News Analysis: VOIP vendors, after gaining better traction in smaller companies, are getting more creative with products, solutions and pricing.The adoption of voice over IP in companies with less than 1,000 employees is rising, but there are still plenty of hurdles to overcome before they feel comfortable taking the plunge in record numbers.
Today only about one-third of companies in the small and midsize business sector are using VOIP, according to research from Info-Tech Research Group of London, Ontario. That leaves plenty of companies still relying on old fashioned phone systems—companies that could benefit from IP telephony if they understood the technology and were willing to spend the money.
Things are improving, however. For example, hosted VOIP is taking off in greater numbers than traditional VOIP in the midmarket and below, with three million seats forecasted by 2010 in North America, according to AMI of New York.
In addition to the option of hosted VOIP—which helps smaller companies enter the IP telephony world without the upfront cost and additional infrastructure while creating cost predictability over time—pricing has improved, a major factor for the midmarket. Server prices have fallen while price/performance has improved, making price less of a barrier.
At the same time, vendors that want to make greater inroads in the midmarket are getting more creative. Cisco, for example, has split out software license pricing from handset pricing, giving it more flexibility to offer a competitive rate.
And some smaller VOIP players are getting creative as well: Apptix, a Herndon, Va., company that offers a hosted VOIP service to the SMB market, recently introduced a leasing program that allows smaller companies to bundle any or all of Apptix Voice services, such as site surveys, equipment, shipping and installation.
Under this program, companies pay much less per month than they would if they had to purchase it up front, according to marketing director Jackie Funk.
"The bottom line is that there are now pricing models available such that it becomes possible to build a positive ROI regardless of how you're looking to build up your infrastructure," said Henry Dewing, principal analyst at Forrester Research of Cambridge. Mass. "We're not at the point where it is price-effective to put a [VOIP] server into an SMB."
Standards also have improved. Just two years ago, companies were fighting about which standard would prevail, but today, the industry has settled on SIP (Session Initiation Protocol), which should further smooth the way for VOIP deployments in the midmarket.
But there is much more to be done before the midmarket will wholeheartedly adopt VOIP, said analysts.
Complexity is a major problem, especially in the midmarket, where IT experts, especially those with IP telephony knowledge, are scarce. VOIP systems can be complex, with significant quality of service issues.
"Often, implementing VOIP requires upgrades in other areas of the network infrastructure, like upgrading LAN switches and making changes to the LAN infrastructure. These projects must be done prior to implementation, and it makes it that much more of a big step," said Jayanth Angl, a research analyst at Info-Tech Research Group.
Education also is an important factor. "The midmarket in particular is dependent on a widely dispersed set of local channels, and that means vendors have a lot of people to train, reach and touch so they can educate their potential customers," Dewing said.
"It's about getting the right person with the right knowledge to stand in front of the decision-maker and have the technical expertise to install it after making the sale."
What's more, vendors haven't been too successful at convincing midmarket companies of the return on investment of making the VOIP leap.
"In a company of 50 to 250 employees, the needs will be pretty specific and for them to justify an upgrade to an IP system, they really need to have some proof that this technology will really streamline specific processes," Angl said. "I don't think they are really sold yet."
Over the next decade, Dewing expects vendors to make significant progress in standardizing and packaging VOIP solutions for the midmarket.
"There are a lot of things that can be done to simplify installation routines and software upgrades, and there are a lot of things you can do to make it easier to deploy," he said. "They are coming along, but it will take the better part of the next decade to get there."
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