(now eng ) voip...it's just the beginning :-), page-5

re: (now eng ) voip...open for (small) business Open for (Small) Business: The Time is Right for SMB VoIP
Written by Lynn Eberle
Monday, 08 August 2005
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VoIP adoption at the enterprise level has been growing at a steady pace, with some analysts predicting that IP PBX penetration will hit 50 percent of enterprises in two years, and 60 percent in 2008. But for small and mid-sized businesses, the pace of migration has been stagnant in comparison. Lately, however, there has been much interest in providing solutions to small and mid-sized businesses that allow them to take advantage this new technology.


Small to mid-sized businesses have specific telecommunications needs whose solutions require a different approach than that of a large enterprise. Today, this market is relatively untapped, with VoIP emerging as a viable and economical option. A variety of VoIP solutions is available but depends upon market segments and the businesses’ unique goals.

A Look at the SMB Market

The small and mid-sized business market (SMB) for VoIP and telecommunications in general includes companies that have 250 or fewer telephony seats. Within this group of companies, it is possible to further segment between very small businesses (fewer than 50 seats), and those on the upper end of the SMB spectrum that fall within the 50 to 250-seat range.

These SMBs can also be segmented based upon the types of telephony solutions they are operating.

“At the one end, you have those businesses that are running a key system,” said Jon Arnold, Principal of Arnold and Associates. “Then, you also have SMBs that have an on-premises PBX deployed.” Over time, the lines between next-generation key-systems and PBX systems are getting blurred, with next-generation key-systems going up in scale and features and next-generation PBXs going down in scale with more economic models geared toward small businesses.

Arnold says the key-system companies represent a very large installed base with basic needs. They do not require high-end technology, and voice-data convergence is still a distant goal. The two most immediate purchase drivers for SMBs in this market segment are low cost and the relationships that they have with the resellers who often advise them. From a channel standpoint, it is common to see some channels serving the key-system businesses while other channels serve the PBX-based businesses. Frequently, the two types of channel partners do not cross paths. Consequently, on the very small end of the SMB market—characterized by businesses with key-systems—there is not a lot of active promotion of VoIP; if the business has something that meets its basic telephony needs, it is satisfied.

“The smaller the SMB, the lower it is likely to adopt VoIP,” said Arnold. “Pricing and the recommendations of the channel partners will carry major influence. On the other hand, the larger companies in the SMB space have internal PBXs and are driven by their PBX replacement cycles. These companies are accustomed to capital-intensive operations when it comes to their telecommunications, and they are in the market for more functionality for less money.”

Although “VoIP” is now a household word in most companies, regardless of size, many SMBs are being conservative and are opting to adopt the technology later. Those with premises-based solutions have an eye on their capital expenditures and the asset life cycle stage that their present equipment is in. They are also waiting to see where continuing downward cost pressures on IP phone sets will lead. “An SMB is very price-sensitive, and wants a life cycle for its investment that exceeds that of a medium-sized or large business,” said Ronald Gruia, Program Leader for Enterprise Communications Solutions for Frost & Sullivan.

Raul Martynek, CEO of Eureka Networks, likens the SMB VoIP market to the Internet market of the mid-1990s. “In 2004, we really saw the VoIP product mature,” said Martynek, “In 2005, all of the SMBs are aware of VoIP, which reminds me of where the Internet was in 1995-96.”

Indeed, in a recent study, InfoTech predicted that by 2008 SMBs will spend $5 billion worldwide on VoIP—a huge market opportunity. In 2003, the numbers were around $41 million, so the market seems poised to explode. VoIP is becoming a mature technology and will most likely be the replacement solution for the old POTS line or the TDM in the small business.

But if VoIP is to replace traditional telephony solutions for SMBs, what must it provide and how will it be sold?

“Most SMBs want a bundle of services and a high touch and consultative relationship with their vendor,” said Martynek. “In many cases, the decision-maker is a principal in the company and not a telecommunications professional. This person wants a solution that works and is cost-effective, and a solution provider that is responsive.”

