Necessity forces adaptation
Any discussion of the 2009 outlook for the communications market must begin and end with the global economic crisis. The scarcity of credit, a bearish job market, greater budgetary constraints and depressed consumer confidence have the net effect of creating murky waters for all players to navigate.
As Yankee Group outlined in the October 2008 Focus Report, "Will the Anywhere Economy Slow Down‾," there are certain fundamental truths that we see on the immediate horizon. Telecom service providers are squeezing their capex budgets to align with lower revenue growth expectations. Enterprises must examine their IT spend with a fine-tooth comb to determine those projects that are both core to business transformation and cost-effective. Consumers will continue down the path of demanding ubiquitous access to preferred content and services, but they will be more cognizant of the financial barriers to entry and are re-evaluating luxury versus necessity purchases.
These trends seem to suggest stagnation in the communications market as service providers, vendors, enterprises and end users play wait-and-see with the economy. Yet in reality, nothing could be further from the truth. Yankee Group sees 2009 as a year of significant change and evolution. Forced into difficult decisions by tightening budgets from all sides, we expect that all of these players will alter their spending and consumption habits in critical ways. And while spurred by the current climate, these alterations will ultimately outlive the economic woes. Thus we will look back on 2009 as a watershed year in the evolution toward Anywhere.
In an effort to shed light on this evolution, below are 10 of the most significant developments we see on the horizon in 2009, with our take on 2009 winners and losers (see Exhibit 1).
Consumers will demand better value
Premium brands will lose market share. Consumers will never quit the mobile habit. Moreover, while some new services will see a slowdown in adoption, dependency on broadband where already established will not decrease.
Therefore, Yankee Group expects that communications service usage will hold up well during the economic downturn. That said, users will demand better value from their services, which will drive short-term experimentation and change long-term brand loyalty. Specific behavioral changes such as switching from premium to low-price brands, buying bundles to reduce total household bills and postponing non-essential equipment upgrades will take hold. This is good news for operators with alternative models that embrace third-party subsidization or advertising. It's also a positive for MVNOs that are positioned as best-value providers.
However, it is bad news for premium brands in the services and devices space, as well as incumbent telecom players that lack attractive triple- or quad-play bundled offerings. These providers will struggle to attract price-conscious consumers.
Recommendation: Premium service and device brands must reposition or launch sub-brands that appeal to price-sensitive consumers.
Cord-cutters will emerge from the economic mist. The challenging economic climate worldwide will separate the essential from the habitual. In line with this, fixed-to-mobile substitution will accelerate, driven by a value imperative and a change in consumer habits. That said, increased usage will not necessarily translate into an increase in mobile ARPU as prices continue to fall, consumers reduce spend on value-added purchases such as ringtones, and prepaid users cut back.
Simultaneously, mobile broadband substitution will become a reality, driven by service provider experimentation with promotions such as flexible price offers, free dongles and subsidized laptops. The increased consumer adoption that 2009 will bring for mobile broadband will forever change user habits, and large numbers will cut the broadband cord for good.
Recommendation: Mobile operators should employ aggressive pricing and packaging to focus on customer acquisition as opposed to up-selling value-added services. They should introduce more short-term mobile broadband price offers to drive experimentation and ultimately substitution.
Enterprise: WLAN to go mainstream
Wired switch port sales will decline for the first time in history. Wireless LAN will transform from being an augmentation to the wired network to being the primary means of deployment. Yankee Group expects the 802.11n standard to be ratified in the fall of 2009; and this progress, along with the negligible difference in performance from the user perspective, will contribute to the acceleration of wireless LAN deployments. This will cause a slowdown, and ultimately a decline, in wired network switch port sales by the end of 2009.
Recommendation: CIOs should break the status quo and use this upgrade cycle as an opportunity to build networks with wireless as the primary technology.
Video-enabled business processes will be born in 2009. Unified communications (UC) has been an "emerging" area for a number of years, yet video has remained the ugly stepchild of UC. Yet as we enter 2009, the majority of technical and quality challenges for video finally have been overcome. Videoconferencing has grown steadily as a replacement for travel due to green benefits and lowered travel costs, and this year will see the full emergence of this trend. Companies in key enterprise verticals (particularly education, state and local government, and health care) will begin to build business processes around video. In fact, video will actually vault to the forefront as the lead for UC in many deployments.
Recommendation: Video vendors need to work with customers to help understand where the various types of video can be best utilized.
Sunny skies are ahead for cloud computing. As IT budgets shift focus from capex to opex, cloud computing will come of age. Flexibility of scale, lower TCO for a distributed workforce, ease of upgrades and the overarching desire to simplify IT and drive better asset utilization will shift cloud computing to the top of 2009 budgets.
This is good news for the strategic value of software-as-a-service (SaaS) applications, as well as platform-as-a-service (PaaS) applications that will be widely deployed to solve challenges caused by homegrown applications; but it presents a challenge for traditional storage and server vendors. Ultimately, the rise of cloud computing means that the network and computing areas of IT will achieve tighter integration, causing the role of IT to forever change.
Recommendation: Enterprises should realign IT around virtual services rather than hardware domain knowledge.
Desktop virtualization will replace PC replacement. Mass workforce consolidations as a result of the economic downturn, especially in the financial services market, will force enterprises to look for ways to provision vast amounts of desktops to absorbed workforces in a fast, cheap and secure manner. These workforce turnover demands"”along with improvements in network optimization, VDI protocol efficiency, and the evolution of mobile VDI and offline virtual desktops"”mean that 2009 will be the year that enterprises move away from the pilot and evaluation stages and finally take the desktop virtualization plunge. Desktop operating environments will become just another enterprise service, delivered and optimized by the n