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How to differentiate hosted VoIP services for SMBs

Hosted VoIP services are poised to take off in the small to midsize business market, but telecom service providers that don't differentiate their offerings won't make the most of the opportunity, according to AMI Partners.

Sanjeev Aggerwal
AMI Partners

The adoption of hosted Voice over IP (VoIP) services in the small and midsize business (SMB) market is growing on a fast trajectory, according to AMI Partners' 2007 survey of SMBs looking at converging their voice and data services. In the U.S., we expect hosted VoIP spending to increase from $236 million in 2006 to $1.4 billion in 2010, representing a compound annual growth rate (CAGR) of 57%. Most of this growth is expected to come from the small business segment of companies with 1 to 99 employees.

This growth will continue to dramatically shake up the telecommunications industry and open a fresh era of competition where companies will offer new and innovative products, services and approaches to SMB companies. Even today, VoIP providers have wasted no time coming up with a vast array of products and services that start with voice services and expand to other services relevant to the market. But it's not always an easy sale.

Once a hosted VoIP service is in place, service providers can offer add-ons like unified messaging and conferencing. These are valuable services to businesses and provide additional revenue to service providers to increase their average revenue per user (ARPU).

Education is a large component of making a hosted VoIP sale and speeding its adoption. Many SMBs are confused about all of the different types of solutions available, and service providers need to be prepared to discuss the options, as well as their positive and negative qualities. They should also explain the difference in quality between Skype or Vonage and business-class VoIP solutions and benefits, since many people still associate VoIP quality issues with those two services.

Service providers can market hosted VoIP to SMBs by emphasizing the following positive aspects: local, long-distance and international call toll savings; no additional hardware or software to manage (the SMBs' IT staffs do not have voice expertise and are already busy patching servers, desktops and maybe doing backups); lower total cost of ownership (TCO); reduced upfront capital expenditure; predictable monthly operational expenses based on the number of lines and features; access to the latest technology and features; remote management by the service provider;h SLAs of 99.99%; and fast problem resolution due to service provider staff experience.

Service providers should be prepared to address any SMB issues about hosted VoIP, particularly customer support and responsiveness, concern about being dependent on the service provider for service and support, not having direct control of features and applications, limited flexibility on implementing an extended unified communications strategy, and possible service degradation as the number of lines increase or data traffic on the network increases.

Tailoring VoIP Offerings

The first thing service providers need to understand about VoIP solutions is that one size doesn't fit all, so the small and mid-sized business markets should be offered different solutions that suit their needs. Any service provider offering VoIP services should complete a detailed market segmentation analysis before developing and packaging their service offerings. The SMB market is very fragmented, and vendors who appreciate the importance of tailoring their strategies to each tier are better positioned to succeed in this segment.

The type of SMB that might adopt a hosted VoIP solution varies, but some baseline possibilities include:

    • Startups: Lack of upfront capital resources and growth plans makes them an ideal target for hosted VoIP services with leased IP phones.
    • Wholesale firms: These companies have high communications needs and can't miss phone calls, as their highly mobile and remote workforce spends a large percent of time at client locations. Their biggest requirements are mobile phone integration using Find-me/Follow-me service and having voice mail messages delivered to their Outlook accounts.
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Retail businesses:

    This includes retail stores, restaurants, etc. These companies don't have sophisticated telephony needs, but they do need an auto-attendant feature when they are busy, giving them an aura of a larger, more professional vendor. These small retailers are incorporating VoIP features like click-to-call into their e-commerce presence.
  • Professional service businesses: They have no real business front other than their website and business cards. A hosted solution could make them appear more professional and help them operate the same way as their larger competitors. Also, like wholesale firms, these businesses have a highly mobile workforce, so integration with mobile phones using the Find-me/Follow-me service is very useful. Highly mobile and customer focused verticals such as real estate, legal, accounting, travel, doctors' offices, and hospitality are prime candidates.
  • Companies with multiple branch locations: Mid-sized companies with multiple branch locations do not have the IT staff or networking/voice expertise to provide 24X7, on-premises voice communications solutions. A hosted VoIP service that provides proactive management and support regardless of the branch office location is the preferred solution for companies that need proactive redundancy support, round-the-clock monitoring and a backup support plan in place with a "one-click-to–enact" plan – a level of support not available from any of the national service providers.

