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Hosted VoIP for the SMB: Getting Ready to Cross Another ChasmBy Gary Kim, IP Business News, April 2009

The single biggest mistake retail providers make when trying to sell hosted IP telephony to small and mid-sized businesses is that salespeople start with features, when they should start by reassuring buyers that “it is a reliable phone system,” Savatar VP Mike Ahearn told an audience of small telcos and cable companies attending a recent MetaSwitch marketing seminar.

The sales pitch has to begin with “it’s a high-quality phone system that is reliable and lets you keep your phone number,” says Chris Carabello, MetaSwitch marketing director. In fact, establishing this lead proposition is so important retail sales personnel should establish that fact even before going to the “it will save you money” pitch.

Only after those two positioning efforts should sales personnel then add that hosted IP telephony “makes your life simpler.” The very last thing that should be discussed is that IP telephony offers new fea-tures.

And even then, when working with small business customers, even the discussion of new features should focus on a few new features that might appeal to the particular prospect.

That often is the reverse of the pitch made by many sales people, who lead with features first, says Cara-bello. The key message sometimes occurs at the very end of a discussion, but it needs to be delivered right up front, he adds.

It might seem unnecessary to emphasize that the product is “a managed, hosted IP telephony service that allows you to make and receive calls on IP phones or your computer,” but potential buyers are being asked to make a change in behavior that automatically raises the question of how well it will work.

And though there is greater understanding now that hosted IP telephony actually works, possibly 22 per-cent of potential buyers continue to think VoIP suffers from major quality of service issues, says Ahearn. As many as 28 percent to 32 percent of potential buyers with �00 or fewer employees might believe that, so take the issue head on, right away, he adds.

The important implication is that every prospect has to be reassured, right up front, that “it works.” Con-versely, “cost savings” are generally seen as an IP telephony value.

About 38 percent of managers or executives at firms with up to 500 employees already believe IP tele-phony will save them money. At firms with less than 100 employees, as many as 42 percent of prospects might already believe IP telephony will save them money.

Article reprinted with permission of IP Business News

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About �8 percent of prospects might be expected to believe that IP telephony offers a more innovative set of features, Ahearn says.

And though hosted IP telephony obviously provides a path to sell-ing many other services that could range from Web hosting to email and data services, “make the host-ed telephony sale first, then up-sell later,” suggests Carabello.

The generic pitch should begin with the notion that hosted IP telephony “is an easy to manage phone system that will save money and help you run your business more efficiently,” says Ahearn.

Only after that is established should the salesperson move to the fact that it uses the Internet connec-tion to make calls. And since most small businesses buy on the basis of a basic “cost per employee per month,” emphasize that hosted IP telephony offers a lower cost per user per month than the existing solution.

Ease of use might be the most-important attribute, after the cost per employee per month, and after it has been established that the offer is for a high-quality and reliable phone system. Features are the last thing required, emphasizing that “all the standard phone features are included, as well as one or two help-ful new features,” Ahearn says.

The way most small business owners think about the “total cost of ownership” is pretty straightforward. They start with any upfront acquisition costs, then add in the recurring monthly costs for voice and data. Finally, they add in the additional costs of any maintenance or support fees. That figure is divided by the number of users to derive a “per employee per month” cost. That’s the figure a hosted IP telephony pro-vider has to compete with.

In many cases, where a prospect does not yet want to scrap an existing phone system for new IP phones, a T�-based business trunking product based on the use of an integrated access device still will offer a sales opportunity, Carabello says.

In other cases a prospect might own an IP-based phone system and therefore be receptive to a SIP trunk. The best prospect for a hosted IP telephony solution will tend to be a customer with an existing connectivity contract that expires in six to �2 months, using a phone system that is seven years old or more, Carabello says. Beyond that, customer willingness to consider a hosted solution then will come into play.

Hosted IP telephony also can become a retention capability. Where an existing customer has indicated the price of a current service is prompting a potential change of service provider, a hosted IP telephony solution can become a retention device, Carabello adds.

