I have written some earlier posts on Mitel’s and Siemens’ strategies for the hosted IP telephony/cloud UC market. But there are others that have tapped into this space previously reserved for the telcos (ILECs, CLECs), MSOs, ISPs and some ASPs. I get a lot of questions about BroadSoft, Cisco, Microsoft, IBM, etc. I have now completed my study on North American hosted IP telephony and UC services markets and have some new insights to share. Unfortunately, the individual vendor analysis is too lengthy to post here, but I will share excerpts that more broadly discuss the value proposition of these new business models.
A key new development in the hosted IP telephony and UC services market is the entry of PBX vendors with their own multi-tenant or virtualized (multi-instance) solutions designed specifically for carriers and partners or intended for service delivery out of their own data centers. Cisco’s Hosted Collaboration Solution (HCS) architecture, Mitel’s various hosted/cloud solutions and Siemens’ OpenScape cloud architecture are some examples of these new business models. These platforms are typically more feature-rich than the carrier softswitches and application servers traditionally utilized to deliver multi-tenant business telephony services, but they also offer some additional benefits. For example, Verizon’s UCaaS services based on Cisco’s HCS are positioned as most suitable for the highly demanding large enterprises who wish to integrate the hosted service with their existing Cisco premises-based infrastructure. Also, most of these new architectures are not truly multi-tenant, but are instead using shared hardware and dedicated software, thus addressing some security concerns associated with hosted services.
The new business models are likely to cause some re-alignment in the value chain, with potential advantages and disadvantages for all market participants. Their impact on end users, however, is going to be mostly beneficial as they will be able to choose from a larger number of alternative solutions. For the supply side, the key benefit is ability to focus on core competencies – vendors will be able to leverage their software expertise, data center providers will deliver the most cost-effective server hosting and management, and the diverse range of service providers will focus on customer acquisition and ongoing management, as well as the integration of typical carrier services such as SIP trunking.
- PBX vendors: PBX vendors are likely to benefit from gaining access to a customer base looking to outsource both infrastructure and infrastructure management from a third party. They will also be able to deliver greater value to their channel partners by enabling them to generate recurring revenues by either hosting the platforms themselves or reselling services hosted in a third-party data center. Potential pitfalls for PBX vendors include channel conflicts, if the vendors are also selling hosted/cloud services directly; customer mismanagement, if tiers of support and responsibilities are not clearly defined; and some loss of professional and managed services revenues. Also, customer churn is likely to be greater compared to that experienced in the premises-based business.
- Telcos: Service providers stand to benefit from the opportunity to deliver hosted/cloud services to more demanding customers using advanced telephony and UC platforms previously only available as premises-based solutions. Also, they can realize cost savings and reduce time to market, if the solution is hosted in a third-party data center, as the deployment and integration of multiple servers and software stacks is typically costly and time consuming. Virtualized solutions such as Mitel’s Virtual MCD and Cisco’s HCS also enable them to provide more secure hosted services to customers requiring their own dedicated software while leveraging the benefits of shared hardware and a hosted model. Potential challenges for service providers include the need to maintain multiple versions of vendors’ software stacks (as in the case of Verizon’s implementation of Cisco HCS), and more limited ability to customize the solution when hosted in a third-party data center. Furthermore, the new business model lowers barriers to entry thus potentially leading to increased competition.
- VARs, SIs and MSPs: For VARs, SIs, MSPs and smaller LECs this is an excellent opportunity to expand their portfolio and generate recurring revenues by introducing hosted/cloud-based services without the cost and hassle of acquiring, integrating and running the systems in their own data centers. The cost and complexity of next-generation architectures has prevented this group of market participants from exploring hosted services in earnest. Now they can more successfully compete against larger telcos and premises-based solution vendors by presenting several alternatives to their customers – from premises-based systems, managed in house, to provider-managed on-premises solutions and fully hosted services. With their strong expertise in CPE installation, integration and management and typically better customer service and support, smaller, regional interconnects will now be able to serve their customers even more effectively.
