White Paper Contents Introduction....2 What VoIP Can Do For You....2 Cost Savings....2 Improved communication capabilities....3 Integration with other communication methods....3 VoIP vs. Traditional Telephony....4 Varieties of VoIP....5 Premesis VoIP....5 Hosted VoIP....6 Internet VoIP....6 Managed VoIP....7 Unified Communications & Collaboration....8 VoIP call centers....9 Pricing and Cost....9 Pricing models.... 10 Telecom costs.... 10 Upkeep.... 10 Network costs.... 11 Functionality.... 11 Other variables.... 12 Premesis price ranges.... 12 Hosted price ranges.... 12 Making Your Choice.... 12 About Ziff Davis B2B Ziff Davis B2B is a leading provider of research to technology buyers and high-quality leads to IT vendors. As part of the Ziff Davis family, Ziff Davis B2B has access to over 50 million in-market technology buyers every month and supports the company s core mission of enabling technology buyers to make more informed business decisions. Copyright 2013 Ziff Davis B2B. All rights reserved. Contact Ziff Davis B2B 100 California Street, Suite 650 San Francisco, CA 94111 Tel: 415.318.7200 Fax: 415.318.7219 Email: marty_fettig@ziffdavis.com www.ziffdavis.com
Introduction Sooner or later you re going to have a Voice over IP (VoIP) phone system. The reason is simple: All telephone systems, networks, and services are moving towards VoIP. As its name indicates, VoIP uses IP-based rather than traditional telephone technology to handle, process, and deliver voice calls. It s a major improvement for a lot of reasons. But you need to consider a couple of important questions before you buy. One is which of the many available types of VoIP systems will best fit your needs. A related one is the best way to purchase or otherwise pay for the system you choose. This guide will help you settle these and other questions. What VoIP Can Do For You Converting voice audio into IP packets brings major technical benefits. First, it turns call handling into just another IP application. This provides a myriad new ways to process, store, manipulate, and route voice audio data. Second, it lets the delivery of the voice data take place over IP networks. This can be a lot cheaper than with traditional telephone networks. Perhaps more important, it makes the distance the voice data travels irrelevant as is the case with other types of Internet data in general. VoIP also has drawbacks, however. IP networks weren t originally designed to carry delaysensitive traffic like voice. They were also not designed to meet the stringent reliability standards of the public switched telephone network (PSTN). Even so, by now the benefits of VoIP far outweigh the drawbacks, especially with so much effort under way to alleviate the latter. Here are some of the benefits: Cost savings From the beginning, VoIP s biggest selling point was how much money it could save. Of course, there may have been a bit of oversell involved so there is definitely a need for reality checks on claims of VoIP cost savings. Even so, moving to VoIP may save you money in a number of areas: Equipment purchase: The price of VoIP call-handling equipment (IP PBXs) can be significantly lower than that of traditional PBXs of the same capacity Calling charges: VoIP calls can travel between your branch offices for free over your corporate wide-area network (WAN), cutting long-distance charges. IP telephony service providers may also charge less for outbound and toll-free inbound calling than do traditional carriers Upkeep: VoIP systems are easier and thus less expensive to manage, maintain and update than traditional PBXs CapEx: VoIP makes it possible to use hosted phone service and pay monthly fees instead of purchasing equipment, which eliminates the need for upfront capital expenditures ziffdavis.com 2 of 13
Wiring: Because VoIP runs over your IP data network, there is no need for separate telephone wiring. This can be a big saving in new installations Improved communication capabilities Though saving money always sounds good, VoIP s greatest value is actually the powerful communication capabilities it brings businesses. A basic system may or may not be much cheaper than a traditional setup. Indeed, refurbished end-of-life key systems suitable for small companies can be quite cheap these days. And many companies with traditional systems, large or small, have already paid them off, so any new system will cost more. But even when there s no price advantage, VoIP still brings big benefits. For example, it for the first time makes the features and functions of high-end traditional systems available to small companies as well as large ones. These include but are not limited to the following: Auto attendant: Automated answering of incoming calls, letting callers press keys or speak words to make their choices Personalized voice mail: Lets employees record their own greetings in place of a generic system recording ACD: Automatic call distribution, routing calls to employees best suited to answer them, based on definable rules Extension dialing and transfers: The ability to make or transfer calls to other employees by dialing their extensions In addition, VoIP makes possible new capabilities that even the most expensive traditional systems can t match, including: HD voice calling: Provides far clearer sound quality than is possible with traditional