European cloud communications market set for major growth

29 Mar 2018

How will the EU cloud communications space grow in the coming months? Image: Bo1982/Shutterstock

Market insights from Q Advisors show that the EU cloud market is growing considerably.

According to Q Advisors – a boutique investment bank with insight into the European M&A landscape – Europe is set to emerge from the shadow of the US market in terms of cloud unified communications and collaboration (UCC).

Europe catches up

Future Human

According to a report from Q Advisors’ Michael Quinn and Hayley Hughes Morabito, while adoption in Europe is approximately three to five years behind the US, “the considerable growth noted in every research report since 2012 has transformed a once diminutive ‘little brother’ market into a substantive, leading cloud market fuelled by some of the most promising cloud environments”.

The report says the European UCC market will see an intensification in M&A deals due to four factors:

  • Relatively low cloud penetration in most European regions, coupled with increasing demand and subsiding data privacy and security concerns
  • An opportunity for the first pan-European player to emerge
  • Considerable growth in private equity activity, with both US and European private equity shops backing consolidators in the space
  • Fallout from the BroadSoft-Cisco merger affecting both BroadSoft resellers and proprietary platform providers

“Hybrid and cloud strategies are becoming more normalised in Europe; however, true cloud penetration still has significant room for growth,” according to Q Advisors. A major opportunity exists today for a dominant UCC provider to emerge and position itself at the forefront of this European cloud transformation.

There is a fragmented service provider ecosystem across Europe without a clear market frontrunner, despite strong demand from SMEs. The report noted that this may change: “To date, no company has executed a major European roll-up, though recent activity suggests multiple players are positioning to do so.”

Brexit taking a toll

Quinn told that Brexit means the UK is no longer as much of a beacon for the more established US UCC firms. “The UK exit from the EU makes England a less attractive market for US players, who are looking at the Netherlands, France and Germany for expansion.”

Regions such as Scandinavia, Benelux, Germany, France and southern Europe are still dominated by local players, but are producing larger, more financially viable targets as the cultural shift towards cloud and hybrid environments evolves.

Quinn said that traditionally reluctant markets are finally adopting cloud in a more serious way. “There is finally cloud acceptance in previously reluctant markets like Germany and France, and that is having a positive effect on the M&A markets.” He also noted that challenges posed by certain data privacy laws have largely been overcome due to the building out of stringent IT security standards and expanding their local data centre presence.

So, what will the prospective winners in the EU cloud UCC market need to bring to the table? Convenience is key, according to Quinn, who cited the “growing mobile workforce that needs fixed line applications in a mobile environment” as well as an increased emphasis on “customer experience and the demand for solutions to be easy to understand, access and use”.

The winners will also need to provide a bundle of services – not just voice and data but also video, cloud contact centre and security solutions, Quinn predicted.

In terms of major cloud UCC deals in 2017, the acquisition of BroadSoft by Cisco was the most noteworthy. Q Advisors said that “predictions and volatile market activity will persist over the next year while Cisco refines its cloud UCC/BroadSoft strategy”.

Q Advisors predicts that the market may see more than a dozen sizeable European UCC firms in the market by Q3 of this year. Quinn concluded: “You are going to see large US players like Vonage, RingCentral, 8×8, Evolve IP and PGi move aggressively into Europe to take advantage of the growing demand.”

Ellen Tannam was a journalist with Silicon Republic, covering all manner of business and tech subjects