- Business customers: Business customers will benefit from increased availability and diversity of hosted/cloud solutions. As more service providers introduce hosted IP telephony or UC solutions, businesses will be able to choose a partner from a broad range of providers – from large telcos with a substantial brand-name reputation to trusted local system resellers with whom they have long-standing relationships. The increasing competition is likely to result in more competitive prices and better customer service. Also, service offerings now include a large spectrum of alternatives – from low-end basic telephony offerings to comprehensive UC bundles and packages of tightly integrated communications and business applications (e.g. CRM). Furthermore, along with the cost-effective multi-tenant services, providers are now able to address the needs of businesses with high security requirements by using virtualized solutions based on shared hardware but dedicated software.
Today, XO Communications launched the XO Enterprise Cloud Communications services. XO Enterprise Cloud Communications integrates a wide range of IP telephony features, local and long distance calling, enterprise-wide HD voice and video, network services, and IP phone sets in a communications as a service, per-user pricing model. Features of XO Enterprise Cloud Communications include:
- IP Telephony and unified communications applications
- Free local and site-to-site calling within the enterprise
- Long distance calling plans
- Enterprise-wide HD voice and HD video
- Choices of IP phone sets from Cisco and Polycom
- Web portal for managing service for each location and employees
- Quality of Service monitoring
- MPLS IP-VPN network services
- Robust Service Level Agreements for all services
- Business continuity capabilities
XO is looking to target businesses of 50 to 1,000 seats per enterprise, primarily in the education, healthcare, professional services and retail verticals.
What I like about the new offering:
XO has been tremendously successful with its XO IP Flex (also available with a VPN feature), XO SIP and XO Enterprise SIP offerings. The new offering nicely rounds up its SIP/cloud portfolio adding hosted PBX functionality for businesses choosing to outsource their voice communications infrastructure. Leveraging its SIP expertise, intimate knowledge of the BroadSoft platform and MPLS capabilities, XO will be able to deliver a highly reliable cloud-based voice service with managed bandwidth and QoS and carrier-grade SLAs. The option to include phone set costs in monthly recurring charges is likely to appeal to businesses concerned about the upfront costs of replacing existing phone instruments. XO has broad geographic reach and therefore the ability to address the needs of larger, multi-site customers migrating to hosted services. A web portal will allow customers to monitor and manage their cloud services.
XO appears to be a late-comer to the hosted telephony space. Several dozens of service providers have launched hosted IP telephony in the U.S. over the past eight years. However, its cautious approach may prove more successful as it has had the time to master SIP and develop the right capabilities for its target audience. Also, larger businesses are only now beginning to fully understand and appreciate the benefits of hosted/cloud communications which creates more favorable conditions for the delayed launch. Furthermore, XO is looking to position this new offering with a TCO improvement value, rather than the more traditional value proposition of inexpensive long distance or in-house staff replacement of early hosted offerings targeted at smaller businesses of less than 50 users.
Points to be addressed by XO:
Service providers that have been offering hosted voice for some years now are already looking to enhance their solutions with other communications and collaboration application such as conferencing, contact center, messaging, presence and collaboration. XO has contact center capabilities, as well as OCS, Exchange and SharePoint integrations on its roadmap, but immediate comparisons may tip the scales in favor of a competitor. I need to point out that not everyone (in fact, maybe few) larger businesses are looking to immediately outsource their entire communications infrastructure from voice to messaging from a third party. However, the sooner XO announces the ability to deliver a more complete UC package, the greater its competitive advantage is going to be. Also, service providers are increasingly looking to integrate communications with business applications (CRM being the typical low-hanging fruit) based on customer demand, which is something XO will need to explore in the future.
XO claims it has the tools and partnerships in place to manage this service all the way to the desktop. In fact, it offers on-premises probe, usage, network and support services. Hopefully, it handles this aspect properly, because many a service provider have failed associating cloud and hosted with a complete hands-off approach as far as the customer premises are concerned. But a reliable hosted communications service, especially when larger businesses are involved, requires a significant involvement in customer LAN, WAN and CPE upfront assessment and ongoing management.
I recently had the opportunity to speak with Bill Vass, former CIO of Sun Microsystems, about some technology trends such as virtualization, cloud and mobility.
