Hosted PBX Aids Channel Business Transformation

By Charlene O'Hanlon

The convergence of telecom and traditional IT are blurring the lines that divide the two groups; consequently, an increasing number of channel partners are realizing a critical need to extend their businesses to meet the needs of both.

Both sides may find a certain salvation in hosted PBX a managed service that enables telecom agents and VARs in both spaces to offer PBX services without having to invest much if anything in education and infrastructure.

With hosted PBX services, customers get the benefit of an IP communications system without having to invest in the hardware. The actual PBX, including the hardware, software and switching, lives offsite in a centralized data center. Customers can use either their existing phones, if they are IP-enabled, or purchase endpoints and pay a monthly expense for the use of the system.

For customers, the benefits of hosted PBX are many: There is no capital outlay, just a monthly operating expense; managed PBX offers many robust features that would require system upgrades for on-premises PBXs; and many times a managed service can be utilized for employees in disparate locations as well as in the central office, such as remote-office or home-office workers.

VARs, agent and consultants, too, can realize benefits from a hosted PBX service namely it can be sold as a line card item, so the service provider doesnt need a deep understanding or knowledge of the technology, and it offers a monthly recurring revenue unlike margin-based hardware sales.

The market, too, seems to realize the benefits of hosted PBX services. According to recent research by ABI Research Inc., hosted IP PBX services worldwide were expected to reach $3.4 billion in revenue by the end of 2010, a 15.3 percent increase over 2009.

Hosted PBX is not a new technology; its roots go back at least 10 years to early 2000. In its early days, hosted PBX was plagued with performance issues related to bandwidth and latency, giving the technology a bad reputation in the business community. However, advances in infrastructure and delivery technologies have helped give hosted PBX a second chance at life.

Chris Cook, general partner at Vale, Duval and Chambers, a telecom-focused consultancy based in Atlanta, noted that hosted PBX provides a good middle ground for both telecom and IT camps to converge. As more communications technologies become IP-based and run over existing IT networks, customers expect their service providers to offer up both networking and telecom services regardless of their expertise.

You have dozens of little interconnects that have been selling traditional key systems or PBXs and now with the business rapidly shifting toward IP PBX, managed PBX services provide the opportunity to expand their business,” Cook said. Also, youve got the IT-centric people that traditionally have done the desktop and LANs, and they need that bridge to move into telecom in order to survive.”

Because the technology provides a level of features that normally comes in enterprise PBXs but at a lower monthly fee, hosted PBX services often are targeted at the small business space. But Joel Maloff, director of channel programs at Phone.com, a hosted PBX provider, said the services are robust enough to fit in to an enterprise setting as well.

Managed PBX is absolutely gaining ground in small business. Right now they are being squeezed financially because of the economy and there isnt that ability to just go out and buy a new telecom system. They need help and thats why our model seems to be working out,” Maloff said.

As we move up the line, were also seeing adoption at the larger end of the SMB space; companies are looking at managed PBX for their outlying offices, at-home workers, etc., but not to replace their systems.”

In finding service providers to resell Phone.coms offerings, Maloff noted his company looked to agents that traditionally served the small” portion of the SMB space.

That two-to-25 line market was not really being met by anybody,” he said of his companys strategy. Our focus was to find agents that were calling on customers of that size and give them an offering they could sell. A lot of these folks had been selling premises-based equipment, but the economy forced companies to cut back on capital expenditures, especially those in the SMB space. That is the first area where virtual office service is beautiful there is almost no capex upfront. You can use your existing IP phones or even analog phones with a managed PBX service.”

The small business space can offer a wealth of accounts that, while the monthly residuals by themselves may not seem like much, can add up when put together. Channel partners are accustomed to getting 10 percent to 15 percent commission on sales, and for $50 a month (the average small-business monthly bill), thats $5,” Maloff said. Weve created a multipart compensation plan and are soliciting agents who are interested in owning the customer.”

The plan includes a success fee” that pays the agent the first months revenue when a new account remains operating and in good standing for 90 days; an additional recurring revenue percentage that varies depending on number of lines for each customer; a $25 bounty for IP phone sales; and a referral fee” for new accounts.

These are small accounts so the residuals arent going to be huge,” Maloff said. But if an agent sells 10 accounts a month, that can be a good living.”

In the enterprise space, hosted PBX services can be an easier sell into companies that have previously had managed Centrex service from their carrier, said Robbie Johnson, president of Cloud Networx, a hosted PBX provider in Greenville, S.C. Cloud Networx focuses its services in the state and local government space, which traditionally has gotten hosted Centrex services. When I talk to them, they understand its a hosted environment, but they dont really understand it beyond that unless I tell them its IP Centrex,” Johnson said. Once you start speaking their language, it becomes much easier to sell them.”

Indeed, as convergence forces both telecom and IT to play in the same sandbox, there are bound to be some translation issues, Maloff pointed out. There is a whole population of telephony people that really dont understand this stuff, and so they have been threatened by [IP telephony],” he said. All of a sudden, they need to understand this technology is not circuit-switched, its virtual, so you need to determine the amount of bandwidth a company will need to support the technology, how many concurrent calls the company is likely to have, what other contention for bandwidth the company might have.”

At the same time, traditional IT-focused providers may have the same learning curve in talking telecom, which service providers noted is an important skill in making customers feel comfortable in their decision to choose one provider over another.

Hosted communications provider Cbeyond is hoping to better bridge the skills gap in early 2011 with the launch of its cloud-based managed PBX service. For an IT VAR that understands servers and virtual servers, this is a natural platform. For a telecom VAR, this is an agnostic system that doesnt require a lot of IT knowledge,” said Brooks Robinson, chief marketing officer at Cbeyond.

Its a big investment to manage a cloud PBX server product line,” he added. We enable service providers to get into the space without having to make major investments. We can work with them to make sure they have a broad product portfolio to offer their customers.”

Putting PBX services in the cloud provides mutual benefits for service providers and customers alike, Robinson noted. By putting the server and the software PBX in the cloud or data center, connectivity is simplified. Also, the software PBX can be replicated in another data center for geo-redundant PBX, making the service highly reliable,” he said.

Cloud-based offerings also make it easier to add employees or services on-demand. The ability to add an employee at a location is much easier with a PBX in the cloud service providers could just have a phone shipped preloaded and that the end-user plugs into the LAN,” he said.

Plus, the cloud service could host PBX offerings from a number of different vendors, enabling service providers to pick and choose the services that best suit their customers. Rather than have one generic PBX, customers can have a suite with all the right tools they need for their business, like mobile integration, contact integration, unified communications,” Robinson said. Its not a one-size-fits-all solution.”

Regardless of how the service is packaged and delivered, however, managed PBX is making its mark as a solution to the convergence conundrum.

Weve seen our most successful partners embrace a number of technologies the ability to have multiple services and provide them to a small business customer is a great strategy for success,” Robinson said. The simpler providers can make the experience is ideally what the customers are looking for.”

Managed PBX used to be regarded as the ugly stepsister of premises-based PBX system. Thats just not so anymore,” Maloff said.

Charlene OHanlon is a freelance writer specializing in the technology channel.