Into Their Own
Offering Telephony and Telephone Features as Hosted Apps
By Charlotte Wolter
How do you sell a product so new that no one, neither your customers nor your salespeople, has ever heard of it? That’s the task communication application service providers (CASPs) face as they go to market with a new kind of communication service: Telephony and telephone features as hosted applications.
Not only are the products and the companies new, but the idea of telephone services as applications on an IP network is a concept entirely foreign to those for whom the term “phone company” conjures up images of big switches in refrigerator-sized boxes with thousands of copper lines snaking out the back, all housed in a huge downtown office building.
To get the word out and provide the proper support for their products, CASPs, like ASPs in general, are developing a variety of new sales channels. Some of these involve alternative service providers, such as telecom resellers, agents, ISPs and CLECs, while others use the proven customer relationships of value-added resellers (VARs) and integrators. All emphasize training to get their sales channel representatives up to speed on the new technology.
The pitch where CASP services are concerned is not so much that the service provider is delivering a bundled discount proposition based on IP voice technology. Instead, the value CASPs bring to the data networking environment has to do with the ability to integrate voice communications into the IP data stream and, therefore, into any type of application. For end users with multiple locations, the elimination of the expensive and cumbersome separation of voice and data networks can be especially important to the bottom line.
VARs or LECs?
The two channels these CASPs favor most are the IP service providers who already sell a data connection of some sort to their customers, and VARs that already sell telecom equipment to end users. With no proven models upon which to draw, CASPs make their choices based on past successes of their channels.
GoBeam Inc. (www.gobeam.com), a CASP that offers a mix of local and long-distance voice, messaging and on-demand conferencing, began by cultivating the “interconnect” channel. This is the community of VARs that sprang up after the FCC ordered AT&T (www.att.com) in the mid-1970s to open its network to “interconnection” with customer premises equipment by other vendors. That channel has been selling PBXs ever since.
“When we started, we wanted a channel that would actually sell things; that has had experience in selling,” says Jeff Stern, executive vice president. “We knew the Toshiba VARs could sell because, if they sell similar things to customers we are going after, then they should be able to sell us.”
Stern says the reason Toshiba supported a product that competes directly with its PBX is that it enables the sales of other products with much more potential for the future, such as Toshiba IP phones, as well as being interoperable with standard digital telephones.
“Toshiba is one of the most popular digital phones for companies with 20 to 200 employees,” says Stern, who adds that GoBeam also supports a number of other IP phone vendors.
Stern says the company decided to use a “legacy” sales channel because it has “a new service, so we wanted a very reliable sales channel. It’s not very sexy, but it’s reliable and is one customers trust. And it’s one that they buy similar products and services from today.”
In contrast to GoBeam’s strategy, TalkingNets Inc. (www.
talkingnets.com) has chosen to partner initially with ISPs, building LECs and data CLECs–“any firm providing an IP pipe to the customer,” says Tony Surak, executive vice president of marketing and sales.
TalkingNets markets a mixture of dial tone and long distance with voice and productivity applications.
The use of equipment VARs and integrators is complicated by the fact that those companies are not providing the Internet access, Surak says. “So we have to develop a three-way relationship with the system integrator, us and a pipe provider.”
Nevertheless, the company sees enough value to the VAR relationships to have a business development staff member working on crafting a model for them.
“That channel is a natural because they are used to selling into enterprises,” Surak says. He adds, “Even Cisco (Systems Inc.,
www.cisco.com) is making introductions, because they will be selling more of their SIP phones (phones that use the Session Initiation Protocol to set up IP communications), and [VARs] reach niches they could not with their IP PBX products.”
TalkingNets favors the data SPs, however, because those companies have “a great relationship with the customer and are viewed as experts,” Surak says. “Local and regional ISPs built their businesses selling directly to customers and providing services that enterprise customers rarely see from the ILECs.”