With more than 30 years of technical and IT management experience, Bill Vass is an industry leader in the field of information technology. Prior to its acquisition by Oracle in January 2010, Sun Microsystems Inc. was a global fortune 100 company with a 26-year history of providing networking computing infrastructure solutions. For 15 years, Sun had a highly flexible work policy that allowed 19,000 employees to work away from the office at least one day per week. Bill Vass and his team selected and implemented the technology to support this highly effective virtual organization.
Elka Popova (EP): Hi Bill. You have a tremendous amount of experience in deploying advanced technologies to support Sun Microsystems’ transition to a more flexible work environment. I would like to hear your perspective on future technology trends.
In view of some key demographic shifts – growth of the virtual organization, consumerization of the enterprise, mobility, etc., what technology trends do you think will shape the market in 2011?
Bill Vass (BV): I think SaaS is going to continue to grow. I think there will be a lot of challenges in integrating SaaS, though. Consumerization will continue to grow as consumer devices penetrate the workplace. I think that will drive organizations to virtual desktops. So the idea would be – we don’t buy you clothing to come to work; we don’t buy you a car to come to work; why do we buy you a PC? I think that is the way it is going to move; and you just choose anything you want; we don’t care; when you are ready to work, we will give you a virtual desktop. That way we will keep our corporate data safe in the corporate cloud; and you can work on any device you want – you can work on your iPhone, or your Android phone, or your iPad, or your Mac, or your Dell Ubuntu box, or your HP Windows box, we don’t care.
Virtual desktop and understanding that environment is going to grow significantly. What you see happening with SaaS is very interesting. I was at a CIO conference with Fortune 100 CIOs. I asked them “How many of you are using SaaS today?” And 60% of them raised their hand. And then I asked them “How many of you, CIOs, selected those SaaS apps?” And no one raised their hand. And the reason is – just like with consumerization, where people are using their own devices, business leaders and users are selecting their own applications.
Picture this scenario. The business leader goes to the CIO and says ”I need this CRM system.” And the CIO says “Well, there are probably 1,100 interfaces on our CRM system. We will have to run it in a SAS70 data center; we will have to go through Sarbanes-Oxley; we will have to buy these additional products and install them and integrate them, and so on. Give me $13 million and 18 months and I will have it for you.” And the guy rolls his eyes and goes back to his office.
But then the salesforce.com sales person comes in and says “I can give you CRM right now, just give me your credit card. It’s only $25 an employee!” And the business leader gives them a credit card, and next thing you know, he’s got 5,000 people on salesforce.com. And then the same thing happens in HR; so then the HR system is on Workday. And then it happens in all these other places.
But then you have to manually type all this stuff people typed in salesforce.com into the Workday program, and into the ERP system, and the Order Management system. And the next thing you know, the business ends up hiring this huge staff to do this – for instance, type a new sales person’s information into all the systems, because these things are not integrated. And then the business leaders go back to the CIO and say “Hey can you automate this for me, just like it used to be?” And the CIO scratches his head and says “Oh, God, there are still 1,100 interfaces; you didn’t make these go away; you didn’t make the Sarbanes-Oxley requirement go away; you didn’t make the integration testing go away.”
I think there is going to be this time of chaos – SaaS chaos and revelation; immense growth of SaaS and immense growth of consumerization, and then a rationalization to virtual desktops, and a managed SaaS environment with integrations for SaaS.
You will also see lots and lots of companies putting up what I call private clouds, which is nothing more than continuing to do desktop virtualization and server virtualization, but with more automated provisioning.
I think you will see people waking up about closed wireless systems, and wondering why they are running these closed wireless systems, while they already have environments where people are working on unsecured wireless systems. And they will get the idea of having a wireless provider run it for them instead of them trying to run it themselves.
I think you will see pico cells being installed and replacing the desk phone altogether. Maybe you will see some more complicated phones at the receptionist’s desk, but for everybody else, who already has a cell phone, you will see pico cells which will improve reception and, now that you are not paying for wireless minutes while in their corporate buildings, you can also do it more economically than you did before. It becomes a very compelling option to give everyone a cell phone. And then you have the added advantage of letting everyone use their device, as long as you have a Web service environment, virtual desktop, and you can deliver an edge mail service.