Needs of a maturing market

As the hosted VoIP market matures, the differentiation factors for hosted VoIP service providers will be:

  • Types of hosted VoIP solutions offered. Some service providers offer pure hosted VoIP solutions, while others offer only IP trunking solutions (these IP trunking solutions are being marketed by some service providers as hosted VoIP, although they are only trunking services for premises-based IP-PBXs or traditional TDM-PBX solutions). Not all functions and features of a pure hosted VoIP solution are available using IP trunking solutions.
  • The value-added solution a vendor can deliver could have a meaningful impact on the key business drivers for small and mid-sized businesses.
  • Avoiding feature proliferation that leads to complexity and increased costs and instead delivering focused solutions with simple customer implementations to help achieve business breakthroughs.
  • The level, responsiveness and quality of customer services could be one of the most important differentiators, as voice communications are mission critical and downtime has material impact on the business.
  • Capability to provide on-site support – if needed.
  • Solutions for business continuity and active service management.

Three types of hosted VoIP providers

Hosted business VoIP providers that service the vast small and mid-sized business markets can be categorized into three segments based on the services and business value they provide to customers:


Mass-market providers

    compete based on the high-volume and low-touch approach with low-priced, basic hosted VoIP services that include some unified messaging and conferencing services. This segment experiences high churn because customers are always looking for the lowest prices.

Full-service vendors

    compete on a value and service approach. They aren't the lowest price vendors, but they offer a cost-effective bundle of services. These companies provide a range of services that enable clients to sell, service, and staff better based on proactive management and 24X7 monitoring, detailed analytical capabilities and solutions to provide enhanced employee productivity and retention. A few function almost as outsourced marketing departments for SMB companies—providing value-added services that are much more cost effective compared to in-house staff or a marketing agency.

Partial services companies

    are hybrids -- hosted VoIP companies partnering with services companies. Others are hosted VoIP companies that recognize the value of being a voice services company and work with other vendors to provide some of the value-added services.

SMB Network Assessment

Service providers and VARs can help SMBs assess their network connections and list the steps necessary to implement an effective VoIP solution. Most businesses need help in assessing their VoIP-readiness – an analysis of their existing internal networks and external broadband connections. Service providers or VARs can identify whether the current network configuration has any problems in terms of routers, switches and other hardware. They can analyze whether the company firewall will block voice data transmissions and test the Internet connection to see how many VoIP phone lines the company can support.

Service providers also need to address companies' security concerns and decide whether they can be addressed through network encryption.

VoIP Service Pricing

The business model that offers the application on a per-seat basis works well for hosted VoIP. With this model, businesses buy or lease IP phones, then pay per user on a monthly basis. This helps them predictably forecast their monthly voice communications expenses. This pricing typically includes unlimited local and long-distance minutes, with some basic fees for unified messaging and a web-based management interface. Additional features like audio and web conferencing are priced separately.

SMBs can also start small and increase the number of seats as their requirements grow. In the future, if they need to look at other alternatives if the service isn't delivering the right performance or scalability; the hosted VoIP solution provides them flexibility as they have not invested much in capital equipment that they're stuck with a solution that doesn't fit their needs.

About the author:
Sanjeev Aggarwal is the vice president of SMB IT infrastructure solutions at AMI Partners (New York). For more information, please go to AMI-Partners specializes in IT/Internet/Communications solutions, actionable market intelligence, and venture capital services with a strong focus on Global SMBs (Small-Medium Business Enterprises with 1-999 employees), as well as extended coverage of larger corporate enterprises (1,000 or more employees) and Home-Based Businesses—providing an integrated go-to-market perspective across enterprise market sectors.

This was last published in October 2007

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