TalkingNets has two levels of relationships with channels–an agent relationship and a full reseller partner. In the first, because TalkingNets provides all aspects of the service, including billing and collection, SPs can launch their sales efforts quickly. “The only long lead item to get a partner up and going is training the sales force and providing the interconnect between that partner’s main PoP and our facility in that market,” says Surak. “But they can be up and running in 30 days.”
The Longer View
Talking Nets’ reseller model is a longer-term play that Surak says is targeted “to national players–the more sophisticated providers that are willing to make an investment in preparatory work and have savvy marketing teams that know how to bundle prices and services.”
These resellers are typically responsible for the regulatory filings, determining the pricing and becoming the service provider of record by billing the end customer.
In the reseller role, TalkingNets simply sells its services to the channel partner, which does all the reselling to its customers.
“That model takes a lot longer to come together because it relies on the channel partner to roll out a network,” Surak says. “So they make a strategic decision [on] whether time to market or branding is more important, and that drives the account one way or another.”
Although it started out with agent relationships with its resellers, CASP congruency Inc. (www.congruency.com) also seeks those relationships that migrate to something more like what TalkingNets calls the reseller role.
“Six or eight months ago, we considered ourselves almost exclusively a CASP–the strategy was to use CLECs and ISPs as the channel and let them sell to the end user,” says Dick Murphy, CEO. “We found a number of customers … once they built a critical mass of end users … wanted to license our technology and integrate it with their service offerings. Our service would be part of their product portfolio, and they would manage it.”
Operationally, congruency would no longer host the applications, and the licensee would take over hosting applications.
A new player still somewhat in stealth mode, Telverse Communications Inc. (www.telverse.com) has a strategy to focus on ILECs, based on its management team’s experience with established carriers.
“We have forged longstanding relationships with telecom companies,” says Karen Frazier, vice president of marketing. “If ILECs and CLECs already have those relationships and want to bring more value-add, that is what we can do.”
The target end user is small to medium-sized businesses, “But we think also that Fortune 500 companies can benefit as well by creating the virtual corporate office that allows for greater collaboration among all employees,” Frazier says.
GoBeam is also cultivating relationships with what Stern calls a “wholesale” channel, which comprises companies, such as ILECs expanding out of region to launch new services, CLECs that don’t want to buy legacy equipment anymore, and ISPs that focus on business customers, as well as certain cable companies.
These companies “recognize that their main capability is in customer contact and managing customer relationships, and they want to deliver advanced business services,” Stern says. In this type of agreement, the service would be branded with the carrier’s name.
Stern sees this channel as more of a long-term prospect, and GoBeam has not yet finalized a deal with a carrier channel.
“These guys are not early-adopting organizations,” Stern says. “The issue with wholesale deals is that most who do wholesale now have their own speed at which they want to deploy things. For us, the most important thing is to get end users using our system. If we waited for a wholesaler to sell our stuff, we would have to wait a long time.” Despite the delay, Stern adds, “We are still big on doing wholesale deals.”
An issue that sometimes slows down development of the relationships with the carriers is that these are larger companies with their own CTOs, who have a personal stake in the network.
“The CTO’s main calling in life is building the network,” Surak says. “Then we come with this make-vs.-buy option, but the CTO, in their own interest says, ‘I’m going to go in and build this stuff myself.’ So it becomes a time-to-
market issue to convince the executive teams of that channel partner. The smaller players recognize up front that there is no way they are going to be able to do all this themselves.”
Frazier admits there is a possibility that the large ILECs Telverse is targeting may want to develop their own networks, “But if they want speed to market, here is an opportunity to do that before building it yourself,” she says. “With SIP, there is not a lot they could do quickly without that being fully deployed anyway.”
The CASP’s view of the technical capabilities of the reseller also influences channel choices, and those views can differ markedly. TalkingNets favors the data LECs.
“When you look at these guys providing data, that alone is pretty complex,” Surak says. “They have the ability to grasp the voice side of the equation. It’s easier to drop a T1 to someone than to sell a VPN. A lot of CLECs struggle with that.”
