incentive program this summer.

But besides going up against Cisco's ubiquitous data infrastructure, VoIP competitors might also have trouble topping Cisco's partner program. The company easily outdistanced 3Com and Nortel in all ARC categories, but as in past years, it garnered especially strong partner loyalty scores.

"Cisco has always listened and is flexible even though they're a big company, so we hope that continues," says Manoj Fernando, co-founder and vice president of business development for LiteScape Technologies, a Redwood Shores, Calif., IP-telephony solutions provider.