October 1, 2008
By Donna Fluss, president, DMG Consulting

The High Quality of Quality Management

The quality management/liability recording (QM/LR) market had another great year in 2007. The overall market—sometimes referred to as workforce optimization (WFO)—grew by 13.1 percent, from $2.1 billion in 2006 to $2.4 billion in 2007. The contact center segment of this market continued to grow steadily at 19.2 percent, and is now approaching $1 billion in annual sales. The trends sustaining the high growth rate of this mature, yet dynamic, market include emerging vendors, product innovation, organic growth, acquisitions, and continued migration toward IP-based recording.

The QM/LR market is complex and continues to expand into new functional areas. DMG Consulting expects to see this market evolve further into analytical solutions that will both increase efficiency for contact center managers and add value to the greater enterprise. This market already encompasses a broad set of related products and services, as can be seen in Figure 1.

Figure 1: Quality Management/Liability Recording Suites
Source: DMG Consulting LLC, June 2008

The modules in quality management/liability recording suites are recording, quality assurance (QA), workforce management, coaching, e-learning, surveying, performance management, and speech analytics.

“Back office” refers to the adaptation of a number of these modules for non–contact center operating areas of enterprises or their branches. These back-office applications primarily address recording, workforce management, and a limited amount of quality assurance. This relatively new trend for the QM/LR vendors began a couple of years ago, picked up momentum in 2007, and has grown more significantly in 2008. The rollout of contact center WFO products into other operating areas is expected to substantially increase the revenue opportunity for this market.

The Market Remains Strong
The 13.1 percent WFO market growth rate between 2006 and 2007 was substantially smaller than the 106.1 percent increase realized between 2005 and 2006. A number of factors contributed to the diminished annual growth rate. In 2006, three contact center infrastructure vendors with WFO offerings—Aspect Software, Interactive Intelligence, and TeleDirect International (now known as TDI)—were added to the market analysis. Verint acquired Witness Systems during 2007 and, while the newly merged company continues to grow, it is doing so at a pace slower than the two companies had separately in the prior year. Additionally, as Verint was absorbing Witness, these two traditionally acquisitive companies did not introduce revenue from additional purchases, as each had done in prior years.

The decreased annual rate of growth should not detract from the WFO market’s strong momentum as it transitions from traditional recording and QA applications to more analytically oriented ones such as contact center surveying, performance management, and speech analytics. Additionally, the market is shifting from predominantly hardware-based applications to new offerings consisting of software running on generic hardware. This increasing software orientation means that average market margins are growing, even though the actual revenue per recording sale may be decreasing.

A Maturing Market
The QM/LR market is quite mature, having been around in one form or another since the 1980s. There are now more than 45 vendors that offer quality management, recording, and some or all of the modules found in Figure 1. With the exception of a couple of companies that are relatively new and investing all of their resources into building their suites, all of the vendors claim to be profitable. Despite the market’s maturity, each year new vendors enter the field. It’s also interesting to note that there are a number of relatively new regional players located in a variety of global markets that are coming on strong.

Mergers Impact Market Landscape
As is typical of any maturing market, mergers and consolidations continued in 2007. TDI, a provider of servicing solutions for sales and revenue generation, acquired Wygant in April 2007. In May 2007, Verint acquired Witness Systems. (At the time, Verint was considered the third-largest competitor in the contact center WFO market, and Witness was the second-largest. Based on total annual revenue, however, Verint was larger than Witness.) And in July 2007, NICE Systems purchased Actimize, a provider of software solutions for compliance, fraud prevention, and anti–money laundering. Actimize was not previously included in our coverage of the WFO market.

Newer Applications Pick Up Momentum
Sales of the newer WFO modules—namely speech analytics, performance management, and surveying/e-learning/coaching—picked up in 2007. Revenue from core contact center recording and quality management modules continued to dominate the WFO market, accounting for over 45 percent of total revenue. But the newer applications began to make a significant contribution, thanks to their attractive value proposition. (See Figure 2.)

Figure 2: 2007 WFO and Recording Solutions Revenue and Market Share by Application
Source: DMG Consulting LLC, Quality Management/Liability Recording Market Share Report, June 2008

Of the newer solutions, speech analytics had the largest market impact, generating 5.6 percent of total revenue. Performance management solutions accounted for 3.8 percent of all application sales and surveying/e-learning/coaching represented 2.7 percent.

Workforce management is not a new module; however, it only started to be offered as a component of WFO solutions during 2006. By 2007, workforce management accounted for 13.1 percent of application sales. It’s also interesting to note that non–contact center recording solutions—which are used in public-safety applications and in other parts of the enterprise, such as on trading floors and in branch offices—is a growing sector, accounting for 17.2 percent of market revenue. Video recording, which is used for security purposes, was responsible for 11.8 percent of the revenue.

Sales of IP-based Recording Solutions Increase
Sales of IP-based recording solutions continued to pick up momentum last year. In fact, for the first time, their overall sales exceeded sales of solutions based on time division multiplexing (TDM), faring particularly well outside the contact center. Among contact centers, however, sales of TDM-based recording solutions outpaced those of IP-based solutions. This is because many contact centers still have TDM-based infrastructure in place; while a growing number are migrating to IP-based solutions, most contact centers do not want to rip out and replace their core TDM-based solutions until absolutely necessary. As a result, these contact centers continue to upgrade TDM-based recording solutions, and are expected to do so for years to come. This is the primary reason why many WFO vendors, both large and small, continue to sell TDM-based recording solutions when they would really prefer to simplify their product lines and concentrate on newer, IP-based solutions.

Future Market Outlook
We expect 2008 to be another year of significant market expansion, despite the economic slowdown. Because many of the applications in the WFO market are considered efficiency enhancers or solutions that improve customer retention, they are capable of weathering challenging economic times. The quality management/liability recording market is expected to grow by 8 percent in 2008 and 7 percent in 2009. While these growth rates are slower than what we have seen in the recent past, they are strong, considering the challenges presented by the current size of this market and adverse economic conditions. For a detailed revenue and market-share analysis of 20 top vendors in the market, see DMG Consulting’s 2008 Quality Management/Liability Recording Market Share Report. The report analyzes revenue and market share by technology segment, geography, hardware/software/services, sales approach, etc. It provides growth comparisons between 2006 and 2007, with five- and four-year trend analyses for many market views.

Donna Fluss (donna.fluss@dmgconsult.com) is founder and president of DMG Consulting LLC (www.dmgconsult.com), the leading provider of contact center and analytics research, market analysis, and consulting.

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