Bordeaux wineries are very excited about the 2000
vintage. It is supposed to be one of the finest in
many years. While bottles of wine from this region won't
find their way into shops for a couple more years, the
futures are skyrocketing! 2000 has produced grapes
unlike any others that connoisseurs have tasted. To
contrast, however, rumors are that the 2000s from
California, Chile, and Argentina are not rated as
highly. But while time and the aging process will tell
for 2000 wines, those
of us in other industries are able to look back and
reflect on what was anticipated... and what was
actually delivered.
The telecom industry had high hopes in 2000. The
Y2K nightmare had come and gone, and there was no
apocalypse to be found. Our toilets still flushed, our
cars still ran, and even our computers seemed
relatively bug-free (I use the word "relatively" very
loosely). To quote our nation's economic guru Alan
Greenspan, there was an "irrational exuberance." With
the threat of global anarchy and a technological
meltdown behind us, it was time to get back to
business. However, things weren't as good as some
might have imagined.
And just as it will take time for the 2000 vintage
of wine to age so that we will know exactly how it
will taste, it sometimes takes several months of
research (or, rather, pestering) on the part of
industry analysts to receive year-end sales
information from vendors. That being the case, we don't
get to see any solid numbers until at least March,
sometimes later. What is the reason? Sales figures
that are given to industry analysts don't fall under
the same rules as financial filings. They can be late,
erroneous, or even non-existent. Because of this
hodge-podge of data we are forced to deal with, it
takes at least another month to wade through the
quagmire of information the vendors send us.
SORTING IT OUT
Right around March, we started noticing a strange
trend in our figures. Everyone did worse in 2000 than
in 1999. Let me illustrate a few examples. The voice
messaging industry is, quite honestly, not
particularly exciting. With the exception of the
dismal failure that was unified messaging, there haven't
been any major advances in the technology in several
years. Despite this, it is a viable product and people
need it. The messaging market tends to grow at around
5 percent annually. Not, however, in 2000.
The IVR (interactive voice response) market is a
bit more erratic than the messaging industry. It tends
to have ups and downs, but has been steadily rising
over the last years. In 1999, the IVR market grew at
31 percent over that of 1998, yet it dropped in 2000.
The PBX market has always been the rock of the
industry. Steady and reliable, the PBX market would
grow at 2-3 percent annually without fail. And why
not? People need new voice systems as their company
grows, and they eventually need to replace the old one
as it wears out after decades of use. Yet this market
also dropped in 2000.
What happened? Y2K happened. It hit the industry in
a different way than anyone imagined. Surprising, most
companies were actually very diligent with their Y2K
upgrades. They didn't take a wait-and-see approach;
most companies did a very good job of upgrading prior
to New Year's Eve 1999.
SO WHAT'S THE PROBLEM?
The oldest category of enterprise technology is
telecom equipment. PCs tend to have a life cycle of
approximately three years. Even those so-called "antique"
computers are not more than five or six years old and
probably have an updated operating system, certainly
new enough to avoid the Y2K axe. This was not the case
with enterprise telecom equipment. PBXs, voice mail
systems, and IVRs tend to hang around for decades. And
even the new systems still ran on very old software.
Unlike the PC industry, non-Y2K-compliant telecom
equipment was shipping well into the late 1990s. This
lead to a mass replacement of enterprise
telecommunications equipment.
Not surprisingly, 1999 was a watershed year for the
industry. Many enterprise telecom vendors had record
sales, mostly due to replacements. Lucent, for
example, sold 107 percent more IVR systems in 1999
than in 1998, due mostly to Y2K upgrades. For a short
time everyone was happy.
BACK TO THE PRESENT
Because so many businesses accelerated the life cycle
of their telecom equipment, there was little need to
do so for many years. I am actually surprised that
some of these markets only dropped a few points, and I
attribute that to the stellar economic growth of 2000.
If not for this, there certainly would have been
decreases well into the double digits for every type
of telecom product.
So what can we expect in the future? Well I
certainly won't stick my neck out so far as to try to
predict future economic conditions in the United
States. However, I will say that the rapid replacement
and overbuying of 1999 in anticipation of Y2K will
have ripple effects for several years at least. The
most significant drops will have been in 2000, but it
remains to be seen what will happen now, as many
companies have made their 2001 purchases in 1999 and
there is no longer a buoyant economy to offset this
effect.
Brian Strachman is senior analyst, Voice and
Data Communications, Cahners
In-Stat Group. To correspond with the author,
please send your comments to brians@instat.com.
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