Point-CounterPoint: Hosted Voice vs. CPE
There has been a considerable amount of press lately that 2010 is the year for hosted voice. That there is no longer any reason to own telephone systems. Some reports are predicting extreme and rapid growth of hosted voice services over the next few years. It is all very interesting and I for one, love great fiction. But let me offer a dose of reality. Hosted voice is not new nor has it changed much since its inception a bit less than a decade ago. It can make sense with unusual requirements, but will never make sense in all or even most situations. None of these rapid growth assumptions suggest anything has changed because it hasn’t.Hosted voice goes way back to various forms of Centrex services. Again, it made sense in some situations (particularly for the hosting company), but the on-premise phone system has been the default predominant solution for fifty years. Before I get into why, let me also point out that the three North American phone equipment leaders; Cisco, Avaya, and Mitel are still in the business of selling phone systems. None of them directly offer hosted voice services.
Let’s take a look at the hosted voice model. Since no two services are alike, it is hard to summarize, but here’s a few broad strokes. Hosters tend to make the customer buy their own phones (so much for the no hardware promise). They tend to quote services per seat around $30/mo/phone
forever. Included in that price is basic service, unified messaging, click-to-dial, and “unlimited” minutes. Advanced features such as basic call center capabilities, reporting, and inbound fax services are usually billed extra. They also tend to charge extra for not so advanced features like auto attendants, call recording, and unused numbers. Then comes the list of features most don’t even offer like mobile phone integration, Skype integration, paging/intercom, shared appearances (boss/admin functions), etc.The major attractions to hosted are illusions. There is the perception that hosted systems are less administration. But the reality is most phone systems use a web GUI for administration and the difference between hosted and on-premise is actually minimal. That’s basic admin, what about system upgrades? System upgrades can be a little more work, but they should be. Upgrades should be approached as needed and tested before implementing. This all goes out the window when a hosting company determines when and why upgrades occur. Consider Microsoft’s XP to Vista upgrade, many organizations chose against it. Phone systems are increasingly integrated with other business systems. It is nice to have a choice and coming in one morning to discover critical integrations no longer work is not a feature.
Then comes the price arguments. The hosting companies use two forms of misdirection here; rent vs. own and economies of scale. The rent vs. own argument is as old as purchasing itself. The hosting companies will say that renting foreveris less expensive than purchasing once. For reasons only a CPA can understand, sometimes this is indeed true. But the beauty with phone systems is you can rent or buy them. To rent them, the term is an “operating lease”. After the lease, usually 3-5 years, the leasing company takes it away or offers to sell the equipment at a depreciated price. Just as with cars and homes – rent vs. buy is a financial decision not a technical one. What is the important thing about hosting is it never ends. In the best scenario when all goes well and your business grows, so does your telecom bill! It never ends. And the day you terminate the hosting service, you got nothing to show for it. There are plenty of decades old phone systems out there still working just fine.The economies of scale argument goes something like “don’t pay for capacity you don’t need”. Alternatively, hosters (overcharge) for everything a la carte. In the old days of phone systems, cards came with 12 (or similar) number of ports – thus to add a 13th phone, required buying 24 ports. Today’s systems are software licensed…. it means you buy the number of licenses you need. That’s what the hosting companies are doing, and they act as if no one else can do it. A license tends to run about $50-$100 one time – why finance that
forever?
Disclaimer: the authors are intentionally taking extreme positions for the benefit of the series. Their personal opinions may not mirror the opinions expressed. See the Counter-Point here.
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I have a feeling the market will be changing and the big "3" will be offering a hosted solution either from them directly to offered to their VARs as a turnkey solution for them to resell.
The equipment carriers are cautiously experimenting with it, (as they should) but generally via subsidiary and partner relationships. The only CPE maker I know of that is actually directly offering a hosted solution today is Interactive Intelligence. Are there others?
Peter Radizeski blogged a response to this debate over at TMC.
http://blog.tmcnet.com/on-rads-radar/
His Points:
1) TDM circuits fail. Yes, all circuits fail. Whatever solution that is implemented needs to balance redundancy with costs and implement appropriately. This really has little to do with hosted vs. CPE. Though I might argue redundancy is a bit easier with equipment.
2) That some CPE makers are offering hosted solutions. As I said above, some are indeed experimenting with it, but it is a radically different business model. Convergence.com is offering a hosted solution using Mitel technology. This was recently reviewed by Matt Brunk at NoJitter (http://www.nojitter.com/blog/archives/2010/02/convergence_sys.html). Mitel specifically is competing with Broadsoft by offering a service provider solution. I expect many other vendors to experiment with hosted – largely via partnerships, but Some will try it directly.
3) Lastly he talks about CPE vs. the Cloud. This is an area of confusion as CPE stands for Customer Premise Equipment. But really, there is no need to implement CPE on premise. In fact, a single CPE solution can be implemented in one location for all sites effectively self hosting with total control. Microsoft is a big proponent of this. The issue isn't so much if the equipment is onsite, in a private cloud, or even a co-location facility. The issue is ownership and control of the system.
Lastly, Peter suggests there are benefits to a $250k switch a hosting company would use that aren't available to others. I am not aware of a single feature available from a hosting company not available through CPE/IP equipment systems for a tenth of the price.
But I love the debate and conversation. Bring it on.
In my limited experience the last thing small business owners want to become entangled with is any kind of telephone technology, whether VoIP,GUI or whatever. It's distraction, a non-productive use of time. As long as it works and is cost effective it can be powered by rubber bands or pixies jogging on a treadmill.