How to Sell: Convergence - Part 1 - Answering the call

The hype about voice and data convergence shows no sign of abating. In the first part of How to Sell: Convergence Martin Lynch reports on how vendors are finally coming up with the products to match their promises.

Considering that every man and his dog has been talking up a storm about converged voice and data solutions for years, surprisingly it is still a market in its infancy.

Even so, converged solutions are becoming big business and are starting to change the entire communications infrastructure.

Analyst IDC sees the overall market for Voice-over-IP (VoIP) equipment improving at a rapid rate, and has forecast a 66 per cent increase in IP-enabled PBX equipment sales to enterprises for 2003.

The overall market is expected to increase at a compound annual growth rate of 45 per cent, topping $15bn (£8.9bn) in revenue by 2007.

In fact, the company has claimed that as long as the economy doesn't go belly-up again, this year will be the break-out year for VoIP in enterprises.

On the ground, converged solutions mean that the chalk-and-cheese worlds of telecoms and data are being forced together as the idea of having one network for everything takes hold of the business imagination.

Telecoms companies are scrabbling, quite successfully, to bring their PBX solutions up to speed, while IT networking companies and some telecoms companies are trying, with limited success, to make pure VoIP the infrastructure of choice.

After a number of years of trying to educate customers about the benefits of convergence, vendors have finally come up with products to match the hype. Converged solutions are being implemented on a daily basis, from small and medium-sized enterprises (SMEs) to large corporates.

The benefits of having a converged voice and data solution are clear, from the savings and ease of management to supporting mobile workforces and being able to implement advanced communications technologies such as videoconferencing without breaking the bank.

The choice and range of solutions is growing all the time. Most companies are choosing to head down the IP-enabled PBX - or hybrid PBX - path being laid out by market heavyweights Avaya and Nortel, or the pure VoIP route favoured by Cisco, 3Com, Mitel and Ericsson.

There are pros and cons to both, but it all comes down to what you want, what you already have in place and what you can afford to shell out.

From vendors and distributors to market analysts and the new breed of converged solution resellers, convergence is the place to be, despite the economic conditions.

"The market is pretty buoyant at the moment," said Nick Frangione, sales director at voice and data distributor NV3, a spin-off from Northamber.

"The economy has affected everyone, but things are starting to turn. Slowly, confidence is coming back and businesses are looking at medium-to-long-term strategies.

"Many want to protect their existing investment in PBXs, so there is investment going into upgrading legacy PBXs with IP functionality."

Simon Brough, technical account manager at Crane Telecommunications, agreed. "Certainly the economic downturn has hit the market. Budgets in the corporate sector were put on hold with many opting to plug some gaps but not implement full solutions. That's starting to change."

Roger Jones, business development director for IP telephony at leading converged solutions vendor Avaya, observed: "Even in the current economic climate, sales of converged products are doing very well versus those of traditional PBXs. All of the customers we approach are talking about implementing some form of IP telephony."

So which technologies are leading the way? It's hard to open an IT magazine these days without seeing a story about VoIP. But while the hype is massive, pure IP-based solutions are small potatoes at the moment.

Hybrid PBXs still lead the way in sales
According to market watcher Canalys.com, hybrid PBX solutions account for 54 per cent of the market, followed by traditional PBXs with 42 per cent and pure IP solutions with just four per cent.

In the vendor stakes, the analyst places Nortel and Avaya at the top of both the hybrid and traditional PBX arenas, with Cisco and 3Com heading up the pure IP charge.

It must be remembered, however, that nothing is cut and dried when it comes to convergence. Avaya, a market-leading supplier of traditional PBXs and hybrid PBX solutions, also sells a pure VoIP solution, as does another telecoms player, Mitel.

Crossover is the name of the game and the leading players have been quick to learn that having a foot in each camp is a winning strategy.

"If we went to a green-field site or a branch office environment, we would probably put in a pure VoIP solution because it would save them money," said Jones.

There is no doubt that IP is the way forward, but getting there is a twisted route with telecoms companies being very aggressive by tweaking their PBX offerings to include IP functionality.

They have managed to capitalise on the reluctance of many large companies to replace their existing PBX set-ups. They have also made serious inroads into the SME space by pushing keenly priced, low-end bundles into companies that don't already have expensive PBXs.

Pure VoIP is also increasingly finding a home in the SME space because legacy network upgrades are less of an issue.

It is not always easy for a firm to migrate from its traditional PBX for voice traffic and separate local area network/wireless area network for data to the nirvana of a converged solution. It can be a technical quagmire, peppered with a wide array of hidden costs.

Simply put, a PBX is expensive and often backed by long-term service contracts. Even if you can afford to dump it and go for a VoIP solution, there's no guarantee that your network will be up to scratch.

Networks not yet ready for VoIP
"The infrastructure is the greatest barrier to getting VoIP to take off," explained Brough. "You need a network capable of handling both voice and data traffic as well as providing quality of service.

"You have vendors out there saying to customers that they have a great IP solution, but less than one per cent of firms have networks capable of underpinning it."

Jones agrees. "We do a Customer Infrastructure Readiness Survey, which means we put some monitoring software on the network to monitor the amount of traffic over a week and then use this data to simulate running IP telephony solutions on that network," he said.

"So far, we have found hardly a single organisation whose network was ready for VoIP. Even those with the latest Lan switching equipment need to go away and look at the quality-of-service issues."

Also, in the current climate, asking a financial director to foot the cost of ripping out an expensive traditional PBX and replacing it with an IP-based solution is the fastest way to earn yourself a premature P45.