systems Graphical onscreen interfaces: Let employees click to make or answer calls, and drag-and-drop to transfer them Visual voice mail: Lets users see their messages on-screen or in their e-mail inboxes, and click or drag-and-drop to listen to or forward their messages Soft phones: Allow employees make calls through PCs rather than desk phones, so they don t need to hold receivers to talk or press keypads to dial Presence detection: Lets employees know when others are on the phone or available to talk Integration with other communication methods A broader benefit that VoIP brings to business telephony is the ability to integrate voice calling with other IP-based business communication tools. Such integration can be difficult or impossible with even high-end traditional systems. When this kind of integration takes hold, business ziffdavis.com 3 of 13
communication is no longer solely or even predominantly about talking on the phone. Rather, voice is just one of a number of communication methods that employees can choose from and easily switch among as needed. VoIP vs. Traditional Telephony From a technical point of view, voice communication involves two separate functions. One is call handling. That means routing, switching, transferring and forwarding calls, and other actions necessary to make sure the call reaches the right person. It also includes things like voice mail and music on hold to make the calling experience more professional and pleasant. In a typical business phone system, the PBX (private branch exchange) does this. The other function is transport that is, actually delivering the voice audio to and from the people at the ends of the call. This happens over wires, cables or wireless connections, and uses physical phones or their PC software equivalent known as soft phones at each end to convert the voice data to and from audible sound. From these basic ingredients it is possible to create a wide variety of VoIP systems. To start with, both call handling and transport can employ either IP or traditional technology. Mixing IP and traditional technologies produces four possible combinations of call handling and transport, the first three of which qualify as VoIP: IP call handling, IP transport IP call handling, traditional transport Traditional call handling, IP transport Traditional call handling, traditional transport There are different flavors of IP transport as well: IP calls may travel over the public Internet IP calls may travel over corporate or other private/managed networks Calls may travel partly over IP, partly over traditional networks In addition, the IP transport involved can connect different types of locations or entities, including: Different branches of a company A company and its traditional or IP-based telephony service provider (SP) Finally, VoIP companies can package and sell the various technical elements in different ways to create widely varying commercial products. The most obvious differentiating factors include: Who owns and operates the call-handling equipment Where the equipment is physically located ziffdavis.com 4 of 13
How the VoIP company charges for the product Whether call handling and transport are bundled as part of the same service What kinds of user endpoints (phones or soft phones) are involved Who purchases the endpoints: the provider or the customer What kind or level of functionality the product offers This last set of differentiators largely determines what commercial category the VoIP product ultimately fits into. The best-known categories are premises and hosted VoIP. Mixing these categories and variables produces an array of possible combinations, nearly all of which represent VoIP products or services of one sort or another. And together, they illustrate the complexity of the decision you face once you start shopping for a VoIP phone system. Varieties of VoIP Premises and hosted VoIP are among the best-known types of VoIP products. But they are far from the only ones. The following descriptions detail the advantages of premises, hosted and other key types of VoIP products, services and systems. Premises VoIP This means an IP PBX sitting and running in the customer s office or other facility. The customer purchases and owns the equipment. Within the customer s premises, calls travel over the corporate IP network rather than over internal telephony wiring. Premises systems are cheaper than traditional PBXs, but their cost can be considerable nonetheless. In addition, the customer still has to manage, maintain and upgrade the system. Although this is easier than with traditional PBXs, it can take a fair amount of time, skill and money. Transport of calls between the company and the telephony service provider can be via IP (usually based on SIP, or session initiation protocol) or traditional trunk lines. IP trunks can connect directly to the IP PBX at the customer s premises, while traditional trunks have to connect to it through a gateway. IP trunks may be substantially cheaper. And as managed IP connections they can provide excellent voice quality. At the same time, traditional trunks and telephony services are fairly price-competitive these days, in part because most traditional telcos use IP in their backbone networks. And traditional lines have bullet-proof reliability, remaining in operation even in case of power or Internet outages. Transport between sites takes place via IP connections using the corporate WAN. This is an advantage even when using traditional transport to and from the telephony service provider. For one thing, it eliminates long-distance charges for calls between sites. It also lets a single IP PBX handle calls for multiple sites, if desired. And it makes it possible to use all sorts of integrated IP-based features, including those described below under unified communications, on calls between sites. These can range from inter-branch extension mobility and dialing ziffdavis.com 5 of 13
