Market Growth Returns to Normal as UCaaS Proves its Merits Amid Recent Macro Disruptions
Macro-economic and socio-political trends have considerably impacted the European UCaaS market since early 2020. The COVID-19 pandemic-related lockdowns triggered a massive shift to remote and hybrid work, disrupted supply chains and business models in many industries, and highlighted the need for digital transformation.
Many economies are now affected by the Russo-Ukrainian war that has further disrupted fuel and food supply chains and has contributed to inflation, increased consumer and business anxiety, and a pervasive economic slowdown. With conditions further impacted by increased unrest in the Middle East, European providers have experienced longer sales cycles, reduced deal sizes, and an overall increased caution in technology investment decision making.
UCaaS has shine in turbulent times. The services have provided the flexibility customer organisations need to navigate quickly evolving customer preferecnes, work styles and business models. European UCaaS installed base and revenue growth both increased in 2022 as organisations adjusted to new realities following disruptive conditions in 2020 and 2021 due to the COVID-19 pandemic. Both metrics are expected to continue stable low double-digit growth trajectories through much of the forecast period. Growth rates and trajectories will vary across sub-regions. This is driven by the differing GDP recovery rates, divergent current penetration levels, the distinctive market propensity to adopt hosted IP telephony and UCaaS services, as well as economic and political exposure to the war in Ukraine and the Middle East.
Competitive pressures and inflationary conditions combined to help stablise prices in 2022. Price declines were more tangible with lower-end service bundles. However, the addition of new features helped providers maintain relative price stability for more full-feature seats.
The European market remains highly fragmented with the top 20 providers holding a combined 38.3% of installed seats at the end of 2022. Providers in the Others category combined to own 24.3% of installed UCaaS seats. The top five providers combined for approximately 37.4% share of installed users.
Key growth factors in the past have included network ownership, brand recognition, channel relationships and commitment to hosted IP telephony and UCaaS services. Amid shifting macro conditions providers with cloud-native solutions and a compelling web-based or mobile user experience have faired well in comparison to providers that require new circuits and/or hardware installations to deploy their services.
Mergers and acquisitions (M&A) have been reshaping the European competitive landscape in recent years. M&As and partnerships, among other factors, will lead to changes in provider business models. Many providers will emerge from these with more diversified portfolios and go-to-market strategies leveraging both direct sales and a variety of partner resale models.