Hosted IP telephony sales, and especially the matching of products with channels, also require some thought, Ahearn says. A service provider with an established direct sales force might be eager to sell a full IP telephony solution, especially as a way of reigniting business services growth when Centrex sales are sluggish because of high cost and limited features.

Sales using channel partners require more thought. Telecom agents historically have shied away from system and solution sales. In those cases, a simple SIP trunk or “integrated access” product that does not require support for customer premises equipment might make sense.

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Value-added resellers, on the other hand, have the technical skills to assess and remediate local area networks capable of handling a voice virtual LAN, are used to data network support and LAN hardware. Historically, though, VARs are “voice phobic,” says Ahearn.

The logical approach then is to involve VARs in the network assessment and remediation functions, which are congruent with their existing skills and business models. VARs also are well positioned to handle the installation and configuration details when a full IP telephony solution has been sold by a service pro-vider.

As profit margins on T1 circuit sales tend to be lower than VARs consider adequate, SIP trunking products might have more appeal, in part because it is a culturally-compatible “IP” service and offers recurring service revenues that are more attractive than traditional T� connections.

Interconnect dealers, on the other hand, are very comfortable with phone system sales, but might see host-ed solutions as cannibalizing their existing business, to a great extent. On the other hand, adding hosted IP telephony as a complement to their premises phone business might be attractive to some dealers.

The ability to continue to sell phones, routers, switches, integrated access devices and services might appeal to some dealers.

But there is one prevalent fact that suggests a simple SIP trunking offer will resonate with small business-es who already have invested in IP PBX gear. Ahearn points out that the trunk-to-phone ratio for smaller businesses is pretty close to 1:1. But an IP phone system really does quite well with a 4:1 concentration ratio.

Firms with four to seven employees report buying one to �.2 trunk lines for every phone in use. Firms with eight to �0 employees report having 0.6 to 0.7 trunk lines for every phone in service.

Organizations with 11 to 20 employees report having 0.5 to 0.6 trunk lines for every phone. Firms with 20 or more employees say they have about 0.4 trunk lines for every phone.

The implications are fairly clear. Organizations that need to support between a few trunks and 14 PBX trunks are vastly over-provisioning trunk capacity. The typical organization using IP phones can get along fine with a 4:1 ratio of phones to trunks.

For a firm supporting six phones, and buying six trunks, an alternative SIP trunk strategy could save as much as $1,915 a year.

An organization requiring 14 trunks could save $2,205 a year by swapping SIP trunks with a 4:1 concen-tration ratio for PRI trunks that are provisioned at a 0.4 concentration ratio of phones to trunks.

SIP Trunk Opportunity

Concentration Phones TDMtrunks SIP trunks

TDM cost

SIP cost

Savings per month

Savings per year

SIP trunk 0.25

TDM 4-7 phones �.0� 6 6.06 1.5 2�2 53 �60 1915

TDM 8-10 phones 0.65 9 5.85 2.3 205 79 �26 1512

TDM 11-20 phones

0.55 �6 8.8 4.0 308 140 �68 20�6

TDM 20-50 0.40 35 14 8.8 490 306 184 2205

PRI cost 30

SIP trunk cost 35

source: IP Business estimates

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The clear implication is that a small organization can save money immediately by replacing PBX trunks with SIP trunks.

Savatar’s research also suggests a relatively small number of applications or functions are most critical for SMBs with fewer than �00 employees. Though the relative importance of these features varies by firm size, just nine features are most important for small and smaller businesses with fewer than 100 employees.

Keep in mind that although some features such as simultaneous ring and “find me, follow me” are valu-able, the top-nine list includes elements most in the business might not actually consider “features,” but are required attributes.

Items such as “call control,” direct inward dial numbers and caller identification, for example, are among the nine most-important features. Most retailers of IP telephony services might not even consider those to be features at all, but table stakes.