Chris Vuillaume, Alcatel’s Vice President of Communications and Servers Business Unit, agrees. “In our market strategy, we have come to recognize that SMBs have a variety of needs and that what we need to provide is different packaging of solutions,” said Vuillaume. “When small enterprises begin to add networking and the Web to their telephony flows, needs change. For SMBs without IT staffs, managing all of this can become a nightmare. Even on the administration side it is a nightmare, because you have many different bills to pay to many different vendors.”

As VoIP vendors, integrators and resellers develop their product and service offerings in anticipation of a burgeoning SMB market, they are also aware that SMBs will be looking for a consistent set of tools that can support VoIP technology and a way to manage the technology in a seamless and straightforward way.

“In the U.S. today, there is a huge installed base of SMBs that is using key-systems, with contractors who come in on demand to service these systems at expensive rates,” Vuillaume said. “Even in this scenario, businesses are too bombarded by user requirements for telephone-related service to meet all of the end user requests in a timely fashion. As these businesses look at the voice side of their communications, they recognize that their equipment is old and getting more expensive to maintain. It is now five years after the massive Y2K upgrades and this equipment is nearing the end of its life as an asset. All of these factors create a bright future for IP in the SMB market.”


SMBs Weigh the Options of VoIP and Traditional Telephony

As they feel the need to expand or reevaluate their telephony capabilities, SMBs look first to their existing suppliers with whom they have established relationships. Often, the SMB decision-maker is focused on his end business and is likely to feel overwhelmed by the array of telephony acronyms, choices and deployment models.

Many SMBs also do not have advanced technology planning or “warning systems” as to when they need a technology overhaul.

“Usually the SMB has an outgrown system or it decides to open a new office. IT wonders what to do about its communications and it looks for help,” said Bernard Gutnick, Vice President of Marketing for Sylantro. “Historically, SMBs have found it difficult to forecast needs and this has impacted their ability to manage costs and telephony investments in an efficient manner. When they invest in an on-premises system, they have found themselves captive of a particular vendor or technology and it has been a difficult road out of this situation to where they can consider other technology alternatives.”

Because of this, SMBs will typically rely on their dealers to make recommendations, since they don’t have a dedicated person who looks after the communications function or they lack significant depth of expertise in that function. “Generally, they are anxious to outsource the agony of legacy system communications,” said Gutnick.

Many independent industry consultants encourage SMBs who are considering a potential VoIP decision to not feel compelled to buy VoIP. Rather, the SMBs should first understand the business reasons why VoIP (or any other solution) makes sense.

Nevertheless, indications are that many SMBs now making telephony purchase decisions are migrating to VoIP.

“They want to consider a next generation product and most likely they’ll look at a hybrid solution or a solution that can converge both existing and new technology,” Gruia said. “The reality is, most SMBs won’t do an initial full VoIP deployment. They will migrate slowly over time. This is a life cycle-driven decision in which businesses are also looking for savings in operating costs.”

Some SMBs see the future of reduced operating and capital expenditures in the form of a managed services solution in which they no longer have to install and maintain an on-premises PBX.

“SMBs get started with the ease of administration of a VoIP system in this style of deployment,” said Gutnick. “They no longer need a dedicated on-premises PBX and they don’t have to pay high rates for consultants who come onsite one or two weeks after they make a request to add a phone extension. Now, an employee’s phone can be set up in five minutes or less—without the cost. Depending on your busiest season, you can add or delete phones as needed. The Internet is the other reality. When businesses realize that VoIP captures both voice-based communications and the Internet, they get excited because they can begin to realize some economies of scale.”

Regardless of the choice of deployment, many SMBs are discovering a real need for a converged solution, with IP at the core of the offering. Based on user preference and business needs, the company will use TDM, IP or analog phones. A small company with people working from home might be an ideal place for IP to leverage off DSL, creating a VPN tunnel back to the company. On the other hand, if an employee in the company just needs a phone, there may not be any need to deploy IP.

Popular VoIP Deployment Models for SMBs

The two primary VoIP deployment models for SMBs are premises-based solutions that feature onsite PBXs with hybrid VoIP and telephony technology to run a “split” environment and hosted VoIP solutions provided by VoIP service providers.

“A premised-based solution works best with companies that want direct ownership and control of the technology,” said Arnold. “These companies are typically larger organizations... the smaller companies prefer hosted solutions, because IP is a new technology and they often don’t have the expertise on board with their staff.”