You will start to see networks being turned inside out. But you will also see tons of companies doing it the old-fashioned way. There are companies still using mainframes, right? It’s not going to change overnight. You will have banks and governments who are very slow to change. And for good reasons around security and all those other things. But the real dichotomy you will run into is the competition between virtual enterprises and physical enterprises. It’s going to be staggering over the next few years.
In the end, the virtual enterprises will be so fast and flexible, and they will be able to run competitive rings around the “old fashioned” companies. Not only will the virtual enterprises be more fast and flexible, they will have a much lower overhead of operation than the traditional way of providing IT services in big companies. They will be able to expand and contract faster, get into new markets faster, and get the best talent from all over the world, without geographic limits.
EP: Bill, how strongly do you believe in cloud architectures? Do you think businesses will increasingly leverage external clouds? Which applications do you believe are best suited for the cloud?
BV: A lot of companies will be deploying private clouds, mostly virtualization with automated provisioning. However, it’s important to note that these concepts are not new, IBM invented virtualization back in the late 60s and what we call cloud computing in the early 70s. What we are seeing is just another cycle of centralization from decentralization but now on top of more open platforms.
The thing that will slow the movement to public and even private clouds will be the normal politics between different parts within large companies, but newer / smaller companies will not have these issues.
If I started a company today, I wouldn’t install any servers, I wouldn’t install any phone systems, I wouldn’t install any wireless systems. I would go to 802.11 service provider and have them run wireless APs in my office. I will have pico cells installed on the wireless network and give everyone cell phones. I would go to Workday for my HR, and salesforce.com for CRM, and I’d build an IT environment that costs maybe about $2K a year per employee. The old-fashioned way, it cost about $17K a year per employee (business systems, plus network and hardware, and data-centers). So you will have a company with an overhead of $2K a year per employee competing with a company that has an overhead of $17K a year per employee. You have a company that can double its size in a day because of its virtual environment; it doesn’t have offices. And then you have a company that has this real-estate portfolio that’s slow to change. You are going to start to see these battles.
And the other thing that you are going to start to see is anxiety among the IT organizations about their jobs, and their place among all this. In a virtual company, the CIO is the same person who does real estate and who does purchasing. That’s a scary thing for CIOs; that’s a scary thing for the whole environment. That is also going to slow change and the adoption in the big companies.
The virtual companies will put everything in the cloud. They don’t have a legacy. Companies with a legacy will try to gradually move everything in the cloud, except their ERP systems. Mail, calendar, that will go faster – nobody is going to run those on the premises, that’s the dumbest thing in the world. Your web sites – why would you run that; just go to Amazon and have them run them for you.
I think desktop virtualization is going to go to the cloud; but most companies are going to run this internally, at first. I think you are going to see custom apps stay inside the premises, but commercial apps move to a more SaaS environments. I think the easiest stuff to move is the stuff that you don’t have to deal with Sarbanes-Oxley about. There are companies that legitimately have custom requirements, and companies that legitimately have security requirements that will prevent them from moving to SaaS. Those would be banks and governments, and other similar organizations. But even they should be delineating what they can take advantage of in the cloud. But they should also be careful about what they put in the cloud and make sure they don’t get locked in with a SaaS provider, and have an exit clause in contracts, and make sure they understand the SLAs properly.
EP: How about voice, Bill, corporate telephony? When will it get moved to SaaS on a large scale?
You know, the way I see things going, people would just put pico cells in their offices and use mobile phones. I think VoIP, beyond using it for Skype or something like that, might start to become one of those things where you ask yourself “Why did we even bother to develop something like that? We all have cell phones any way.” Why would you go and put in a bunch of Cisco VoIP phones in your company if you all have cell phones? What if you could reduce the cost and improve the quality by just putting in a bunch of pico cells?
EP: I think one big question on many customer and vendor minds is whether all-in-one solutions will eventually become more dominant. Currently, most businesses deploy best-of-breed architectures and this approach has both its advantages and disadvantages. Some vendors are making concerted efforts to become the one-stop shop for their customers’ communications needs. Where do you see the potential for this approach, especially in view of the SaaS and mobility trends you just talked about?
