Unified Messaging: The Next Service Differentiator

Unified messaging (UM) is a single inbox that allows for the storage and retrieval of voice, fax and e-mail through a telephone or Web-interfacing PC, smart phone or palmtop device. The service is designed to notify users when a message is received, and may provide a wide range of supplementary services.

True UM involves “stores” where messages are all collected in a single intelligent database, regardless of media type, says Danny Winokur, vice president of business development for USA.Net. This is different from integrated messaging, which stores fax messages in one system, voice mail in another system and e-mail in yet another, and where integration is done purely at the interface level. With UM, communication should be any-to-any, with all messages consolidated and run through a single intelligent package store that keeps information in its integrity in a master form on the server.

The concept of unified messaging has been around awhile, so what’s happening to generate such interest now? For one thing, there are just too many different ways to communicate in today’s world, making it difficult to handle and respond to everything separately, says Mark Schwartz, director of Internet application development for Frontier. Demand for the benefits of unified communications has been particularly strong in the business, consumer and SOHO markets. Since users want a single interface for receiving and transmitting e-mail, voice and fax messages, unified messaging centers are the most logical place for this integration to occur.

“UM is also really beginning to take off as a result of wireless penetration and the acceptance of voice mail with cell phones,” says Schwartz. “This is great from a UM standpoint, since cellular carriers are actually helping educate the population as to what voice mail is all about and see additional potential, such as paging and other voice capabilities.”

Industry analysts agree that unified messaging is a growth market. IDC estimates the number of unified messaging mailboxes will increase from 35,000 in 1998 to 25.4 million by 2003. Ovum has equally high expectations, predicting that the introduction of unified messaging services will be as significant as the introduction of direct dialing, with forecasts of 170 million active mailboxes worldwide by 2006. The Pelorus Group predicts that revenues of worldwide service providers from unified messaging will grow from $28.6 million in 1997 to $2.3 billion in 2002. And according to Frost & Sullivan, sales of unified messaging software, hardware and services were $329 million last year, with estimates of growth to over $1 billion in 2000, and $5 billion by 2005.

In a recent IDC survey of U.S. households, almost 24 percent of respondents said they were interested or very interested in unified messaging. However, service provider competition is actually a stronger driver than user demand at the present time, says Jeannette Noyes, research manager at IDC. “The next 18 months will result in a proliferation of messaging types, especially e-mail, becoming more complex,” she says. “This will create a larger market for more competition, with service providers needing to differentiate themselves.”

Slow on the Uptake

Even with all this potential and demand, widespread implementation of unified messaging has lagged, largely due to incompatible technologies and the restrictions to in-house networks caused by proprietary solutions. UM can either be outsourced, where a service bureau provides UM for its customers, or a company can develop its own UM services by buying the necessary hardware and software.

The bottom line is that a unified messaging service should bring together all of a subscriber’s messages. To achieve this goal the service must either be integrated with or replace existing messaging systems in a way that is transparent to the end user. Since the standards for interoperation between messaging platforms are not widely implemented, options for compatibility with legacy messaging systems are typically primitive or nonexistent.

Unified messaging systems combine technology that has been previously developed for single medium messaging. The most important area in which they leverage new technology is multimedia conversion. Text-to-speech engines enable e-mail headers and text to be received over a standard telephone; interactive voice response provides for complex commands to be given quickly and efficiently from a telephone; and voice over IP technology allows voice messages to be transmitted to a PC over the Internet. However, text-to-voice conversion is difficult and not yet high-quality, says Alex Winogradoff, principal analyst for GartnerGroup.

And a telephone interface to unified messaging is costly for text-to-speech capabilities, since they much more processing power and elements that traditionally haven’t been used on this large of a scale, says Schwartz. Elements are only now being built for a carrier’s scale; although UM can be offered on a smaller consumer or enterprise level (for use solely within an organization), nobody has built a solution scalable for a carrier to offer UM. In addition, digital signature processors need to be distributed throughout the network, adding to the cost factor.