Alcatel’s Vuillaume said that his company has moved to a managed service solution that is “turnkey” for the SMB customer. “With this solution, the customer receives a usage and performance report every month,” said Vuillaume. “The customer pays per user, so he can efficiently manage upward and downward demands on the system. Many SMBs are still using a lot of hubs and are running complicated networks, so this needs to be cleaned up, but that can be accomplished through education and the migration to a new communications infrastructure. The main factors are defining your upfront system expectations very thoroughly and confirming that you have a path to improved system productivity.”

The hosted solution offers a tremendous value, as the features and functionalities are made available at a relatively low up-front investment. This is helpful when the SMB does not have an entry investment of five or six figures to make in equipment. The SMB can set its employees up to work offsite and it can have total control in terms of allocating and de-allocating stations. Finally, whether it comes from an in-house solution or an outside services provider, VoIP technology is packet-based and is connected together seamlessly. Seamless integration is a big “plus” for an SMB, because the integration of computer-based telephony has the potential to be a disaster. Commercially available applications are emerging that run on top of the VoIP platform, also adding value to the SMB’s business.


“SMBs will be a very hot market,” Arnold said. “The large enterprise is already fairly well addressed, but in the SMB space there are many different types of providers because the critical mass for the traditional channels (large telcos) is just not there. Therefore, if you are an SMB, there are many different VoIP technology choices. You can have a PBX or a hosted solution. Some sites might also opt to take a futuristic look at technologies just being introduced, like peer to peer VoIP.”

Future Product and Market Development

Many SMBs have premised-based equipment and traditional telephony today. This will change as suppliers alter their business models and their R&D investments to favor VoIP.

“In the New York City market, we were seeing about 95 percent premises-based and 5 percent hosted VoIP solutions six months ago, but the battle won’t begin in earnest until the large carriers get involved,” said Martynek. “Carriers have yet to fully integrate VoIP into their business process models, and I believe that we will begin to see this happen toward the end of 2005—and that it will pick up speed in 2006.”

As vendors focus greater efforts on VoIP, profit models will also change. The primary impact will be lower profit margins on hardware—a worry for telcos, which have relied on these margins in the past.

“Enterprise vendors will start selling core processing that is platform-independent,” Gruia said. “Margins will be made from software and services. Installation for the customer will be done through a local channel partner.”

The channel partner concept for SMBs will continue to evolve so that it merges into consumer channels. A next logical step will include taking the technology to the mass market by marketing it to small businesses through outlet stores like Fry’s or Best Buy. In this way, an SMB with five employees can buy a VoIP solution off the shelf that combines security, Internet, voice and data; the entire solution will be plug-and-play. The SMB simply buys a DSL connection, because system setup defaults are all preset. At this stage, the solution will be commodity-based, and very similar to a PC or server selection process in that respect.

New VoIP solutions, like peer-to-peer VoIP, will also emerge. The peer-to-peer solution does not require a PBX investment and the individual phone sets can communicate with each other. VoIP peer-to peer-technology can handle 40 or 50 stations with a subset of the call set software inside each IP phone.

“Peer-to-peer VoIP can work in SMBs if they don’t have to scale up to large numbers of phone sets,” said Arnold. “The ideal size for a peer-to-peer solution is an office with up to 40 or 50 stations.” “With peer-to-peer VoIP, the enterprise can keep upgrading its handsets. They’ll have a software-based system that can operate within their existing network structure,” said Gruia.

Regardless of how it is implemented, VoIP is here to stay.

“The core technology will be IP for three reasons,” Vuillaume said. “The first is the advantage of having IP phones with their additional capability at a business’s communication endpoints. The second is the application potential of IP, such as video conferencing, unified messaging and collaboration. The third involves economics and flexible choices the small enterprise can secure by dealing with service providers. In the not too distant future, service providers will also be able to provide a company one pipe for all of its voice, data and video traffic.” Service providers, telcos and potentially even cable companies are looking to supply the VoIP SMB market.