to integrated instant messaging to presence detection to video conferencing to online collaboration tools. These possibilities represent yet more evidence that VoIP is no longer just about saving money. Hosted VoIP This means the IP PBX sits and runs in the provider s data center. The provider owns and operates the IP PBX, and the customer pays a monthly fee for the call-handling functionality it provides. Calls travel over an IP connection to and from the customer s premises, and thence through the office local-area network (LAN) to/from employee s desks. Connection to the PSTN for external calls takes place through a gateway from the provider s network. The IP connection between the customer s premises and the provider s data center can be one of several types. Most commonly, the calls travel over the public Internet. Alternatively, they may share a private IP connection with the customer s other data. Or they may travel over a private IP connection dedicated to voice traffic alone. Such dedicated connections are usually bundled with the hosted VoIP service itself. Services that employ private IP connections are more expensive than those that run over the public Internet. Hosted VoIP s biggest selling point is that the customer doesn t have to pay for the call-handling equipment. Even though IP PBXs are cheaper than traditional ones, any such upfront expenditure can still be burdensome, especially in a harsh economic climate. There are also variations. The monthly fee may or may not include phones. If not, the customer has to buy them. The fee may be per user, per extension or some other measure. As with premises systems, inter-branch calling is free. And the customer has no responsibility to manage or maintain the equipment, or keep it updated. That can mean considerable savings. On the other hand, moving to hosted VoIP also has costs. In particular, it may require spending money to boost the company network s ability to handle the new voice traffic that will be traveling over it. This is discussed in more detail in the Pricing and Cost section. Most important, payments for hosted service continue forever. With an IP PBX, once the equipment is paid for, the only ongoing expense is for management, maintenance and the like. In short, hosted VoIP is only cheaper than premises VoIP until it isn t. And that crossover point can come as soon as in one to three years. In any case, the attractions of recurring revenues have motivated many VoIP companies that started out as vendors of premises IP PBXs to begin offering hosted VoIP services running on those same IP PBX platforms. Internet VoIP From the beginning, Internet calling service Skype has shaped perceptions of VoIP as a whole. Even now, many casual observers assume that VoIP calls always travel over the public Internet, that their quality is thus suspect, that they always involve headset-equipped computers, and that they are free. The logical implication of these assumptions is that VoIP is OK for penny- ziffdavis.com 6 of 13
pinching individuals, but not for businesses. Business VoIP today bears little resemblance to Internet VoIP services like Skype. Yet some of the early assumptions continue to linger or at least have not been fully dispelled. For that reason, it s necessary to continually clarify the realities of business VoIP in several areas. For one, business VoIP calls may never travel over the public Internet. Even when they do, as with hosted VoIP, quality will not necessarily be a problem. A related reality is that business VoIP solutions ensure quality in a number of ways. And because of technologies like HD voice the clarity and sound quality of calls can, as previously noted, be superior to that of traditional calls. Lastly, VoIP calls aren t always free or even necessarily cheap. In fact, calls to regular phones may not cost much less than with traditional phone service. At the same time, it s important to note that Internet VoIP is itself becoming a business tool. One reason for this is that you can probably reach everyone you want to via Skype, due to its huge registered user base. A second is that new owner Microsoft, understanding this value, is integrating Skype calling into business communication. Specifically, it is making Skype accessible via its Lync 2013 IP PBX software platform. A lot of small businesses were already using Skype as a routine business tool. This integration will take its business use mainstream. Managed VoIP This lower-profile but still significant category has roots in pre-voip services that offered companies the use of managed traditional phone systems for a fee rather than for purchase. Here, the provider puts an IP PBX in the customer s premises. The provider may