"It's hard to justify a complete replacement of a PBX," Frangione says. "Looking at many of the pure IP solutions providers, they often concentrate on the high-end of the market because it can be very costly."

Sandy Fitzpatrick, senior analyst at Canalys.com, said: "Hybrid PBX solutions represent the majority of the market, with sales of traditional PBXs dwindling, if not disappearing in some cases.

"Pure VoIP is a very small part of the market because most business budgets are constrained. Also most companies are not going to rip out a PBX that's working just fine for something new unless they are going to get a lot in return."

It is because of the prohibitive cost of overhauling the old infrastructure, more than any other reason, that hybrid PBXs have taken the lion's share of the market.

No one can afford to scrap what they already have. One of the advantages of a hybrid product is the ability to reuse a lot of the equipment already paid for.

"We are seeing that there will always be some green-field sites, but not many, that will be able to justify a pure VoIP solution," notes Jones.

"But the majority of businesses are more comfortable upgrading from traditional PBXs to hybrid products. The good thing about hybrids is that the business can reuse a lot of the components it already has, from cabinets to handsets."

In the SME arena the barrier of already having a lot of legacy equipment does not exist. Because of this, the number of converged solutions targeting the SME arena has grown and both the hybrid PBX and pure VoIP camps are battling it out.

As with many other technologies targeted at the SME arena, user-friendliness and cost play big roles. This has led to the appearance of so-called 'out-of-the-box' bundles, promising fast set-up and easier management than the traditional PBX-Lan/Wan offerings.

According to Frangione, the solution in a single box is really sought-after in the SME arena. "We are doing some bundles with Avaya that are proving popular with resellers and customers," he said.

"If you look at the SME space you tend to find a lot of green-field environments that are willing to invest in something new from the start."

Brough explained that the SME arena is a great market for hybrid PBX products, more so than pure IP solutions.

"One of the big benefits of VoIP is that it is great for multi-site operations but, since most SMEs operate from a single location, one of the big arguments for using VoIP is removed," he said.

Whether it is large customers or small, the channel - both voice and data - is key to making it all happen. Telecoms vendors, which often bypass even their own voice channel to sell certain solutions direct to big customers, have had to rethink how they do business in the converged space.

Many have spent a lot of money learning that to sell a converged solution requires them to create new data skill sets in-house, convince their voice partners to create data networking divisions and even court the larger data distributors.

The same problem has faced companies such as Cisco and 3Com, but to a lesser extent because pure VoIP solutions require fewer voice skills. Converged solutions have led to the creation of a new beast: the converged value-added distributor and reseller.

Players from the voice and data camps have been dipping toes in each other's ponds for few years now, some more successfully than others. There is a lot of money to be made from converged solutions but to do it right needs a serious amount of investment in the recruiting and developing of new skills.

For instance Crane, a Nortel and Avaya distributor, is a traditional voice distributor that has put a lot of money into building a decent data networking division. NV3, on the other hand, is a spin-off from IT distributor Northamber, but has had a lot of success selling Avaya's converged products.

It is too early to say whether players from the larger IT channel will be able to dominate this new arena.

Difficult transition from voice to data
"There are traditional voice resellers that have embraced the data market and their competence levels are quite good," says Frangione. "But the transition can be a difficult one. We offer a lot of support here, teaming up IT and voice resellers with good partners."

Brough added: "We are looking at getting half-and-half voice and data resellers, and it's working. But there are a lot of die-hards in each market that do not want to get involved in the convergence game, but they will have to.

"The convergence of the two channels will be slow and there will be casualties. The voice guys tend to struggle due to a lack of confidence over the amount of data knowledge they have to take onboard, while the data guys still view the voice market as a black art."

Right now, a lot of resellers might claim voice and data competence, but not all converged resellers are created equal.

Hopping on the convergence bandwagon is one thing, but backing up those claims in the real world is something else. Smart customers are looking for reference sites; not just Joe Bloggs Plumbing with four staff in a Portakabin.

"I don't think there are enough people out to get their customers all the way to the IP dream," said Brough.

"Most customers don't have the IT set-up in place so there's a lot involved to get them there, from ripping out old voice and data equipment to just migrating them over successfully to a converged solution."

The number of players in the arena is increasing, thanks to a wide customer acceptance of the convergence idea. So with voice and data solutions accepted, the next step is expected to be converging mobile and fixed phone networks.

"The ability to signal between mobile and fixed networks for businesses is the next big thing," predicted Jones.

"The idea of being able to walk into your business and have your mobile automatically switch over to your IP-based network opens up a lot of new application possibilities, as well as saving money."

Frangione added that there will be movement in this area within the next 12 to 18 months. "Now we are seeing it in dribs and drabs, with some IP solutions supporting full mobile working, but the arrival of 3G will help push it along," he said.

Fitzpatrick concluded that the questions that need to be asked are how quickly solutions can be deployed and how ready the infrastructure is.

"Cisco and Nortel have wireless handsets now and Ericsson is placed strongly. But this is the same chicken-and-egg scenario as with any other new technology," she said.

"You can only roll out these services when the networks are upgraded, and they will be upgraded only when the carriers think the volume of users is enough to justify the upgrade."

How to Sell: Convergence - Part 2 - Clear and simple

How To Sell: Convergence - Part 3 - Mix and match

How to Sell: Convergence - Part 4 - Cutting the cord

How to Sell: Convergence - Part 5 - Unified messaging

CONTACTS:
Avaya (0183) 308 000
www.avaya.co.uk

Canalys.com (0118) 945 0173
www.canalys.com

Crane Telecommunications (01444) 230 004
www.cranetel.co.uk

NV3 (01932) 333 888
www.northamber.com/nv3