New VoIP technology developments in wireless convergence include numerous wireless hand set endpoints and the coming distribution of Open Source-based VoIP systems. A number of vendors are targeting the PBX replacement market with Open Source technology, which allows for sites to develop or to purchase specific software applications that run with Open Source technology and deliver business value. Vendors are also looking to custom-develop applications for specific vertical markets. “The Open Source approach literally puts a software-based PBX on your enterprise computer network,” Arnold said. “This solution will be much less expensive than a hardware-based PBX, with its proprietary software. Adoption will depend on how savvy the enterprise is with this solution.”

Cost Trends

Most industry experts and players agree that VoIP and telephony costs will continue to move downward. “In 1995, long distance charges were running nine and one-half cents per minute,” Martynek said. “Those costs have gone down (to about three cents per minute), and there will be downward cost pressures on both TDM and VoIP as well. That’s just the way the industry is moving.”

Because long distance costs will go down with VoIP, there are potentially significant savings for companies with many branch offices or with offices overseas. These VoIP systems will also be self-provisioning when it comes to adding, moving and changing phone set extensions.


“I believe that many SMBs will migrate away from CAPEX worries as they outsource their data and voice to service providers or purchase pre-packaged solutions that are very easy to run,” Vuillaume said. “The next frontier will be operating expenses. This begins by receiving a single bill from a single vendor, and negotiating costs with a single point of contact. In exchange for attractive pricing, vendors will probably want a three to five year commitment from the SMB.”

Keys to a Successful Implementation

Most SMBs react to their telephony needs and will not be on top of current technology trends. They will initially look to their traditional telephony suppliers for direction, which is why it is absolutely critical that the SMB have a solid trust relationship with its supplier. If the SMB doesn’t have this type of relationship, the next telecommunications upgrade would be a good time to find someone who can be an excellent business partner both now and in the future.

Although VoIP is “hot”, SMBs should not feel compelled to convert to VoIP if there is no immediate business need in the present or short-term future. However, SMBs should be planning for and getting educated on VoIP because this is where the major suppliers are concentrating their R&D investments and where specialized vertical industry software applications are being developed.


Implementing a new telecommunications solution is a non-trivial pursuit that requires excellent planning and project management. An SMB should also take steps to ensure that it has a “backup” strategy when its phones go down and it should make sure that it is partnering with a vendor or a supplier that is sensitive to this need.


“The SMB should do a lot of planning before committing to a purchase,” Gutnick said. “One of the most powerful things an SMB can do is to have a communications dealer come in to perform an audit before any system definition work is done. An audit like this can turn up phone lines that are being paid for but that are not being used. An audit can also streamline the business as well as the business’s communications. The fact is, many SMBs find that their business benefits operationally as well as in its communications. This is a value proposition that the dealer can bring to the table.”


A strong dealer and business partner also brings value to an SMB in a consultative capacity. This begins with a reliance on the dealer to assist with the design and implementation of a new telecommunications solution that fits the needs of the SMB. The relationship ideally continues with the dealer keeping the SMB informed of new technology developments for the implemented solution and when to consider phasing into new product features from a cost as well as from a technology standpoint.


“The key thing is to be ready to make the capital investment if you have an on-premises solution,” Arnold said. “If you are looking for a service provider to fill all of your needs and you don’t want to make a large up-front capital investment, the service provider will have lease options.”

Conclusion

VoIP technology has matured to the point where SMBs can now deploy VoIP with high confidence. The sound quality is excellent and the days of experimenting with VoIP have evolved into a high quality service.

Nevertheless, a critical issue for SMBs is feeling comfortable that the VoIP technology will meet the reliability expectations of the organization. “For a SOHO with a network-based technology, you can lose a voice signal now and then, but your tradeoff is that you will obtain far better features and flexibility than you have ever had before,” Arnold said. “On the vendor and integrator side, the VoIP solution has to be able to coexist with the legacy technology the customer already has unless it is an issue of total replacement. Next, with the new technology being more software and service-based, vendors will have to get used to lower profit margins on hardware. If service providers become very aggressive in the SMB market, vendors that have traditionally sold hardware-based PBXs could lose out, so they have to make sure that their offerings remain competitive.”

Finally, remember that although VoIP is a great solution, it is not the only solution. A customer-focused business partner will approach a customer with the priority of understanding the situation of the customer first so the business partner in turn can provide the “best-fit” solution.