The American “Wild West” was characterized by exploration into uncharted territory, great migrations, surviving adversity (or not), dealing with chaos, and finally creating communities, and establishing rules. The same could be said for cloud communications, or the use of the cloud for synchronous services. Settling the Wild West of cloud communications has not been easy or predictable, and the territory, even today, is far from settled. And just as in the days over a hundred years ago, there is a lot of wild hype and the promotion of promises that will never be realized. Being a pioneer is exciting – until you get an arrow in your back.
You can hardly open a communications publication or read any telecom blog without seeing encouraging and persuasive copy about the benefits of hosted VoIP, or moving your communications infrastructure to the cloud.
- Save money!
- Get total flexibility!
- Fire your IT staff!
- Unified Communications everywhere on the planet!
Sounds great, doesn’t it? But like a lot of new technology, the reality is a lot more challenging. The first question we here at Team One Solutions usually have is whether hosted VoIP even makes financial sense, much less whether it can provide business class phone service. Here are the usual financial considerations:
- Initial investment. The client is going to have to provide the infrastructure to support the system, even though there is no on-premise PBX gear. This includes PoE data switching, cabling, patch panels, and patch cords, and very frequently, even the phones themselves, which are typically $100-$200 or more each. In a traditional CPE (Customer Premise Equipment) installation, this can be a substantial expense.
- Ongoing expense. The hosted VoIP providers have models that vary between $10-40 per month per user, depending on the type of phone, the level of service, and whether the cost of the phone is rolled into the monthly service price, or whether the client pays for the phone up-front. This is where the real financial challenge occurs, as this expense goes on as long as the service is provided. In traditional CPE, the client either pays for the equipment upon installation, and there is no further cash outlay except for maintenance and updates, or the system can be financed for a 3-5 year period or more. Given that most organizations are keeping their gear for many years, the net present value (NPV) of a hosted solution is almost always substantially higher than CPE
- Term. Unlike most cloud computing applications, where per-user services can be turned on and off on a monthly basis, most hosted VoIP providers insist on an initial term of a minimum of 1 year, and often 3 years. This does not provide the level of flexibility that other cloud computing applications can provide an organization that is in flux.
- Bandwidth. Depending on the hosted VoIP provider technology, the client may very well have to substantially increase their bandwidth, at additional cost, in order to support the quality of service that the business expects.
When these factors are all carefully considered, we often find that from a financial perspective, a hosted VoIP solution doesn’t make sense. Of course there are exceptions, and we’ll discuss those in another blog post.