Adding a new technology to your portfolio, just because it has been hyped as the next big thing, can often lead to expensive mistakes. Backing the wrong horse not only damages credibility; it can lead to unanticipated extra investment in training and increased headcount in the form of dedicated sales and support staff.
Resellers have justifiably classified IP telephony as one such hit-and-miss technology. The reality has consistently failed to live up to the hype, with early efforts dogged by poor quality issues, including delays and voice jitters as well as concerns about the security of IP networks.
Building from scratch
In booming economies, such as China and India, the deployment of IP telephony networks is taking off because many businesses are unencumbered by the challenges of integrating the latest technology with legacy phone equipment and can therefore build their communications systems from scratch.
In the UK, however, it is a different matter. According to a recent study by analyst Datamonitor, UK companies are lagging behind the US and Europe when it comes to adoption of IP telephony solutions. Half as many UK enterprises than in the US have taken up IP telephony systems and unified communications networks systems that integrate data and IP telephony. The same research revealed that 60 per cent of US firms use voice over IP (VoIP), compared with just a third of UK businesses.
“Part of the problem is that people have not been able to decide what to call it,” says Richard Bligh, group marketing director for Berkshire-based IP telephony vendor Gamma Telecom. “Put simply, IP telephony is the use of technology to transfer voice calls as data over a computer network, but it has taken a while for the industry to arrive at a common definition.”
Bligh has a point. IP voice, VoIP, IP telephony, broadband telephony, voice over broadband, and internet phone calls are all terms that are bandied about on a daily basis, often without any attempt to explain what they mean.
However, anecdotal evidence would appear to show that the past 18 months has witnessed something of a sea change that even the most cynical reseller cannot ignore. There are now signs that IP telephony is starting to deliver on its early potential. Engineering advances in the technology have made it considerably safer and easier to use to the point where SMEs are taking notice.
“When demand starts coming from the end users suggesting the firm replaces its 10-year-old PBX with an IP-enabled version, you know critical mass has arrived,” says Bligh.
Deflating the Skype
Part of the renewed interest in IP telephony is a result of efforts by both vendors and resellers to disassociate it from free services such as Skype. Offering calls over the internet, such services have had a three-fold damaging effect.
“The expectation from businesses that IP telephony is residential, free and poor quality, has made it all the more difficult to promote its virtues. Our message has been that if you
are making a call to your granny in Peru then Skype is fine. But it is no good if you want it for business use,” says Bligh.
Richard Dorgan, head of propositions at Colt, agrees that decoupling Skype from the serious business of selling IP solutions has been an important factor behind IP telephony’s new-found popularity.
“Calls over the internet are a bad idea. It is much better to talk about guaranteed business-grade IP solutions, than free or low-cost calls and run the risk of constant drop-outs.”
According to Dorgan, Colt is seeing an increased demand for managed services, whereby the customer enlists their provider to manage the IT infrastructure in its entirety, including voice applications.
Companies moving premises or upgrading PBXs along with the attractions of increased employee flexibility, and the potential for a larger mobile workforce, are some of the key drivers behind the recent increased demand for IP telephony products from SMEs.
Other oft-cited benefits include the availability of on-screen consoles and monitoring facilities that allow businesses to record calls and see which employees from which offices are putting in the calls and uncover those who are not. More effective disaster recovery planning is also a potential gain, through the use of transportable numbers.
According to Bligh, Gamma’s main demand is coming from vertical markets such as travel companies, estate agents and other sales organisations, where image to the end user is important. The availability of free site-to-site calls is also proving popular with local government and public sector bodies.
Bligh feels it is data resellers that are best placed to take full advantage of the IP telephony boom,
because they already enjoy multiple contact points with their customers.
“IP telephony offers data resellers a new source of revenue with higher margins than many core data services, but it does not require new skills and systems. What is more, LAN-based telephony and monthly service revenues often complement the reseller’s current skill set and business model. It also increases the lock-in with their customers, allowing them to own the total communications spend.”
Russell Whitlock, managing director of Middlesex-based data reseller RW Communications, agrees that it is the data VARs that have the edge. Established at the dawn of IP telephony in 1998, the company only added IP solutions to its portfolio a little more than a year ago.
“It was our customers who pushed us. They were calling us on a daily basis for IT support and would often ask us to sort out their phone problems. But we would point
them in the direction of their phone supplier because we had never before been involved with selling voice solutions,” says Whitlock.
Realising his small-business customers would prefer to deal with one port of call for both their IT and voice support, Whitlock was persuaded to consider adding IP telephony solutions to RW Communication’s portfolio after attending an IP shoot-out marketing event. Eight weeks of experimenting with a hosted IP network checking call quality was sufficient to give Whitlock the confidence to take the IP telephony plunge.
One the biggest attractions for Whitlock was the ability to add IP telephony to the company’s services line-up without taking on extra support staff. “You can sell an extra 30 systems and the only support query you get is: ‘How can I add an extra user?’ It just works. It is also a great way of tying customers into more services.”