Outsourcing Has an Edge

Outsourcers, or message store providers, are making a great deal of noise within the UM marketplace. According to Winokur, these companies provide benefits in that they specialize in running the message store, offering the ability to operate a scalable and reliable message infrastructure. He expects that outsourcers will manage the message store on the behalf of a variety of companies actually providing the services, including telcos and companies offering Web-based UM solutions. “We will see the utilization of the back end of a message store that has the ability to create an economy of scale and provide unification,” says Winokur. “Carriers can then privately brand, label and bill those services while maintaining their customer relationships.”

Many resellers want to provide enhanced services like unified messaging but don’t want to spend the time and money to deploy complex platforms on their own, says Charles Coats, director of marketing for Concord Technologies. Incumbent carriers typically focus more on their core service offerings; the smaller companies will be the ones providing UM initiatives and innovations in order to provide service differentiation, he adds.

Outsourcers gain an additional advantage in that many carriers are saying they won’t offer UM service on their own unless it is truly transparent. Frontier is one example, currently working on an outsourced (hosted) e-mail messaging service that is targeted for the first quarter 2000. This platform will also serve as the basis for offering UM and will drive Frontier’s UM strategy, which is estimated to launch in the third or fourth quarter 2000.

Frontier plans to build VoIP and next-generation network capabilities based upon network elements being put in place today from a variety of vendors. “Everything will have a Web-based component,” says Schwartz. “Internet and e-mail are driving the interface for unified messaging more and more towards a Web-based communications portal.” There’s actually a move for all IP services toward outsourcing and application hosting, adds Mark Farmer, product manager for Solect Technologies. UM is just one way to differentiate the outsourced service—it can be offered as a premium service, managed and/or billed by the service provider.

Qorus, a provider of outsourced Web-based messaging services, has designed its architecture from the ground up specifically to support seamless integration of messaging formats. Through a partnership with Moore Business Communication Services, Qorus will develop messaging services and provide them through Moore as the services come into operation. They are envisioned to include secure and encrypted communications, confirmations and billing service. “We believe that most companies that outsource [services] want a total outsourced solution,” says Michael Sohn, Qorus CEO. “They want them [outsourcers] to handle the physical as well as the electronic bill.”

Also serving as an outsourcer for ISPs, ISP.tel provides billing and settlement as well as technical and marketing support. According to CEO Paul McGovern, ISP.tel’s role will be to allow, provide and bill for all services on a single multivoice platform. Although the company has been in discussions with some UM providers, they have not yet finalized any solutions. Predicting that some UM solutions will be free, ISP.tel is figuring that storage will be the added value which ISPs will need to bill for (for example, the ability to access a year’s worth of voice mail messages), as well as the potential for usage-based charges. ISP.tel is banking in the scalability of its billing partner, MIND CTI.

How Is Billing Handled?

It is particularly important to differentiate between unified messaging and integrated messaging in terms of billing, stresses Winogradoff. With unified messaging, one server handles e-mail, fax and voice. Messages come into the server and are disposed and managed on this same platform. With integrated messaging, the individual messaging platforms for voice, e-mail and fax are separate, with the output billing information integrated at the client or the server level. Incoming messages are processed as an independent stream of information and billing. The result is a single messaging billing statement to the end user, but the messaging itself is not truly unified on one server.

Since service providers don’t want to have to force end users to change their e-mail address when incorporating UM services, vendors are creating platforms to bring in messages that may be stored on another platform and then delivered to the customer at the same time in an integrated, unified manner. “I can imagine this would begin to bring in billing issues, since it involves sitting at the nexus of a platform that has storage in other areas, bringing the message forward and putting it out to the customer,” says Noyes at IDC. “You have to be able to not only coordinate it all, but also be able to bill for it.”

In addition, as noted by Primal Systems, provisioning a single number on multiple devices requires the collection of usage or billing events from multiple devices in multiple formats. Rating mechanisms must adapt to the service type—seconds and minutes for airtime, or packets and bytes for IP and messages. Noyes has heard vendors say that some of their potential customers can’t jump into a unified messaging implementation right away because they don’t have a way to bill for it, or their billing vendor hasn’t figured out a way to deal with it yet. It depends on their platform and how they are able to integrate; the billing system has to be able to bill for a particular platform, she says.