be an IP PBX manufacturer itself or a third-party services company. The provider owns, manages and maintains the IP PBX, using it to handle the customer s calls and charging a monthly fee as with hosted VoIP. But unlike with hosted service, calls don t have to travel over the public Internet to reach the IP PBX, since it is in the customer s premises. Another difference is that the cost of outbound calling isn t included in the fee, although the managed service provider might arrange with a telephony service provider to provide PSTN connectivity as part of a package. Some hosted VoIP providers are moving in this direction. Rather than handling calls using only IP PBXs in their data centers, they are locating that equipment wherever it makes the most sense including in the customer s premises. This might happen, for example, if the customer is large enough to justify a dedicated appliance. Or it might be necessary for security or compliance reasons. In any case, if the IP PBX is only in the customer s premises, this approach might merit a new name, such as premises-based hosted VoIP. Another possibility is a hybrid hosted solution, sharing the call handling between premises and data-center IP PBXs. This approach, which amounts to a new kind of true cloud VoIP, offers considerable flexibility. And it is a natural fit for hosted providers that started as premises IP PBX vendors, since they already are using the same IP PBX platforms for premises and hosted solutions. ziffdavis.com 7 of 13
Unified Communications & Collaboration Many VoIP companies no longer talk about selling business phone systems. Now they call themselves unified communications vendors. The change is understandable. As previously noted, VoIP s IP foundation allows integration of voice calling with other IP-based business communication tools. Combining these tools with VoIP creates a new category unto itself. The term unified communications, or UC, has caught on to describe this category. Prominent elements of unified communications, some of which have been previously described, include: Unified messaging: Allows employees to access their voice mail, e-mail and fax messages through the same inbox Instant messaging: Lets employees text message one another while talking on the phone, a particularly useful feature for sales or service agents Integrated user interface: Provides a graphical onscreen dashboard or window that lets employees make, receive and handle calls with actions such as clicking and dragging and dropping, and similarly access other UC features such as unified messaging, instant messaging and video conferencing Soft phones: PC software that lets employees make calls from headset-equipped PCs rather than desk phones Presence: Allows employees to detect each other s availability to talk before calling, eliminating time-wasting telephone tag Mobile integration: Makes mobile devices part of the office communication system. It lets employees make and receive office calls on mobile phones of any type. With smart phones, they can access virtually all the features of the office system, from visual/ integrated voice mail to the corporate directory and even to video conferencing Integrated video conferencing: A feature that lets employees see each other when talking, improving communication and rapport Online collaboration tools: Let callers share computer screens, applications and white boards while talking Video conferencing is becoming an increasingly important component of UC. And the growing popularity of collaboration tools is the reason vendors are often adding collaboration to UC, making the terms UCC and UC&C increasingly common. For convenience, this document uses the generic term UC to represent the various types. But the growth of UC also introduces a lot of complications. Unlike with voice calling, which can connect over the PSTN, most other UC tools work only over IP networks that are physically connected to one another. Thus employees will be able to use them to communicate ziffdavis.com 8 of 13
over the corporate network with employees in different branches or sites. But they will have trouble trying to use them to communicate with outsiders. That s because there is no IP equivalent of the PSTN s universal connectivity. Efforts are under way to solve this. Traditional telcos, for example, are working to add IP capabilities to their network infrastructures, using a technology called IMS, for IP Multimedia Subsystem. There are also a number of commercial exchanges that physically connect disparate corporate and provider IP networks. These let the networks directly exchange IP communication traffic, including voice and UC, so that it needn t transit the PSTN. Such connectivity remains far from ubiquitous, however. VoIP call centers If you have employees who spend most of their time talking to customers, you have a call center. You may not call it that. And it may involve only a handful of employees. But both premises and hosted VoIP solutions can offer powerful call center features that will make those employees far more effective sales or support agents. These features include: Skills-based routing: A sophisticated form of call distribution, based on factors like agents technical capabilities and knowledge Monitor, whisper and barge: Functions that let managers listen in on sales or