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The Problem With VoIP

Service providers continue to roll out offers for VoIP targeted to SMBs, hosted and otherwise. And many an analyst prediction has VoIP adoption by SMBs going into hockey stick mode in a couple of years. But the industry is not seeing the expected adoption.

Given the hype surrounding VoIP for SMBs, its a bit like a space shuttle crew having to abort a mission after theyre already strapped into their seats, engines rumbling, looking forward to orbiting the Earth 200 miles up; in short, its disappointing.

At the heart of the problem is a triple whammy. One, large carriers sales strategies are entirely disconnected from the needs of the SMB market. Two, because of the complex nature of the sale, channel partners are facing a big education curve. And three, it turns out that SMBs arent interested in VoIP because of the gee-whiz factor, or the slick applications that telecom hype masters have been trumpeting as changing the face of business forever.

The Carrier Problem

Getting VoIP to ignite for SMBs will start with a complete overhaul of marketing tactics on the part of providers. The fact that SMBs are underserved is the first issue. “Weve seen a big flattening in demand,” says John Macario, president of the research firm Savatar, which recently completed a comprehensive survey of VoIP demand among SMBs.

“I dont think this is a rejection [of VoIP] by the market,” he adds. “And I dont think the projections are necessarily wrong. Rather, the service providers trying to sell to this market just arent doing a very good job.”

Consider these surprising data points: sixty percent believe they will save money on calling, according to Savatar, but only 30 percent think that VoIP will be easier to manage; and less than 20 percent think it will be better than what they have now.

“The early adopters for SMB VoIP have already bought,” says Macario. “You now have to sell to the mainstream.”

Also, SMBs are confused as to which flavor of VoIP to go with. In the survey, the companies that have already bought VoIP are evenly split between trunking, hosted solutions and premises-based options. About 60 percent of SMBs with fewer than 50 employees say they dont know what they want. The remaining 40 percent is evenly split. However, Macario says most large companies that have a holistic portfolio of hosted and on-premises solutions are incapable of leveraging that. “Inevitably, you end up being directed to a sales force that sells only one of those, not all,” he explains. “So the pitch for the SMB is on a product, instead of the salesperson sitting down to talk about what the right product would be for the business at hand. Theyre very much stuck in sales silos.”

In addition to a lack of a consultative pitching process, the typical carrier approach to quoting is far from inviting. “The larger the service provider, the more pain and suffering they put the SMB through,” Macario explains.

As part of its research, Savatar put out RFPs for VoIP for a client with 65 employees and three locations. “If youre an SMB afraid of change, I would want a sales process that made me comfortable, where I got a quote in, say, a couple of days,” Macario says. “We found that the large service providers average about six-plus weeks.”

The task is arduous. “But every time were on a conference call with one of the big carriers, it turns into an hour-and-a-half engineering call, where three engineers are asking all sorts of questions an SMB [or an SMB-focused channel partner] just wouldnt be able to answer,” Macario explains. “As a carrier, I just burned four hours of engineering time on a customer that doesnt need any custom engineering.”

Macario says Savatars latest interaction with “the big guys” six weeks after initial contact was a denied request to get a quote within the week.

“Their processes, to be plain, are tailored to enterprise sales, not to SMBs,” says Macario. “So you wonder, are they really interested in selling to SMBs?”

The Channel Partner Problem

All of this means that the key to the SMB opportunity is getting channel partners more involved and solving basic education challenges. The disconnect between big carrier sales strategies and the needs of the SMB makes for a lack of partner support, but its also providing an opportunity for VARs and agents willing to acquire the necessary skill sets and become truly consultative.

“The typical SMB is not going to make a change to the business unless there is a compelling reason,” says Macario. “So they need to understand what VoIP can do for them, and understand enough of the VoIP feature set to understand which ones will help the business. The service providers arent doing a very good job at communicating any of that.”

A channel partner can fill the gap. “SMBs feel a VAR or an SI is more likely to be local, and will come in and sit down to talk about the business and propose a solution that makes sense,” Macario says. For instance, productivity enhancement, the support of teleworkers, the cost-savings inherent in going with a hosted solution all of these are potential talking points.

But big challenges remain, and many channel partners have failed to gain significant traction, particularly with the hosted VoIP services large incumbents are offering to the market. “I know there are guys out there doing it and having some success, but were just not seeing it,” says Ted Schuman, CEO at master agency PlanetOne Communications Inc. “The sizzle in the steak is way ahead of the reality. Youre asking someone to hand over the keys to their PC, desktop applications, Internet, local calls, the feature sets on everyones line, and usually were asking them to put everything out there off-premises, and well just deliver some broadband to their location. Legitimate inroads into the SMB will take two or three years. Right now its only the brave and the gadget-holics that are willing to do this.”