UM platforms are traditionally either central-office based or involved with phone systems directly, which means a whole range of infrastructure issues can impact billing, says Qorus CEO Sohn. Web-based services provide advantages by enabling providers to directly interface from Internet databases, establishing voice or fax sessions in any type of exchange. By disseminating everything from Internet servers, billing information can be accessed right from the Web, even if carrier delivery mechanisms differ. The crux of this technology is the ability to establish a voice and Internet session at the same time, working with and accommodating idiosyncrasies associated with the telecom legacy infrastructure.

Qorus’ UM platform stores all message types and has a billing flag built into every record. As part of the billing process, Qorus gets a delineated ASCII text file from its customers and then converts it into a bill presentment format (either fax or e-mail). Qorus creates an interface session between the Internet and the telephone, which allows the conversion of voice and text by command. The system can convert text to speech, as well as process voice files, which are then digitally recorded and passed along as e-mail. Although not yet fully functional, in the near future it will also be possible to have voice recognition where the system can codify e-mail speech dictated over the telephone. As messages are processed, the system will store them in neutral form as a computer files, and then transform them into whatever medium the customer wants.

Carriers leveraging telephony platforms face different challenges when moving into the mass market to provide UM. Interfacing to legacy technologies such as PBX systems is not as open as some of the IP types of services, which is likely to change as IP technology becomes more adopted over time, says Farmer.

According to Jack Barnett, director of service architecture and operations for Lucent Technologies, no telcos today have large commercial billing processes for UM. They are exploring all kinds of options as they introduce UM in tandem with their existing telco services, including understanding how UM usage varies within the mass market, he says.

Lucent’s AnyPath UM, which allows carriers to extract CDRs around activities within each user’s mailbox, is in beta testing with operators in the United States and Canada. Billing is not yet an emphasis, but the carriers are using CDR data to understand traffic models, because requirements for message length and holding times for text-to-speech conversion via a telephony interface are different with UM. As a single server, AnyPath can connect to service providers or the public telephone network for telephony access to customer handsets; or users can log in via the Internet, since AnyPath is also a Web server.

A Variety of Price Scenarios

According to Noyes, unified messaging will involve different pricing models. In some cases it will be given away free or bundled into mega-minutes wireless packages in order to retain customers. Other providers may decide to offer UM service for a monthly fee, which the consumer market would accept at somewhere around $10–$15, says Schwartz. In the commercial environment it is less clear how pricing will shake out, since no well-established market exists for commercial UM solutions provided on an outsourced basis, says Winokur. He expects some experimentation while the market in that area develops.

Noyes estimates there are about 50 million users of free e-mail today, or about 30 percent of all unified message in-boxes, and although she predicts free messaging services will still be around by 2003, their percentage of in-boxes will drop to about 15 percent. Web-based services are offering the mailbox functionality for free as a stepping stone to other enhanced features that require a fee. According to IDC, 25 percent of unified messaging services will subscribe to this model by 2003. The free service is the bait, providing customers with the basics and enticing them to upgrade to higher service levels, Noyes says. Some advertising is also involved to help service providers fund the free mailboxes. She predicts wireless providers and ISPs in particular will need to contend with this component.

However, providing free services can be a challenge, particularly for start-ups trying to keep up with the influx of orders, says Steven Combe, director of product management for Primal Systems. In addition, there is no guarantee customers will keep using the service. Other difficulties with UM implementations have been on the business side, with customers trying to figure out the correct business model and how to market it, notes Steve Sommer, VP of marketing and business development for Portal. Many UM services, particularly those offered for free, are designed to grow market share and up-sell other services, such as more storage space. “The danger is that many pricing models have been tested and shattered by the Internet, with providers giving away free services in the hopes of up-selling,” says Sommer. “But many times they haven’t been able to up-sell.”

