Hosted PBX: Not Just for Carriers

WE ALL UNDERSTAND THAT the IP PBX is the current generation of voice communications systems, and that it enables convergence of voice and data over a single network. As a service platform, hosted IP PBX is implemented in a service providers data center, but unlike its predecessor, Centrex service, it is not the exclusive domain of a network service provider, nor is the hosted IP PBX platform necessarily large and expensive. In addition to the large commercial platforms available from Broadsoft Inc., Nortel Networks, Sylantro Systems, Tekelec and others, there are smaller platforms available from the likes of Avaya Inc., Cisco Systems Inc. and Siemens. Most of the marketing behind hosted IP PBX and resultant buyer awareness has been driven by network service providers, but they do not have exclusivity for providing services. The architecture of the hosted IP PBX solution will support service delivery from any colocated data center, and as such, has some astute VARs, systems integrators and agents to participate in the emerging hosted telephony market opportunity.

U.S. Small Business Preference for Hosted IP PBX and/or Voice Application Service Providers

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Hosted telephony is a managed service that provides system management administration and maintenance, advanced PBX features and telephony service, and voice applications, such as unified messaging, for a fixed price per month per user. This subscription service changes the one-time, revenue-realization sales model to a revenue-annuity model. In a hosted telephony model, endpoints/terminals might or might not be included in the subscription service. Customers might opt to own terminals or include them in the subscription service. Similarly, customers might opt to own their own applications, such as a contact center, if it is strategically important to control this asset. The bottom line to the hosted IP PBX seller is that the hosted IP PBX annuity revenue stream can be built to sizable proportions over time, improving sales predictability and reducing, somewhat, the stress of monthly sales objective attainment.

The critical decision factors for a VAR, systems integrator or agent to consider before entering this market segment is whether business decision makers will consider a hosted IP PBX. For the business decision maker, choosing a hosted telephony solution over an IP PBX is more about selecting a suitable opex solution versus a suitable capex premises solution. The key issues in the decision process become business process improvement and total cost of ownership versus corporate/internal control. It also represents significant cost avoidance and service assurance, particularly for small and medium businesses, since ownership of an IP PBX also requires management of this mission-critical application and the converged communications network it runs over. In most businesses, this dual requirement translates into new skill sets and often new employees an expense that comes right off the bottom line. It should come as no surprise that an ever-increasing number of businesses are considering subscriptions to a hosted IP PBX. In fact, nearly 33 percent of all U.S. business communications decision makers are considering a hosted IP PBX and nearly 36 percent are considering hosted voice applications.

Business decision makers indicate they have a mixed predisposition for subscribing to a hosted service from service providers, and the lower end of the market represents a fairly level playing field for virtually all market participants. It is very telling that although the RBOCs have all targeted small business for their hosted IP PBX services, there is little predisposition on the part of this market segment to select them as service providers. This means a VAR, systems integrator or agent can participate in this opportunity, and if these participants represent solutions from voice system manufacturers, they can increase their chances of being successful.

In the United States, virtually no service provider is precluded from the opportunities of hosted IP PBXs and/or hosted voice applications. There are four reasons behind buyers predisposed preferences trust in the vendor, knowledge of the vendors technical expertise, the scope and scale of the vendors resources, and the vendors involvement in other areas of the customers business. This is good news for the VAR, systems integrator or agent with an outstanding track record as this success will go far in positioning for hosted IP PBX and voice applications sales.

In light of a future scenario dominated by convergence technologies, not participating in the hosted IP PBX and/or hosted voice applications marketplace will erode a service providers ability to hold its customer base and impede its ability to successfully introduce an ongoing stream of new services and solutions. Luckily, the market participant has optional avenues to provide hosted IP PBX and hosted voice applications. The service provider can purchase and implement the hardware and software platforms and upgrade operations support systems for a retail offer, resell wholesale services provided by a third party with a minimal investment in oversight staff, or partner with a third party to provide all voice services and management on a customer-bycustomer basis (e.g., an agent relationship). Each option has its own pros and cons (see chart below).

Full autonomy requires investment, but the provider accrues all financial benefits and is in control of its own destiny. Repackaging wholesale hosted IP PBX and voice applications reduces the capital requirement but introduces a separate requirement to differentiate through services wrapping around the offer rather than broadening the service capability. In the partnering model, the seller can work against a commission schedule and retain account control, but only a high volume of sales commitment will result in territory ownership.

In the final analysis, hosted IP PBX and hosted voice applications represent customer choice, and nonparticipation in this alternative will limit a VARs, systems integrators or agents ability to address all of the markets needs. Market demand continues to build, and business decision makers want choices and protection against rising costs and service assurances. Hosted IP PBX and hosted voice applications meet these criteria.

Warren Williams is vice president and senior program director, services, at InfoTech, an Access Intelligence company. Williams can be reached at

Pros and Cons of Hosted IP PBX and Voice Application Delivery Alternatives
Method Pros Cons
  • own brand
  • accrue all revenue
  • full control over depth, breadth, marketing and promotion
  • annuity revenue stream
  • toll and Internet access revenue stream
  • in control of own destiny capability or partner
  • capital required
  • colocation with network service provider required
  • billing and OSS required
  • dedicated staff
  • potentially new skill sets
  • requires on-site maintenance
  • own brand with option to strengthen with co-promotion by wholesaler
  • fixed cost of service 
  • can customize offer with services
  • annuity revenue stream
  • billing system required 
  • services dictated by the wholesaler
  • pricing flexibility is limited by costs of provisioning company
  • reliance on service wholesaler to provide service and continual upgrades
  • co-branded offer can be negotiated
  • commission scheduled
  • continue to own the customer after the sale
  • may negotiate an annuity revenue stream in lieu of on-time commission payments others selling the same offer
  • reliance on partner to ensure customer satisfaction
  • service offers are dictated by partner
  • manager of the business is tightly aligned with terms and conditions of business agreements
  • may encounter competition from
Source: InfoTech InfoTrack for Enterprise Services, Managed Services Track, December 2006


InfoTech Research Group


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