And that might suggest an important marketing disconnect exists in the hosted IP telephony business. “They need it simple,” says Ahearn. In fact, as Savatar repeatedly has found, there is no such thing as a recognized “market leader” for hosted IP telephony, or even IP telephony itself. Potential customers have not yet coalesced around the notion that there is yet a logical provider of IP telephony.

And that uncertainty extends to both contestants within a provider segment, as well as between provider segments. Potential buyers are just as likely to name a cable company the logical provider as they are an equipment manufacturer, telco or “non-traditional” telco as the logical business VoIP supplier.

In its latest survey, Savatar found 20 percent of respondents in the “smaller than �00” employee catego-ry naming “non-traditional telcos” as their choice for logical business VoIP provider. Equipment providers were second at �8 percent while traditional telcos were third at �6 percent.

The strong finding for equipment providers probably reflects a view that phone system dealers (and less likely value-added resellers) are the logical suppliers.

The market is waiting for somebody to explain this in language they want to hear.

Business VoIP adoption trends reinforce the notion that buyers remain confused. Savatar’s VoIP adoption tracking suggests that interest peaked in 2006 and has been declining since then.

One can suggest any number of possible explanations, logically including the notion that business VoIP now is at a “chasm” between customer segments. Either business VoIP is between innovators and early adopters, or between early adopter and early majority customer segments of a product lifecycle.

Most Important Features (Very or Somewhat Important)Firm employees <�00 1 to 4 5 to 19 20 to 49 50 to 99 >�00

DID 46% 31% 34% 54% 78% 78%

4-digit dial 43% 19% 33% 55% 76% 76%

Conferencing 57% 42% 52% 61% 74% 74%

Call control 69% 61% 64% 75% 76% 76%

Caller ID 65% 75% 60% 63% 64% 64%

Auto attendant 46% 33% 38% 50% 67% 67%

Group features 36% 13% 29% 48% 68% 67%

ACD 39% 19% 31% 50% 62% 63%

Distinctive ring 25% 34% 19% 23% 39% 38%

source: Savatar

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The classic theory tells us that the value proposition that drives innovators is different from early adopt-ers, and different from early adopters to early majority as well. Consultant Geoffrey Moore says there are, in fact, different value propositions at each stage of the adoption curve, and that providers typically stumble at the transitions.

Innovators always are a small group of technology enthusiasts whose values are different from those of most buyers. Early adopters see themselves as visionaries who want to make huge leaps in business and are willing to take high risks.

Those of us who sell IP telephony to small and mid-size business might immediately recognize that this is not the profile of most prospects you deal with.

The “early majority” segment consists of pragmatists. They care about the company they are buying from, the quality of the product they are buying, the infrastructure of supporting products and system inter-faces, and the reliability of the service they are going to get. If that sounds like your prospects, you are dealing with an “early majority” candidate.

Early adopters are “techies.” They want power tools; they eat, sleep, and drink tech.

Mainstream users are techno-phobic. They only care about the value, not how the value is satisfied, or how the technology works. The mass market customer actually doesn’t want lots of ability to tweak the product: they want simple, obvious, “one button” interfaces.

Carabello suggests IP telephony for the SMB market is poised right between “early adopters” and “early majority.” That is really important as it implies a change of positioning to match the values of the next set of buyers.

Perhaps we are leaving a stage at which sales were made to adventurous, risk-tolerant buyers looking for tools to support business disruption. We are entering a stage where buyers are conservative and focused on reliability, ease of use and the quality of their suppliers.

Something else is intriguing. According to the Savatar findings, trunking has been adopted by almost as many users as hosted IP telephony, while hosted and premises solutions likewise are splitting sales.

If confusion is an issue, then the simple message of “save money” on your monthly recurring charges is pragmatic enough a value to appeal to pragmatists.

If we indeed are about to cross another chasm in the product adoption lifecycle, marketing to SMBs will have to change. If the pitch to early adopters was “look at the upside,” the pitch to “early majority” cus-tomers is almost “avoid the downside.” IP