That’s what I referred to earlier as the chaos of SaaS that’s coming. What I described about the business users going and selecting SaaS on their own, outside of the organization, is going to continue and they will do it on the principle of best of breed. And then this giant chaos is going to occur, maybe 4 or 5 years from now, when we try to figure out how to integrate all the SaaS apps together into a best-of-breed environment.
The trouble with the all-in-one systems – old companies that have all-in-one systems are going to resist moving to SaaS. New companies, that don’t have anything, are going to move to SaaS right away.
I don’t think that any single SaaS provider is qualified to provide everything to a company. Certainly it’s simpler to get everything from the same company; but everyone who has had the experience knows how unpleasant it is when you are negotiating your next year’s support costs and there is no competition.
EP: When do you believe IT and telecom will fully merge – technologically, organizationally and in all other related aspects?
BV: One of the areas where I worked with Mitel a lot was this combination of the desktop and the phone. The challenge is that those two groups – the people who manage the desktop and the people who manage the phone – don’t talk to each other. And they are both threatened by each other. It is a people problem, not a technology problem. I think it is still going to be a long time before they merge, because they are two different camps internally and two different sets of vendors. I think what will cause them to merge is the younger generation coming in. They are already using Skype on their desktop, they are used to SIP-compliant VoIP on a desktop, and used to working on a cell phone. And those are the things that will drive the change; I don’t think organizations on their own are going to change.
EP: Bill, thank you very much for your insights. I think many CIOs as well as vendors and SaaS providers will appreciate your perspective on technology evolution.
The counterpoint to what? Good question. I wanted to talk about some personal experiences with communications technologies. Since the sentiments in this article may appear to contradict ideas I have shared previously – taking more of an analyst, rather than a consumer point of view – I thought I would present them as a “counterpoint”.
Frequently, nascent technologies promise to improve the way we live and work. But at the early stages, both businesses and individuals tend to experience more challenges than benefits.
I work out of a home office, like many other professionals today. Organizations are becoming increasingly virtual and IT managers are struggling to deliver reliable, secure and cost-effective communications to their growing remote workforce. In fact, many technological advancements – such as enterprise mobility, unified communications and SaaS/cloud-based communications, to name a few – are touted as particularly appropriate for mobile and geographically dispersed users. But remote workers frequently face issues that negatively impact their ability to leverage the full potential of these advanced technologies.
Here follow some quick references to popular marketing pitches and my counterpoints as an end user:
UC and software-based communications provide a cost-effective and convenient communications solution for remote workers.
COUNTERPOINT: At home, I have a regular POTS line, as well as a Cisco IP Communicator client on my laptop. I am glad I have the Cisco client because it allows me to call home when travelling or call an international number from home – free of charge to me. However, the few times I have tried to use it to attend an audio conference or make a critical business call, the quality turned out to be so poor that I had to switch to the POTS line or my cell phone.
There are several “weak links” in this scenario and the soft client is just one. It may be the quality of my Internet connection. I have a DSL line (I believe 4 Mbps downstream and 1 Mbps upstream) and I frequently have quality problems (breaking voice or slow website upload) when using various web applications or soft clients. It may be my wireless router – which is integrated with the DSL modem. It may be my laptop RAM or processing power. It could also be an issue with my VPN, the size of my Lotus Notes mail box, or any other application I access on my laptop. It may be some cookies or software bugs on my home network.
So it could be anything! But my point is, I am not ready to dump my TDM line OR my desktop phone for a PC-based soft client any time soon. Though my experience is that of a home worker, I think business environments are not immune to such challenges. If you really believe PC-based clients are ready to replace desktop phones, maybe you need to make sure the money you save from eliminating desktop phones is properly invested in assessing and upgrading LAN and WAN connections, PC processing power, RAM and hard drivers, etc. In my opinion, soft clients make a great adjunct to desktop phones, but not a viable replacement alternative … yet.
SaaS and cloud-based communications enable convenient self service for SMBs and remote workers.
COUNTERPOINT: I strongly believe in the value of hosted/cloud-based communications for businesses with limited in-house resources. But I have an issue with the claims around self service. I suppose, self service makes sense at the very initial stages of service selection and provisioning. Certainly, IP telephony – hosted or premises-based – also enables self-service moves, adds and changes (MACs), which provides substantial cost savings. IP telephony also enables IT managers as well as end users to manipulate settings through software/Web-based interfaces – providing flexibility and cost efficiencies.