Whitlock focuses on the issue of call quality when selling to smaller businesses. “They want to know there is going to be no crackle and no hiss. They know that if you start losing calls, you start losing business. Once we get past the Skype factor and explain to them that it does not actually touch the public internet, there is a real sense of relief.”
As part of the confidence-building exercise, Gamma offers a 30-day guarantee if customers do not like their new IP phone system, it pledges to rip it out and stick the old one back in. “All they have to do is pay for the call charges,” says Whitlock.
With sales exceeding expectations, the company is about to take on dedicated sales staff. However, Whitlock adds a word of warning to those existing voice resellers considering their IP telephony options.
Licences are key
“For the traditional call guys, it could be too late. Their business model is antiquated it is all about getting money up front by flogging a PBX for 15 grand. IP is different because it is based on licences and IT resellers are comfortable with this model. They are used to money dripping in rather than getting big money up front. It may only be a few hundred pounds each month, but if you get enough customers and sell enough licences, you are making a lot more money than through the voice reseller model.”
Jack Michalski, chief executive of Stroud-based telecoms reseller Welcome Telecom, takes issue with the claim that only data resellers can make a mark in selling IP telephony. After just two years in the IP business, this new line of revenue will soon account for 30 per cent of the firm’s total income. Orders are coming in thick and fast from sectors as diverse as charity, to finance and travel agents.
He acknowledges that data resellers have the edge in terms of getting up to speed with the technology. However, a cautious approach can yield results for traditional telephony resellers as well.
Michalski invested in producing a free, high-quality explanatory video for SMEs, which is downloadable from the company’s web site. It serves as a lead generation exercise as businesses have to enter their details to receive the download and has an obvious educational benefit.
Small firms are halfway to signing on the dotted line by the time a Welcome Telecom representative walks through the door.
Michalski has two tips for resellers moving into IP telephony for the first time: “Make sure you understand the technology inside out before you take it to market. We spent six months playing with our IP system, ensuring we understood exactly how it worked. Even though it is just an application, you have to spend time understanding everything about the product and how you can best support it.”
His other tip is to resist the temptation to sell IP telephony in terms of cost savings and price.
“If you are selling on cost, you are probably selling to the wrong customer. Our success has come from selling added functionality, such as home office working plug in a phone at home, and automatically receive your work-bound calls that sort of thing.”
According to Michalski there are indirect savings for businesses, such as reduced costs as a result of spending less on office space, but promoting benefits such as screen popping the ability to see who is calling as the call comes in is more likely to result in a successful sale.
Resellers in demand
All this is good news for resellers, as increasing numbers of vendors compete for their attention. Gamma is planning to specifically target data resellers with its two core IP telephony products: Feature Plus and Communicator.
According to Bligh the company is looking to sign up 30 resellers over the coming six months and has launched a web site www.nowsthetimeforipvoice.com to kick-start the recruitment drive. The company is offering resellers a free trial of systems at their offices, assistance with billing (either fixed price or via a third party), technical training and pre-sales support.
Meanwhile, Luton-based Swyx, which offers software-based IP solutions, recently launched its Jump-Start programme specifically aimed at helping traditional voice resellers make the transition to IP telephony, overcoming any barriers or fears they might have in entering this new market.
“Many traditional telephony resellers are keen to take advantage of how this technology can help them add value and differentiate themselves from the competition,” says Ralf Ebbinghaus, senior vice president of sales and marketing at Swyx.
“We accept, however, that for many, this change requires a considerable leap of faith as new skills, both technical and commercial, are needed to ensure the transition is successful.”
Swyx is offering resellers a combination of financial and technical incentives, including on-site and off-site technical support, free installations, access to an online knowledge-base, plus support and the back up of the company’s partner programme.
Looking to the future
Gamma’s Bligh believes the next step could involve a completely new business model, offering IP telephony at a fixed cost rather than a billed per-minute model.
The company is looking at bringing out a fixed cost offering in the near future. The prices will include the service, hardware and minutes packages and will effectively replicate in the fixed world the bundled package available in that of the mobile world.
“To date, IP telephony has only been available in a billed-per-minute model which could be one of the barriers that has prevented mass take-up. As more and more services are becoming bundled and fixed price in the residential sector, this trend will hit the business market,” says Bligh.
“Some customers just want one bill and want to be able to plan easily around fixed costs. These packages make it easier for those channel partners new to voice services to sell them without investing in systems and people to run them. Market segments, such as the public sector for example, much prefer fixed costs for all communications services.”
However, Whitlock from RW Communications has a few words of caution when it comes to the idea of selling a fixed-cost solution.
“It sounds great for small businesses that are just starting up. It is also good for resellers that need to guarantee a certain level of revenue.
“But if a customer suddenly gets very busy, you cannot make the money on the extra calls and that means lost revenue.”
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