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Calculating Total Cost for Cloud Contact Centers

Hosted contact center sales are up, lifted in part by the growing awareness and acceptance of cloud services generally, but also due to benefits that cannot be matched by a premises-based contact center, specifically. For telecom agents, hosted contact center presents an opportunity offer more value to call centers than just cheaper long-distance.

Hosted contact center service providers interviewed by Channel Partners reported significant sales increases over the last 12-24 months. Interactive Intelligence, for example, claimed its cloud-based contact center sales grew about 300 percent from 2009 to 2010. InContact Inc. said fourth quarter of 2010 was its third straight quarter of record bookings, with an increase in year-over-year revenue of 98 percent. CosmoCom Inc., which has a dozen years providing hosted contact center platforms to telcos, noted telco pipelines had increased 4X during the last 18 months. And, it started offering its own hosted service two years ago because customers started asking for it.

While individually these reports are noteworthy, collectively they signal that businesses are embracing hosted contact center technology in unprecedented numbers. The drivers, experts say, fall into a few buckets: lower cost, greater flexibility and increasing comfort with cloud models.

Total Cost

The initial lure of hosted contact center is the low cost of entry when compared to a premises-based solution. Because cloud solutions are subscription-based, customers dont need to come up with a lot of capital to implement the solution. Inability to get and/or spend capital has been a conundrum for businesses since the economy tanked in 2009. All cloud services, including hosted contact center, have been beneficiaries of businesses increased willingness to entertain operational expenditure models as an alternative to capital expenditures.

Upfront cost is the biggest driver, especially given the economic situation over the last several years. People are looking to not make a capital investment upfront, but to spread the costs over time,” said Steve Kaish, vice president of product management and marketing for CosmoCom, which offers both hosted and premises contact center solutions.

The holdouts on hosted contact center argue that the cost benefit can only diminish over time since the subscription fees continue in perpetuity while the premises purchase is a fixed amount. The larger the customer, the more likely they are to buy into this reasoning and opt for a traditional equipment plus software deployment.

New research from Frost & Sullivan, however, suggests that assumption is flawed. According to its new report, Premise vs. Hosted Contact Center: Total Cost of Ownership,” the cloud-based model proved to save money over time  the study looked out five years  and to be greater for deployments as they grew in size and complexity. 

In the study, which was sponsored by inContact, Frost & Sullivan analyzed 12 contact center configurations ranging in size from 50 to 500 seats and in functionality from ACD-only to a full-featured ACD, IVR, chat, outbound dialer, quality monitoring, workforce management, customer feedback, agent hiring and eLearning system.

The research firm found that 100-seat centers averaged 23 percent savings over five years. The savings increased to 34 percent for 250 seats and 43 percent for 500 seats over the same timeframe. Additionally, the study found that the more contact center applications hosted in the cloud, the more money was saved. In a 100-seat contact center, for example, the five-year savings jumps from 9 percent for a hosted ACD to 23 percent for a full-function, nine-application hosted system.

Jon Heaps, senior director of channel alliances at inContact, said the study blows holes in the widely held assumption that small and medium businesses without dedicated IT staff were the best served by hosted contact centers. Part of the reason this notion persisted is that a CFOs comparative calculations rarely take into account all the costs of a premises-based system. Heaps identified two of the most commonly overlooked components:  annual maintenance contracts, which typically are 18-21 percent of the capex cost, and the upgrades and replacement of aging technology.

In addition, these calculations rarely take into account that hosted can more closely align usage and costs. For example, a company must purchase a premises license to cover its peak seat requirements while with hosted it can burst as needed depending on the day or season.

Its not a coincidence that the market for hosted contact center technology really started taking off during the last recession,” said Kim Odom, senior director of marketing for Contactual. People are finally understanding that its more than just hardware and software and annual maintenance costs. Its the fill time equivalent to care and feed the system.”

True Value

While the capex vs. opex debate gets a lot of attention from customers considering cloud, some would argue that for contact center solutions, the conversation misses the point all together.

The real value of a cloud-based contact center is time to market, said Paul Weber, vice president of sales for Interactive Intelligence. He explained that while the traditional capex-opex discussion may be a primary decision point for a PBX, which is relatively static from day-to-day and month-to-month, it is less so for a contact center, which requires changes every day. The single-most advantage of a cloud solution is the ability to turn on functionality at the drop of a dime,” he said, noting that call centers can add call recording, for example, without having to go through the vendor selection and purchasing process normally required.

The ability to deliver capabilities quickly, Weber noted, goes a long way to allaying IT managers fears that they are losing control by using a hosted model. Instead, they are able to say yes to more requests from their internal customers that want to add functions or capacity in response to changing sales and marketing parameters.

Weber said many customers come to Interactive Intelligence, which offers premises and hosted options, with the intention of  purchasing a premises-based system, but choose hosted to circumvent an IT backlog, to get up and running more quickly, to try the functionality before they buy it or to defer the capital expense until later. More times than not, he said, they stay with hosted because of the flexibility.