GoBeam’s technology influenced the choice of VARs. In the absence of low-cost IP phones, the company offers low-cost mini-gateways as an alternative, provided by GoBeam’s application partner, Sylantro Systems Inc. (www.sylantro.com).
“When we go in to do a hookup, it is usually a black-box client adaptor that speaks twisted pair on one side and RJ-45 on the other, and you wire them to a punchdown block (a telephone interface),” Stern explains. “That is why we went after [Toshiba VARs] rather than data VARs, because we didn’t want to have to teach data VARs about telephony.”
GoBeam still plans to use data VARs, “as soon as there is a commercial-grade IP phone. We have been using some IP phones (such as Toshiba), and they are pretty good, but the price is way out there,” says Stern.
The Business of Selling
The structure of the business deal with VARs and carriers is typically an annuity, an ongoing payment to the VAR in proportion to the size of the sale. The exact percentage is usually confidential. For VARs, this is an attractive alternative to installation fees and trying to squeeze margin out of equipment sales. There also may be incentive programs that provide upfront lump sums.
“As long as they serve the customer and perform as the first line of support, they will continue to make money,” Stern notes. “That is very attractive to them.”
Although agreements are perpetual, numbers can vary, depending on the distributor and the territory–the number of customers they have now and the numbers the distributor forecasts.
“A distributor that commits to bringing in 1,000 customers is different from one that commits to 10,” says Stern.
GoBeam has an “agency” relationship with the Toshiba VARs, according to Stern, in which the product retains the GoBeam brand name, but the VARs install and customize the product and so provide first-line technical support.
For congruency, in initial deployments, service providers have paid a monthly fee based on the number of end users for the product. If a service provider wishes to operate the services themselves and establish a licensing arrangement with congruency, “Then the structure, in terms of revenue for us, would change,” says Murphy. “The [service provider] gets the best of both worlds. They can start out with a smaller operation and pay for the service itself. Then, when they become profitable, they can take it in-house and change the structure of the revenue.”
In the second scenario, congruency might receive less ongoing revenue, based on the license fee, but would not have the expense of operating the infrastructure, such as the data center. “Most ISPs are data centers by definition, and CLECs have begun to move from a circuit-switched environment to packet, which says data,” says Murphy.
The congruency product has been co-branded in initial deployments, but, as relationships shift to licensing, the service provider’s brand will go on the product.
TalkingNets has two levels of relationships with resellers. The first is an agent relationship much like that of GoBeam, in which the agent sells the service and provides the first line of customer support, and is paid a commission. In the second, TalkingNets sells the service at a predetermined price, and the channel partner can mark it up as it chooses.
With any new product, training of sales staff becomes an issue, one that is particularly acute with a product as revolutionary as a CASP application suite. TalkingNets has developed an extensive program for channel partner training.
Surak says service providers have been eager to acquire expertise.
“They really want to be comfortable about knowing our product and the value proposition before they go out and sell, because they want to maintain that image to their customers of being the expert,” he says. “They don’t want to do anything to undermine that. So they have been willing to spend time to understand what we are selling and how it works.”
Once the channel partner is under contract, a manager is assigned to each account to monitor progress and provide assistance. At the same time, a system engineering group, which also works on presale technical issues, is available on an ongoing basis to resolve issues. The manager and engineering group together work with the customer to develop service bundles that include the current data products. They also train trainers for the customer’s sales force and may go out on sales calls if requested.
TalkingNets also maintains an extranet that features promotions, collateral materials that can be used for selling and additional training materials.
“We tell them we smother them with support, and we are not successful unless they are successful,” Surak says. “We leverage the fact that they already have customers and are already selling them Internet access, and say we are just using another application that happens to be dialtone telephony services.”
Charlotte Wolter is editor in chief of Sounding Board magazine. She can be reached at