service calls, advise agents and even join their calls Call recording: A staple requirement for ensuring the quality of sales and service calls Real-time call reporting and monitoring: The ability for managers to see the status of call queues and individual agents in real time on-screen Integration with CRM and other sales automation applications: This powerful capability gives agents access to a vast amount of information about customer sales interactions and call history on-screen Pricing and Cost The trickiest part of shopping for a VoIP business phone system is figuring out the best deal financially. The most obvious challenge is familiar: the major competing pricing models. Premises and hosted products are so dissimilar that comparing their costs can be daunting. An even more basic challenge is knowing their cost in the first place. Most IP PBX vendors are reluctant to make any of their prices public. Hosted VoIP providers do put some prices on the Web, but generally only for their lowest-end services. With bigger or more complex installations, they insist that potential customers request quotes just as they have to with premises vendors. Still, it s possible to come up with some general dollar price ranges and estimates. It starts with the fact that VoIP pricing has its roots in the conventions of traditional business phone system sales. With traditional PBXs and even key systems, the standard approach has long been to ziffdavis.com 9 of 13
charge per seat. This was logical because the equipment s capacity was roughly proportional to its cost. With VoIP systems, capacity is less dependent on hardware cost. Despite this, providers have tended to stick with per-seat pricing of one sort of another, in part because it s what customers are comfortable with. Even hosted providers mostly favor per-seat pricing, although both the definition of this approach and its relative ubiquity are evolving. Pricing models The meaning of per-seat pricing varies by category, of course. With premises VoIP, it means the one-time cost of purchasing equipment. This usually includes both call-handling equipment and desk phones. Implicit in the number of seats the equipment supports is its ability to handle a certain number of simultaneous calls. Normally this means one concurrent call per two to four seats, though in call centers the ratio might approach one to one. With hosted VoIP, per-seat pricing means how much a company pays per employee or user per month. Usually one employee corresponds to one extension, but not always. Similarly, hosted service usually includes phones, but not always. The flexibility of VoIP is driving the adoption of other ways to price besides by the physical phone, especially for hosted services. Alternative approaches include pricing by the number of registered users (which may be different from the number of extensions or employees), by the number of outbound calling minutes, and even by the total bandwidth available for simultaneous calls. In any case, even a straightforward comparison of outright purchase cost vs. monthly fees can be challenging. To start with, it s necessary to decide how long the comparison period will be. This is critical if there are any concerns that purchased equipment will grow obsolete quickly. In any case, over a one-year period, hosted VoIP is clearly cheaper. Over the traditional seven-year write-off period of office phone systems, premises is likely cheaper. In between these extremes, the picture gets murkier. Further complicating matters, premises vendors also offer various financing options, included vendor financing, lease and lease to purchase. Telecom costs Hosted VoIP pricing includes one factor that is not present in most cloud-vs.-purchase business technology decisions: Its fees include the cost of outbound calling. So any accurate comparison has to include the additional telecom costs that purchasers of premises systems must pay separately. Upkeep Premises VoIP also has other costs besides per-seat charges. For example, the buyer is responsible for the equipment and software. Maintenance and upgrades could reach nearly 20 percent of the original purchase cost over the life of the system. Management and technical support can run another 10 percent per year. ziffdavis.com 10 of 13
Network costs Companies moving to a premises system have to make sure the WAN links between their locations are up to the job. That first means confirming that they have the capacity to handle the additional traffic VoIP calls will put on them. Depending on the compression technology the phones codecs use, and whether they transmit standard or HD voice audio, this could range from as low as 8 kbps to 64 Kbps or more, the larger number equaling the bit rate for standard uncompressed voice calls. The bigger concern is making sure the network can maintain call quality. The usual solution is to deploy a technology such as MPLS (multi-protocol labeling system), which prioritizes real-time traffic like voice over e-mail, file transfer and the like. All of this could require substantial spending. With hosted VoIP, the main focus will be the IP connection that will carry calls between the hosted IP PBX and employees desks. Even internal calls between employees at adjacent desks will account for two call paths to the IP PBX sitting in the providers data