However, self service only goes so far. In fact, hosted IP telephony and other ASP services never gained much traction exactly because service providers were not able to provide sufficient network implementation and management support required for mission-critical, real-time communications.
Inevitably, hosted services involve some customer premises equipment (CPE). To begin with, LAN and WAN reliability and security are top concerns with both hosted and premises-based IP communications. Therefore, router and switch selection, proper configuration and management are critical. Further, telephony endpoints and the respective wiring still require someone to literally crawl under people’s desks. Small business and remote workers should not be left entirely on their own when implementing or managing hosted IP communications.
Most of the time, a remote worker, similar to a residential user, uses… well, “cloud” or hosted communications. The Internet service, the POTS line – it is all managed by a service provider. And remote workers frequently face some common challenges. For example, my intermittent Internet connection has been an issue for a while. Having to spend hours on the phone with a customer service rep and stick pins into the router to restart and reconfigure it could be immensely frustrating. My phone company, on the other hand, has so far left me without a phone service only once (for about 24 hours). But even that one time, the warning that if they come to my house and it turns out to be a problem with my internal wiring or phones, they’ll charge me whatever it is they charge, etc., etc. … well, it leaves a bitter after-taste.
So, my point is, small business, remote workers, even medium and large businesses – they all want to feel taken care of. They’ll expect someone to come in and install or fix things for them as part of the monthly service charges and will not be too thrilled about self service.
I hope my thoughts make sense. Let me know what you think.
This is the first post in a series of commentaries on the dichotomy of premises-based versus hosted/cloud communications.
Economic Realities Mandate a New Approach to Communications Investments
The global recession caused a lot of fear and uncertainty in all business sectors worldwide. As revenues declined, business customers had to curtail their spending, including communications and IT investments, in order to limit their losses. As a result of these actions, such businesses have not been able to benefit from recent advancements in UC, mobility, videoconferencing, and other next-generation communications technologies. Many customers are still holding onto outdated communications platforms that may still meet basic needs but can offer little in terms of productivity enhancement, greater customer satisfaction or competitive differentiation.
In the meantime, the competitive landscape in all industry sectors is constantly changing. The financially strong market participants are able to move ahead by re-enforcing their competitive advantage through technology investments and more aggressive marketing. The others should not wait until the economy reaches its peak again since, by then, it will be even more difficult to catch up with the market leaders. In fact, turbulent waters create favorable conditions for the more nimble and resourceful participants to advance more rapidly. As communications vendors and service providers struggle with the consequences of the recession, businesses can use their temporary weakness to negotiate better deals on pricing, features, and services.
Overall, the recent recession brought forward the need for a new approach to communications investments, also mandated by other economic realities such as the rapid technological evolution and the acceleration of business processes. It demonstrated that business customers should seek to deploy their next-generation communications infrastructure with the following factors in mind:
Flexibility: At times of crises, businesses recognize the value of greater flexibility in terms of access to resources, including communications capabilities. One of the biggest challenges during a recession is the need to downsize, which results in a lot of unused communications capacity in the case of premises-based implementations. Hosted services, on the other hand, offer businesses the possibility to discontinue lines and services as capacity needs change. Further, workforce reduction frequently impacts IT and telecom personnel as well, rendering the business unable to properly manage its infrastructure and avoid downtime, proactively update and upgrade capabilities, and so on. Alternatively, in a managed or hosted services scenario, a third party is compelled to provide adequate capabilities as part of its contractual obligation regardless of economic circumstances.
Speed to Market: As tough economic conditions force businesses to tighten their purses, they find themselves unable to quickly react to market opportunities. R&D activities slow down, marketing and sales staff shortages leave the door open for competitors to steal customers away, and communications infrastructure inefficiencies prevent overwhelmed employees from effectively collaborating internally and communicating with customers and partners. However, businesses that chose to leverage advanced communications to compensate for workforce reduction and macro-economic challenges are better able to maintain internal productivity and customer satisfaction levels. Outsourced communications and IT resources are more effective in providing access to required capabilities faster, with minimal or no initial cash outlay, and with the ability to adjust capacity on demand.
