VOIP is no longer just an emerging technology in the channel. Solution providers say obstacles that prevented adoption in the past are being lifted and the business is picking up.Voice over IP is no longer on hold. For years, IP-based voice technology was one of those emerging technologies in the IT channel that seemed predestined to stall at "emerging," never quite fulfilling its promise. Quality-of-service issues, questions over return on investment and concerns about security hobbled adoption of the much-ballyhooed technology.
For solution providers, these obstacles rendered VOIP largely a nonstarter, especially in the small and midsize business market space. But the busy signal has been replaced by a dial tone, and study after study, backed by anecdotal evidence from the field, indicates that VOIP over the past year has started to turn the magic corner from hype to reality.
VOIP's QOS and reliability have improved steadily, prices have fallen and increased awareness in the business world of the technology's benefits—chiefly lower costs and expanded capabilities compared with traditional telecommunications solutions—have spurred adoption.
"Our SMB customers have embraced VOIP much more over the past year, mainly because they understand and trust the technology more than they used to," said Jeff Ross, president of Vergence Communications, in Lincoln Park, N.J. Vergence's VOIP business among SMBs has grown 120 percent in the past year, said Ross.
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VOIP's low cost has always been the big draw for SMBs, but affordability alone has not been enough to overcome the negatives, be they perceived or real. Chief among the concerns of potential adopters has been security. Only a year ago, fewer than half of the SMBs polled in a study commissioned by IT trade group Computing Technology Industry Association, of Oak Brook Terrace, Ill., said they trusted the security of IP-based telephony solutions.
Sixty-five percent of respondents in the same CompTIA study said they trusted the security of Ethernet networks, leading analysts to conclude the concern over VOIP was more about perception than reality. And that meant the industry needed to do a better job of promoting the robustness of the technology.
Subsequent studies have indicated a growing acceptance of the technology among customers large and small. Confidence in the technology is growing steadily as converged solutions that allow companies to combine their voice, data and wireless systems find their way into the market. In some cases, businesses expanding into new locations install IP-based voice solutions at the new sites and link them with their existing phone systems.
"SMBs are looking for converged solutions that provide high levels of service, security and reliability at an affordable price," said Henry Kaestner, CEO of Bandwidth.com, in Cary, N.C.
Indeed, according to Eddie Sohn, an analyst at VLSystems, a VAR in Irvine, Calif., the market is expanding as a result of a number of factors, not the least of which is new technology and the adoption of standards in application development.
"There are more vendors in the market," Sohn said, "and SIP [Session Initiation Protocol] is emerging as a unifying standard for application development."
SIP is modeled after the HTTP standard, and, as such, it is an agreed-on set of standards that defines how devices such as computers and telephones exchange information with one another; it covers voice, live video and instant messaging. VOIP backers are betting that the established standards of SIP will do for voice communications what HTTP did for the World Wide Web.
Market observers say new offerings from IP-based voice technology vendors such as Converged Access and Bandwidth.com are bringing innovation to the market and, as a result, catching the eye of would-be buyers as well as solution providers looking to get into the technology.
Converged Access' CAP (Converged Access Point) is designed to deliver to SMBs the same level of functionality the company offers in its enterprise solution. Bandwidth.com, for its part, gives businesses of all sizes calling features without any systems or software to buy, manage and maintain. Bandwidth also offers Flex-T, which combines existing voice and data into a single connection and dynamically allocates bandwidth to ensure the highest voice quality without degrading throughput for data applications.
Ready at last
Recent studies show that businesses of all sizes are adopting VOIP, and small companies plan to expand their use of it over the next few years.
A study this year by Infonetics Research, of Campbell, Calif., found that VOIP is being used by 36 percent of large companies surveyed, 23 percent of midsize companies and 14 percent of small companies. Infonetics predicts that VOIP adoption among small businesses in North America will triple by 2010.
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Another study, by Boston-based consulting company Savatar, shows that most SMBs that already have deployed VOIP systems are satisfied with them. The research company, which surveyed 560 SMB decision makers, found that VOIP met the expectations of 71 percent of those surveyed. Twenty-two percent said their systems exceeded their expectations.
Savatar's study, done early this year, also shows that SMBs that deployed VOIP bought mostly from equipment providers (39 percent), VARs (20 percent) and traditional telephone companies (14 percent).
"What was clear from our research is that SMBs want two key benefits from VOIP—a lower cost of ownership and better system management," said John Macario, president of Savatar.
Macario believes IP-based voice technology is starting to heat up in the SMB space, but who gets the business is still up for grabs because traditional providers of voice systems are doing a poor job of selling VOIP. "The providers are pitching features, which the SMB decision maker doesn't care about and doesn't value," said Macario.
And that, said Macario, opens the door to the VARs and integrators that have grown up in the IP side of the market. "VARs can grab a lot more of this market because they do a great job of explaining the value proposition of VOIP," Macario said. "SMBs trust VARs for their attention to service and focus in selling them solutions, not features."
