Premise-Based Vs. Hosted VoIP — Or Both?

The following statement will either scare you or make you very happy. According to Ken Adams, senior sales engineer at Allworx, IP-based phone systems will overtake traditional PBX (private branch exchange) phone systems within the next five years. With technology evolving at a rapid pace, the cost of bandwidth and hardware have decreased to make IP-based phone systems the sensible choice for many of today’s companies.

As a communications VAR, there isn’t a question of whether or not you should offer VoIP solutions. The question is, what type — premise-based or hosted? When I discussed this issue with some industry experts, they agreed. If you’re only offering one of the two, you are missing out on revenue opportunities.

Understand Your Target Market
Although the experts I spoke with suggest selling both premise-based and hosted VoIP solutions, it is important as a VAR to understand your customer and to know which type of solution will work best for their needs. “The classic target market of a hosted VoIP solution is the estimated 25 million SMBs in the United States,” says Eric Thomas, CEO of FreedomVOICE Systems. “Hosted solutions are also ideal for any business with workers at multiple sites.”

Premise-based solutions, however, are typically a better fit for larger, enterprise-size companies. “Premise-based systems fit better for businesses preferring to customize the VoIP solution and businesses in which telephony is a key component of their communication flow,” says Robert Auci, senior director of small business marketing at Cisco. For example, a hosted solution may work well for a small retailer, while a premise-based solution would be a better fit for a technical support company.

Know The Benefits And Pitfalls Of Hosted VoIP
According to Thomas, many of the companies looking for a new telephony solution today are looking for a hosted solution. Why? “Hosted solutions require less up-front capital investment, which is an important consideration in today’s economic environment,” says Diana Zhou, product marketing manager of enterprise solutions at Nortel Networks.

Additionally, hosted solutions require less setup. Companies that don’t have large internal IT staffs to manage telephony systems may consider hosted solutions because the network integration and management is provided by the VAR. “A hosted solution can also easily be scaled up or down, which appeals to businesses that may not have the time or resources to put into regular maintenance and adding new users,” says Thomas. For instance, if a company using five hosted VoIP phones hires two new employees, the VAR can configure and ship the company the two new phones. The company then only needs to plug in the phones to be up and running.
As a VAR, the benefit of the monthly recurring revenue of a hosted VoIP solution is enticing. “As the IP-based telephony market continues to grow, you will see products developed more around open source protocols. This will allow VARs to build products and increase revenue through monthly support, more phone applications, and more XML (extensible markup language) programmability built into the systems,” says Auci.

The experts I spoke with also caution VARs considering selling solutions that haven’t been tried and tested. “A reseller must choose a vendor that has standardized its product around SIP [session initiation protocol], has been fully tested with multiple circuit types and providers, and can work with a wide variety of network equipment,” says Adams. “Selling solutions that haven’t been fully tested will cause frustration for the end user and more work for you.” Your customers are relying on you for quality service, and offering a product that may cause them problems or downtime can be detrimental to your business.

Another potential pitfall of a hosted solution can be the interface the customer uses to control and monitor the IP-based phone system. “Hosted solutions are all about giving control to the user while diminishing their time investment,” says Thomas. “If the interface the user logs into is complicated and difficult to use, you will be doing more work for the same amount of money.” As a VAR, you want a solution that you can install and then put as little effort as possible into while earning recurring revenue. If the user interface is complicated, you will make the same amount of money but spend much more time assisting your customer.

The Pros And Cons Of Premise-Based VoIP
While hosted solutions are great for companies who are searching for a plug and play solution, premise-based solutions offer their own set of benefits. Many companies will choose premise-based solutions simply because they want to have control over the solutions. “Premise-based solutions offer a greater degree of customization, which appeals to companies that require specific features and services,” says Auci. Many larger companies that have highly customized business applications or processes will prefer to have the IP-based phone equipment on-site and manage it themselves. “With the more customizable nature of a premise-based solution, a VAR can stress the ability to optimize the solution to meet whatever the customer’s needs,” says Zhou. “And, in addition to the initial installation cost, the VAR can often tailor managed service offerings around the customer’s unique needs.”

VARs should also be aware of the challenges of a premise-based solution. “When installing a premise-based solution, the VAR doesn’t know what to expect from the existing network,” says Adams. For instance, many companies used to have hubs where you’d plug computers into before plugging the hub into the network. A hub, however, causes an echo on an IP-based phone system. VARs should be aware they will have to deal with similar issues that arise. Another potential con of premise-based solutions is the declining value of hardware. Further, the status of the current economy may deter companies from investing in premise-based solutions.

Most experts agree that the most successful VARs will offer both premise-based and hosted VoIP solutions. “The flexibility of offering both premise-based and hosted solutions provides a competitive advantage to VARs, and it helps customers view them as a trusted advisor that will recommend the best solution for their company’s specific needs,” says Zhou. With many of today’s companies deploying IP-based phone systems, and more to come in the next five years, determining your VoIP solution offering is something you can’t afford to put off.