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Microsoft’s New Interest: Unified Communications

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Mar. 11 2016, Updated 8:07 a.m. ET

Microsoft intends to outdo Cisco in unified communications space

There were several reasons for Microsoft (MSFT) being interested in Slack. But instead of going ahead with a Slack acquisition, Microsoft chose to focus on Skype for better integration of voice and video applications into the company’s office productivity suite.

Microsoft’s recent acquisitions of Event Zero and Talko demonstrate that the company wants to strengthen Skype functionalities as well as catch up with Cisco Systems in the UC (unified communications) space.

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According to Synergy Research and as the graph below shows, Cisco Systems (CSCO) led the UCC (unified communications and collaboration) market. Microsoft closely follows Cisco in terms of revenue as well as market share. UCC is an integration of enterprise and communication services such as enterprise content management, email, enterprise social networks, voice, video conferencing, telepresence, and cloud communications. Avaya, IBM (IBM), and Verizon (VZ) are other leading players in this space.

Changing dynamics and growth in UC market are luring tech players

The UC market is currently going through a transition. Hardware-focused, on-premise systems are giving way to software-based and cloud-based solutions. According to IDC (International Data Corporation), the cloud communications market is expected to grow to $7.5 billion in 2018 from $123 million in 2013. IHS Infonetics, in its March 2015 survey, stated that more than 50% of the respondents consented to have the plan run at least part of their UC services over public or private clouds by 2016. In January 2016, Synergy Research Group stated that the UCaaS (Unified Communications-as-a-Service) market is growing annually by approximately 16%.

To know more, you can read The Unified Communications Market: What Are Its Key Drivers?

Microsoft, which is second only to Cisco (CSCO) in the UC space, wants to benefit from this market’s growth story.

Investors who want to gain exposure to Microsoft could consider investing in the iShares Russell 1000 Value (IWD). While IWD invests 2.0% of its holdings in Microsoft, it also has an exposure of 3.4% to application software.

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