CosmoComs Kaish said his company has had a similar experience. While having the option to move from hosted to premises with the same technology helps CosmoComs sales, Kaish said a majority of the fence-sitters that trial his companys software with a hosted subscription, stick with the hosted services. They find the savings, they find the efficiencies, and the operational headaches arent there,” he said.

The flexibility to add and subtract features is coupled with an ability to scale capacity up and down as needed. We can do it at a moments notice,” said inContacts Heaps

Another big selling point is the ability for hosted contact centers to support multiple locations including remote offices and home-based agents. The ability for people to work from home or remote office and still appear to be part of the same call center just wasnt possible before,” said Stacy Conrad, director of sales for master agency MicroCorp Inc. And unless you go to a hosted call center, it is too cost prohibitive to consider those possibilities.”

Cloud Comfort

The cloud in making inroads into business IT spending, according to a January report from In-Stat. The research firm said spending on software-as-a-service by U.S. businesses will increase 112 percent between 2010 and 2014, and infrastructure-as-a-service outlay will approach $4 billion in 2014.

Hosted email and customer relationship management are among the leading cloud-based applications, but the use is spreading to other communications and productivity applications.

Hosted contact center, particularly, has benefitted from the rising adoption of cloud-based CRM like that offered by Salesforce.com.  While Salesforce.coms popularity has been cited often as paving the way for all cloud services the way hanging out at the cool kids table can improve your reputation, its influence has more direct ties to the success of hosted contact center. Thats because CRM and contact center increasingly go hand in hand, and many of the available solutions are pre-integrated to work together.

If Ive decided that I am not going to boil the ocean with premises CRM and Im buying that from a cloud-based provider, its not such a big leap anymore to connect that to a cloud-based telephony product,” said Wendell Black, vice president of worldwide sales and marketing for Contactual.

Contactual offers APIs for Salesforce.com, Oracle, NetSuite, Microsoft plus modules that will create integrations with other systems, as well as home-grown and browser-based CRM solutions. In first quarter, the number of Contactual customers requesting CRM integrations doubled year over year, he added.

CosmoComs Kaish agreed that businesses that are leaning toward purchasing a hosted contact center versus a premises version, which the company also offers, are more likely to have hosted CRM, too. The company integrates with hosted CRM solutions such as Salesforce.com and RightNow.

Thats a big source of our business now,” said Interactive Intelligences Weber. He noted the company gets leads from Salesforce.com and Microsoft and other cloud-based CRM vendors with which it integrates.

Contactuals Black said the cloud technology creep is really about a change in mindset, that the this cloud stuff is for real.”

Its a realization that his own company executives had after running their own mail server for many years. We figured out there are people out there that run cloud-based mail servers more efficiently and more effectively than we do, and they give universal access to employees internationally and in and out of the office, and [we] dont have to manage it anymore,” Black said.

Channel Opportunity

With greater cloud awareness has come more comfort; with more comfort has come more customers. The result is that there are more reference accounts for hosted contact center solutions that salespeople, including telecom agents, can use as part of their pitch.

MicroCorps Conrad said agents are embracing the opportunity to sell hosted contact center and having some initial success; one in three prospects is turning into a sale.

MicroCorp represents inContact, which does all the heavy lifting for its agents, leaving them to prequalify leads. Conrad said they have been teaching agents to identify opportunities with basic questions: Do you have a call center? Do you have reps in your office? Are they remote, or would like to be remote? Do you have international locations? Are there features that you dont have today? Are you looking to upgrade hardware?

Just by those few simple questions, we can usually get enough to determine if there might be a fit for a cloud-based contact center,” Conrad said.

Whats more is that its a way to begin to have more interesting conversations with contact center customers than saving money on their long-distance.

That said, its also a great way to protect those revenues. The main motivator is to attract or keep the telecommunications services,” said CosmoComs Kaish. The hosted contact center revenue associated just with the subscription and license is actually a relatively small piece of the over all package. Its really about keeping the big money on the minutes and pipes.”

Telecom agents are always wary of someone coming in to offer a long-distance rate thats a little bit cheaper. They are always trying to save that account.

Once we start upselling the accounts, they become much stickier,” said inContacts Heaps. The other thing that happens is the customers quit focusing so much on what the long-distance rate and data rate may be.”

In that way, they are no longer constantly fighting to save their accounts from low-cost bidders, Heaps said, noting they also are increasing the average revenue per customer and they are able to target new customers based on the hosted contact center technology.

In other words, telecom agents are able to move up the value chain without having to become call center experts. It provides an entirely new opportunity for them,” said Heaps. In reality, its one circle out of their core competency.”

The proposition appears to be resonating with the channel. In the last 24 months, channel-generated sales have grown from 15 percent to 40 percent of inContacts sales, Heaps said.

Contactual also reported sales through its channel in first quarter 2011 increased 112 percent year over year. And, the number of partners now selling its services has doubled in the last year.


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