Risk Mitigation/ Risk Sharing: Businesses tend to become particularly risk-averse during an economic downturn. While suspending or postponing new communications investments help conserve cash, this is not a viable long-term strategy as obsolete technology cannot support evolving businesses processes and needs. A more sustainable approach would involve sharing the risk with a trusted partner. In a premises-based implementation, more flexible leasing and managed services offerings could help alleviate some concerns over excessive financial exposure. A hosted offering can, however, completely transfer the risk to a third party by eliminating most CAPEX and delivering capacity based on actual company performance and needs.
Risk mitigation is key in favorable economic conditions as well. In a booming economy, growing R&D investments drive even more accelerated technology advancements requiring more frequent upgrades and staff re-training in the case of premises-based implementations. Alternatively, the risks of technology obsolescence could be absorbed by a hosted provider in an outsourced communications scenario.
Focus on Core Competencies: Businesses and individuals are equally overwhelmed with the amount of information and expertise required to remain competitive today. Businesses are, therefore, finding they can grow more rapidly and improve their bottom line by focusing on their core competencies. As the complexity of communications technologies increases, it becomes even more compelling to partner with a trusted communications expert to ensure that the company’s infrastructure is properly deployed and efficiently managed without wasting valuable internal resources. A managed or hosted communication solution can enable customers to leverage advanced communications for a competitive advantage while focusing entirely on their core business.
Economies of Scale: As businesses grow and expand virtually through multiple remote sites and users, their communications infrastructure needs to evolve as well. Hardware-centric premises-based communications platforms are typically not very cost-effective for multiple small sites of less than 50 users. During periods of rapid growth, such solutions do not scale economically as they require new servers to be purchased, integrated and managed for additional capacity. A hosted service, on the other hand, allows a more gradual addition of incremental capacity based on the actual number of users. Also, it typically provides a uniform set of features, a common dial plan, a consistent customer interface (through a network-based auto attendant or IVR) and some other benefits to geographically dispersed organizations. Further, as businesses increasingly seek to connect with their customers, suppliers and partners, a hosted service can more effectively provide federation across disparate organizations.
Future-proofing Investments: The recession along with the accelerating pace of technology evolution are driving the need to future-proof investments in communications and IT infrastructure. Businesses need to ensure that their services and solutions are flexible and based on open standards so they can be integrated with other applications and platforms at deployment or in the future. Since SIP is becoming the de-facto industry standard, SIP-based, SOA platforms and SIP-based services offer a significant amount of flexibility and investment protection. Such solutions integrate with a wide range of endpoints and other SIP-based applications. Another important factor in future-proofing the communications infrastructure is to ensure greater redundancy and disaster recovery capabilities. Frequently, a hosted, SIP-based service can provide all these capabilities more economically than a premises-based platform.
As we tried to (re)define SaaS and evaluate how different enterprise applications fit into this model, we assessed the different UC platforms from a SaaS point of view.
As I have previosuly stated, given the interoperability challenges when integrating disparate applications into an end-to-end unified communications solution, a pre-integrated service package offered on a hosted/SaaS basis provides great value to business users. But how flexible are service provider application platforms for a SaaS model given that most businesses have some existing premise-based infrastructure? And is SaaS really a panacea for the ailing communications market?
Let’s start by saying that, according to my colleague Melanie Turek (please see her post on SaaS – Enterprise 2.0 Blog » Melanie Turek, as well as Software as a Service: Everything Old is New Again), the SaaS story actually dates back to the dot.com era and the hype around the ASP model. In the old days, most hosted platforms were as monolithic as premise-based solutions which gave little chance to service providers to add more value to the service or differentiate. Today, it is still difficult to figure out to what extent different hosted IP services can also be considered SaaS. SaaS and hosted services bear a lot of similarities; yet, SaaS implies Web-based applications and also the ability of the service provider to manipulate, manage, upgrade, etc. the applications and fully control the back end of the platform in order to provide flexible services to its customers.