And carriers arent necessarily leveraging channel partners in the first place. Macario says that most carriers approached for a quote rarely refer the lead to a channel partner. Additionally, channel partners themselves find the complexity of VoIP to be a bit overwhelming.”Our agents usually end up with some sort of tragedy due to difficulty in implementation,” says Schuman. “Selling a service like this is far more complicated than selling LD or dedicated Internet. And if you sell it, youd better hope the carrier will be able to implement the technology. Agents know that this is probably where the industry is headed, but its a little intimidating. They need to understand the solution and the application better.”

Then there are skill set issues. There is a requirement with many VoIP solutions to wrap in hardware and endpoints, along with integration and professional services. This fact recently sent XO Communications Inc. to partner with Tech Data Corp., which now is offering its resellers and systems integrators XOs converged IP voice and data services, leveraging networking technologies from Cisco Systems Inc. Tom Gorey, director of XOs Business Partner Program, says the agreement was driven by XOs desire to target SMBs and voice products in the sub-100-user market.

Gorey says this partnership targets a channel not specifically represented through XOs traditional master agents, which are often disconnected from the CPE and the software parts of the supply chain.

The SMB Problem

Further complicating matters is the fact that many SMBs dont care about the whiz-bang features, making it challenging to position VoIP vis a vis what the customer may already have in place. So, Schuman says a conversation first must start with a realistic view of the SMBs core needs. “For most SMBs, in many cases its a business owner, and he doesnt understand the hosted PBX nor does he ever want to,” he says. “Its a funny thing, but what people want in a phone service hasnt changed much you want dial tone, and you want to turn on your PC and be able to hit the Internet. Do they understand the depth of the solutions and the applications and the distributed workforce model?  No.”

And while many SMBs want to hear how VoIP service/equipment compares to the alternatives, “Ive yet to meet a SMB decision maker interested in buying VoIP (hosted, premise or trunks) just because its VoIP,” says Dan Baldwin, an agent and consultant with ATEL Carrier Consulting. Customers wont switch to VoIP in order to get their voice mail messages in their e-mail inbox, or have their desk phone, cell phone and home office phone all ring at the same time, he adds. “The only SMBs buying hosted VoIP that Ive run into are those businesses opening a new office, and they dont have a phone system and theyre ordering a big Internet pipe for their business because they need it for data file transfers. The only SMBs buying premises-based IP PBXs trunked with SIP trunks or other dial tone, are again those businesses opening a new office.”

The New Hope

So, should partners write off SMB VoIP for now? Despite the challenges in the market, SMB VoIP adoption can be salvaged as channel partners acquire the right skill sets, learn to position VoIP better, and most importantly, find the right service provider. Companies with tailored solutions specifically for SMBs represent one bright spot in the VoIP conundrum, and cablecos may soon open up an entirely new vein of opportunity.

“The smaller companies are doing a great job in tailoring their messaging to SMBs, and theyre names that we may know, but ones that SMBs do not,” says Macario. “Bandwidth.com got us a quote in two days and it was a painless and educational process. Covad [Communications Group] was also pretty good this time around. The problem is, SMBs say, who are these guys, and do I have enough trust in these guys to hand over the keys to my business?” Channel partners can make the difference by vouching for such companies and presenting a range of prepackaged options for SMBs, he says.

Cbeyond, a managed VoIP provider, is one such company looking to leverage VARs and agents. “We have absolutely seen softening in the SMB space for the large carriers, and thats meant a lot of opportunity for us,” explains Brent Cobb, vice president of product management at Cbeyond, which focuses exclusively on small businesses with five to 30 employees that spend an average of $750 per month on services.

Looking for More?
Learn the Secrets of Selling SIP Trunking or how to Make the Virtual Office a Reality at the Spring 2008 Channel Partners Conference & Expo, March 10 – 12 in Las Vegas. Plus researcher John Macario, president of Savatar, will lead a roundtable discussion about The Business Case for Hosted VoIP. For more information, visit www.channelpartnersconference.com.

“We have a large number of channel partners in every market served, and they go out to our customers every day, prospecting. They end up making multiple visits, outline what they need and compare it with what we offer,” Cobb explains. “Its highly consultative.” Cbeyond offers channel partner forums in every market, at least one per quarter, to help agents learn about the new technologies.

Cable companies also should be on partner radar screens; many of them are considering channel programs. “Its Savatars belief that the cable MSOs are waking up to the opportunity for selling business broadband, so its not a stretch to consider a voice product,” Macario says. “They already have a brand. If carriers dont get their act together, cablecos may just eat their lunch.”

Cox Business Services has launched a hosted VoIP service in several markets, while Comcast Communications is starting trials early this year.

The MSOs do have a weakness, he notes, in their consumer-oriented past. “If theres an outage, for a consumer you might say that well be there between noon and 4 tomorrow. But if Im a business and my voice is down, thats just not good enough,” he says.

Links

ATEL Carrier Consulting www.atelcc.com
Cbeyond www.cbeyond.net
PlanetOne Communications Inc. www.planetone.net
Savatar www.savatar.com
Tech Data Corp. www.techdata.com
XO Communications Inc. www.xo.com


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