UM will initially involve flat-rate billing structures, predicts Schwartz. Since it is a fairly new product and concept, flat-rate pricing makes a lot of sense—the simple pricing structure makes it easier for people to adopt, says Schwartz. This model provides direct revenue for the service provider based on the flat rate, as well as indirect pull-through revenue via additional calls when users respond to messages. It has the benefit of simplifying the workload and will likely cause traffic to spike, thus generating more revenue for carriers.

But over time, price models could get more complex, since UM combines several different services, as well as access and transport of services within a carrier’s network. Services may be bundled into flat-rate pricing packages, but providers will become savvier in profiling users and how much transport and access they use in conjunction with other services. For example, providers may not want to charge customers who are primarily fax and voice mail users the same amount as customers who also use e-mail and send many e-mails with bulky attachments. “That’s where billing will be critical going forward, since over time you want to have the ‘cost causer’ pay for what they’re actually using,” says Schwartz.

Concord Technologies combines a subscription fee with usage-based pricing for its Universal Mailbox product, charging customers $14 per month, and then $.19 per minute for use of the individual 800 number assigned to each for message access, which helps Concord cover its network charges. This 800 number is used for incoming faxes and voice messages, retrieval of any type of messages via the telephone, and forwarding messages to fax machines. The reasoning behind this model is that unified messaging melds and blends networks, so customers feel information from the Web should be free, but they don’t mind paying when long-distance calls and networks are involved, says Coats. The billing system Concord uses to support this model was actually built in-house and is managed and maintained internally.

And although it does not yet offer full-featured UM, USA.Net is working toward developing true UM capabilities in the coming year, which it expects to bill for on some sort of usage basis, says Winokur. Plans are to offer core UM capabilities and a defined finite amount of usage for a monthly fee, with incremental charges for usage above this amount, as with many cellular plans. Billing will almost definitely be within the existing billing environment, which is based on Portal’s Infranet. The company has already built some billing capabilities that allow it to meter fax usage. This UM service offering will have a Web-based interface that uses the Web-based mail client technology USA.Net has already developed and deployed. It will also include other e-mail interfaces like POP and IMAP, a telephony interface for fax and voice mail purposes, and a pager network interface for notification.

Future

While industry experts agree that unified messaging will experience attractive growth rates within the next few years, opinions differ on who will be the chief service providers and which models will win out.

According to Noyes, the introduction of free services will drive market awareness and development. While this is a boon to service providers, it is also a threat, especially for wireless carriers and ISPs, since they are experiencing churn and receiving pressures to keep prices down. However, she predicts free and paid services will co-exist, citing today’s burgeoning e-mail market as an example.

Winogradoff feels UM will probably exist as an add-on to buy other services, sitting on top of a service platform that is primarily Internet-driven. As a result, service providers will not make money from UM; it will simply be a way for them to stay in business, serving as a differentiator. Many providers are still trying to figure out whether they will make money from subscriber services or advertising, adds Portal’s Sommer. There will be quite a bit of experimentation about what customers will accept.

The UM market will be very competitive, agrees McGovern of ISP.tel, seeing opportunities for the ability to deploy global UM, where customers could establish an office in many different countries, with a local number they could dial into.

Winokur predicts the UM market will see the adoption of IP technology, not only at the user level, but at the backbone network level as well. He feels IP is beginning to have a significant impact on the underlying cost of carrying voice and data content over large distances, with distance becoming less of an issue and costs coming down. “In the future, true UM solutions could be billed on a flat-usage basis, which users find tremendously appealing,” he says. “The UM market will be similar to the ISP market, once usage habits are tracked over time. … Users will no longer feel like there’s a clock ticking and they are counting minutes, which will really fuel market growth.”

The trend is away from usage-based models, and toward pricing strategies with volume discounts, agrees Combe. As flat-rate pricing become more prevalent, rating will not be as important, but cross-product discounts will become more complex.

Unified messaging today is largely unified through an e-mail client, says Farmer of Solect. Unified messaging of tomorrow is going to be more pervasive, in its ability to move and view messages over PCs, IP-based wireless devices, PDAs, etc., and have them read over the phone or redirected through any access device. With IP and software-based messaging, the opportunities to receive messages of any kind and from any device will only become more widespread.