The SMB market still requires "high-touch" customer service, which Macario said is where channel companies excel and traditional voice providers flounder.
A channel opportunity
VOIP presents vars, integrators and solution providers with tremendous opportunities to sell hosted (or managed) solutions, premise-based solutions and hybrid versions that combine both, said Ben Sayers, president of VOIP Supply, a Buffalo, N.Y., reseller specializing in VOIP phones and IP PBXes.
"Small businesses mostly favor hosted solutions because they want a simple, all-in-one system with a fixed monthly fee, while medium-size businesses with a few locations and internal IT favor premise-based systems," said Sayers.
A third option has become popular among companies that want the best of both traditional and VOIP telecom systems—hybrid systems. "These solutions enable companies to keep their existing gear and processes while exploring the low-cost benefits of VOIP," Sayers said.
VLSystems' Sohn agrees with Sayers' perspective of the market, noting that most of the business his company is seeing comes from furnishing VOIP systems for new company sites and for new companies buying phone systems for the first time. Established companies opening new sites typically are going with the hybrid option, he said.
"Few of our customers are willing to simply abandon their existing systems and switch to VOIP," said Sohn. "It's too expensive for them."
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VLSystems' experience echoes that of Mosaic Networks, of Durham, N.C. Seventy percent of Mosaic's VOIP sales are to companies moving offices, moving their voice and data network, or adding a new office to the network, according to Mike Moran, president of Mosaic. "Our VOIP business has been growing about 300 percent per year for the past two years," Moran said.
A replacement market
VOIP for SMBs is primarily a replace-ment market; companies replace their old telco systems with VOIP, said Peter Sandiford, CEO of Level Platforms, in Ottawa. Level Platforms is a managed services provider with remote systems monitoring and managing software, which includes tools that monitor and manage IP devices.
"VOIP offerings are getting better, enabling smoother integration between voice and data," said Sandiford. "However, I think many SMB companies are still not convinced that VOIP has enough benefits to justify switching sooner rather than later."
To Sandiford's point, a recent survey for CompTIA by market researcher TNS Prognostics, of Palo Alto, Calif., shows a discrepancy between end-user customers and solution providers in how they view VOIP. While 62 percent of solution providers identified the technology as an area of growth for 2007, users in the survey placed VOIP as No. 9 on their list of spending technologies.
The industry has done a poor job of tying the cost savings to the productivity enhancements that VOIP can produce, said Sandiford. And since customers' existing phones work fine, and they don't see enough of a cost savings to switch, many are opting to forgo a change, he said.
Tim Hebert, chief operating officer of Atrion Networking, in Warwick, R.I., argues that the emphasis on the cost savings of VOIP misses the point. The focus, instead, should be on how the technology advances the customer's overall business goals.
"When vendors and VARs sell VOIP, we sell the wrong thing," Hebert said. "We sell equipment. We sell the promise of reduced telephony costs. Instead, we should focus on the most compelling selling point: VOIP serves as a business enabler."
In addition to making a better business case, say VOIP backers, the industry must continue to work to dispel lingering security concerns among potential adopters. VARs and vendors have to do a much better job of selling the technology's robustness, particularly to small businesses, which rely so heavily on phone service for day-to-day business.
"Integrating voice into a secure data network is a concern for many companies," said Bill Stewart, vice president of marketing at N-able Technologies, also in Ottawa. N-able, a provider of managed services, offers VOIP Service Manager, which lets managed service providers remotely monitor and manage network VOIP systems.
"A VOIP application puts more stress on the network than any other application because voice is real-time data that needs a high-quality channel," said Stewart. "Voice has to take top priority so calls are not interrupted."
A data network has to be upgraded, fine-tuned, and carefully monitored and managed to avoid bandwidth and QOS problems, said Stewart.
For technically savvy VARs, VOIP offers lucrative opportunities to install systems, prepare the network for VOIP and data integration, and sell SLAs (service-level agreements), according to Bob Vogel, chief marketing officer at Autotask, in Rensselaer, N.Y.
"About 30 percent of our solution providers have a VOIP offering," said Vogel. "I think more solution providers have entered this market in the past year to service the demand coming from small businesses that have become comfortable with VOIP, thanks to Vonage pushing it so strongly in consumer advertising. Small-business people who see the Vonage ads eventually begin to buy the message that VOIP is a reality."
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Yet, as lucrative as VOIP can be, Vogel cautions, it still requires a long sales cycle because each pitch is unique, depending on the customer's environment, and requires specific skill sets.
Indeed, many VARs and vendors agree that the unique demands of selling and supporting VOIP to SMBs has created a new breed of VAR educated in the nuances of voice and data—and able to deliver a solution based on each customer's business needs.
"Voice and data are becoming commoditized," said Macario. "Businesses of all sizes want a plan that maps out their total cost of ownership of voice and data solutions, understands their business, and gives them better system management. VARs are uniquely positioned to deliver."
Herman Mehling is a freelance writer in San Anselmo, Calif. He can be reached at hermanmehling@sbcglobal.net.