center. If the selected solution transports calls over the public Internet, it may be necessary to considerably increase the Internet connection s bandwidth to handle the added traffic. It also may require upgrading from the bargain-basement asymmetric broadband connections that small companies often use to pricier symmetrical services. It s also crucial to make sure the Internet connection has the ability to maintain the quality of real-time traffic like voice. This will at least require a QoS (quality of service) capable router that the hosted provider confirms is compatible with its service. And if call quality proves problematic, it may be necessary to opt for a hosted service that comes bundled with a managed IP connection. This eliminates both capacity and quality worries. The ongoing cost of going this route could range from minimal to moderate. Functionality The other big variable perhaps the biggest when shopping for a business phone system is functionality. Adding features and capabilities can boost the price drastically, sometimes tripling or quadrupling the per-seat cost. This is true of both premises and hosted products. Some points are clear. A basic service including such functions as auto attendant; personalized voice mail; rudimentary automatic call distribution; and extension dialing and transfers will be inexpensive. Powerful call center features will generally command the highest prices. These include skills-based routing; monitoring, whispering and barging; call recording; real-time reporting of call and queue information; and integration with sales automation apps such as CRM. The effect of other features on price is less clear. For example, some UC features may play central roles in specific call center packages. These include unified messaging, integrated instant messaging, presence, integrated user interfaces, soft phones, video conferencing, online collaboration tools and mobile integration. As such, they help justify the premium price ziffdavis.com 11 of 13
of such packages. When sold as part of non-call center UC products, however, their price may range from nearly free to quite expensive. All of this means that UC features play a big role in making VoIP pricing unpredictable. While basic functions are cheap and sophisticated call center capabilities are expensive, with other features vendors use different tactics. Some add in powerful UC functions free to sell one package or another. Others offer basic packages almost for free, and charge substantially more for UC features. Again, VoIP s flexibility vastly increases the number of options for vendors and buyers as well as the potential for buyer confusion. Other variables Some other pricing variables are relatively predictable. For example, larger vendors products are often more expensive than smaller vendors. One reason: the former tend to prefer proprietary technology, while the latter often use some combination of Linux servers and Asterisk IP PBX software, both of which are open-source platforms. Also unsurprising: high-volume installations offer lower per-seat pricing. Similarly, prices will depend on the kind of phones the buyer want to use. Even when the phones come included with the per-seat price, the seats will cost more with fancier phones. Premises price ranges Premises purchase prices typically range from $400 to $500 per seat, including phones, for installations of up to 100 seats. When the seat number rises to several hundred or more, per-seat prices drop to $200 to $400. Adding sophisticated UC functionality could boost prices well over $700 per for 100 seats, the number dropping to $300 each for 2,500-seat installations. For high-end call centers with specialized PBXs, the cost can rise as high as $2,000 per seat, with appropriate discounts for volume. Hosted price ranges As a general rule, if you re looking at hosted service, the bare-bones minimum you ll pay is $15 per user per month. At this level, you probably have to buy a basic IP phone outright for $100 to $200. The service will include call forwarding, voice mail and some basic auto attendant capabilities. When the phone comes with the service, it generally adds some $10 per month to the per-seat fee. A more common offering involves basic hosted service running closer to $20 to $35 per month with phone included, and with some additional capabilities. And if you opt for premium hosted service, it can set you back $50 to $125 per month, and sometimes as high as $500. At this level, you are probably paying for sophisticated UC and/or call center features. Making Your Choice All of these possibilities make figuring out the best deal for you a complicated proposition but you can assume that a couple of general principles will hold true. One is that apples-to-apples ziffdavis.com 12 of 13
comparisons will be rare. Indeed, vendors will usually try to avoid those, preferring to offer uniquely appealing packages. Second, and related, vendors and providers will in general try to avoid competing on price at all, preferring to sell you on the attractiveness of their features. And again, if you currently have a traditional system, it s cheaper than any VoIP system you re looking at, since it s probably already paid for. Based on these principles, you ll be able to start assessing various vendors offerings. ziffdavis.com 13 of 13