Open (understandably, somewhat of an arbitrary term), SIP-based platforms are opening up new opportunities for service providers today. Looking at the IP hosted telephony space, we can see that several of the service providers deploying a BroadSoft platform (including former General Bandwidth/Tekelec/VocalData and Sylantro solutions) have enhanced their service offerings by adding their own applications and improving the backend capabilities for faster and easier quotes, provisioning and service management. Some of the hosted IP telephony providers such as CallTower, Cypress Communications, Engage Incorporated, M5, Smoothstone, Vantage Communications and others have sought to deliver various communication and business applications (telephony, call control/contact center applications, chat/presence, etc., CRM) packaged in a SaaS/CaaS (Communications as a Service) manner.
BroadSoft is opening up its APIs for mashups and the potential integration of its voice communication platform with other applications for the delivery of more comprehensive service packages from the “cloud”. Not long ago it enabled the integration of services delivered on the BroadWorks platfrom with salesforce.com. More recently, LightEdge introduced a hosted UC package based on BroadSoft’s telephony platform and OCS, which shows that there exists a viable opportunity for service providers deploying BroadSoft solutions to expand their offerings with UC capabilities.
As mentioned in a previous post, UC platforms such as OCS and MCS currently used by CallTower and Cypress Communications, the two hosted UC leaders today, do not scale easily to multi-vendor PBX environments, which has pre-determined these providers’ business models whereby they offer a full package of telephony, VM/UM + chat/presence/UC + conferencing capabilities to their customers. This model certainly has its value and benefits to both the providers and their customers, however, it limits the overall target audience to those customers that do not have PBXs.
Cypress Communications, well ahead of everyone else with over 10,000 hosted UC seats today, claims that its Nortel infrastructure – MCS5200 and CS2000 – is one of the best solutions for delivering hosted communications to businesses. CS2000 is a scalable, robust, feature-rich platform that provides all the enterprise telephony capabilities required by business users. MCS52000, on the other hand, is one of the leading UC platforms available on the market today. I would like to point out, however, that Cypress Communications has been able to successfully leverage the capabilities of these platforms to grow its hosted UC base because of its ability to support the service all the way to the desktop including the router and the LAN switch.
CallTower, on the other hand, has experienced slower growth with its hosted telephony offering based on a Cisco UC Manager, but is looking to accelerate sales with a more comprehensive hosted UC package including network-based OCS. Going forward, CallTower is planning to leverage OCS for telephony as well.
There is a third company offering hosted UC and it’s probably the very first company that tapped into this opportunity four years ago – Engage Incorporated. Engage uses Siemens’ OpenScape to deliver voice as well as a number of other communication applications to its customers on a SaaS basis. Engage has had somewhat of a limited success as it has so far tried to bundle communications with other business applications – CRM, ERP, etc. – delivered as SaaS. OpenScape provides it with a unique competitive advantage, however, as it integrates with any PBX, any IM/chat client and any other vendor’s applications. It is one of the most open technologies available on the market today and is uniquely positioned as it does not seek to replace existing telephony or IM solutions but rather acts as the glue that converts disparate applications into a comprehensive unified communications environment.
While most service providers currently involved or considering hosted UC options already have some hosted/SaaS offerings – some started with email, others with telephony, yet others with CRM, etc. – going forward, hosted UC will provide an attractive revenue opportunity for telcos, VARs, etc., that do not yet have any hosted apps in their portfolio. Such providers may wish to consider OpenScape UC as it can enable them to integrate with multiple different premise-based infrastructure environments. Further, HiPath 8000 (OpenScape Voice) can enhance such service provider offerings with a telephony option as well. Developed from a softswitch and providing a robust PBX feature set, it provides a competitive alternative to existing hosted telephony platforms.
Siemens has long claimed to be striving to become a services company and with its open communications approach it seems well positioned to become one of the leading CaaS providers. Partnerships are going to be critical for its success in that space.
SaaS, and communications as a service, in particular, is not a panacea, neither today in the economic downturn, nor in the long term. It does offer a growth opportunity for service providers, however, and a viable option for businesses to test and trial new technologies and applications. Selecting the right platform from the start is going to determine each provider’s success in this space. Therefore, decision makers need to evaluate not only the existing platforms and their capabilities, but also each vendor’s vision and roadmap in order to make the right choice.