For VoIP fans, the good news is that IP telephony in the enterprise, as evidenced by global sales of IP PBXs, is on track to almost totally replace its TDM counterpart. The bad news is that it's only replacing, not displacing. And the disruptive types who would like to speed their companies' take-up of VoIP have a big problem: The things that make IP PBXs so attractive to users carry little weight with those deciding whether to deploy them.
Figures from a couple of research firms tell the story. According to Infonetics Research, 75 percent of the PBX lines sold in the world in the first quarter of 2006 were of the IP variety. That's up from 63 percent in 2004 and 71 percent in 2005.
Dell'Oro Group, which measures the market somewhat differently, found that 14 percent of lines sold in Q1 were in pure IP PBXs, 51 percent in hybrid IP/TDM boxes, and 37 percent in TDM-only PBXs. It also found, however that the IP portion of the total installed base of enterprise phones was just 27 percent in 2005, up from 21 percent the year before.
Together, the numbers paint a picture of a market in which IP PBXs account for a majority of sales, yet won't dominate the installed base for years to come, because the market itself is growing so slowly. And indeed, Infonetics' numbers showed overall PBX sales reaching 36.2 million lines last year, up a mere 13 percent over 2004, even though IP PBX sales rose 27 percent to 25.7 million lines.
Dell'Oro's figures yield similar conclusions. According to Steve Raab, director of IP telephony market research, total global PBX sales of 49 million lines last year will likely show an increase only in the "mid-single digits" this year.
In other words, IP PBXs are attractive enough to significantly increase their share of the total PBX market, but not yet compelling enough to significantly boost the growth of that market itself. That could only happen if they were displacing rather than replacing existing TDM PBXs — that is, if enterprises were buying them even when their old boxes had plenty of life cycle left in them.
It all means that organizations are buying IP PBXs mostly for the same reason they bought their TDM predecessors. As Infonetics directing analyst Matthias Machowinski puts it, "I think the main driver for going to VoIP has nothing to do with VoIP. It has to do with the fact that companies have to reevaluate their voice systems every few years. Contracts run out, PBXs come to their end of life after a certain number of years, so you have natural number of people who are on the lookout for new products and services. And the direction of new products and services is VoIP."
There are always exceptions, of course. Sometimes IP PBXs are the best choice specifically because they are IP-based. In new buildings, for example, the use of IP telephony makes it possible to run both voice and data over Cat 5 Ethernet cable. "When a business is deploying green field locations or doing a major renovation, those are often the best opportunities to switch over from a traditional to an IP PBX, because you're only paying to deploy one wiring plant," explains Raab.
Similarly, when a company wants to implement, say, a new customer relationship management (CRM) system with state-of-the-art call centers, it may have to upgrade its existing phone system to handle the new application. "If their existing system isn't all the way up to date, the upgrade may approach the cost of buying new," notes Raab. In that case, "people may elect to buy new rather than upgrade," he says.
But true enthusiasts won't want to wait for the natural replacement cycle or such special circumstances to bring the benefits of VoIP to their organizations. And for them, there's a bit of good news. There are signs that enterprises are becoming increasingly willing to swap out their TDM PBXs for new IP ones, even when — gasp — the old ones have not been fully written down.
So far, though, the trend is modest. Machowinski estimates that some 20 percent of the market's growth results from purchases of IP equipment for its own sake — that is, purchases that wouldn't have happened if only TDM PBXs were available. Similarly, Raab says Dell'Oro believes IP telephony is "slightly" increasing the rate at which enterprises are replacing their old PBXs.
And the trend has less to do with very new business ideas like unified or blended communications than with very old ones like avoiding risk and cutting costs.
Take risk avoidance. "In the last couple of years we saw a lot of dual deployments where people were still trying out VoIP," says Machowinski of Infonetics. "I don't think they were trusting it completely. This year I really sensed a shift. There were a lot of companies that were planning to stop investing in TDM."
Once fear of failure is out of the way, that other classic corporate motivator, cost cutting, comes to the forefront. One of the best examples of this is slashing inter-branch phone bills. "When you need to have leased line circuits for voice, as well as having separate circuits for your data WAN, you're paying a lot," says Raab. "So there's big cost savings in moving the interoffice multi-location voice onto the WAN."
Consolidation of equipment can also produce significant savings. "If you're a retailer with 200 key systems all over the country you have to manage and connect, there are a lot of costs involved," says Machowinski. "Previously you had one building and one PBX. But with an IP network, you're not geographically tied. When you have high-speed networks and a common architecture, you can buy two PBXs, put one in two different data centers, so that if one has problems the other can fail over, and you're good to go."
Somewhat less measurable, but still tangible, is simplifying administration. With IP phone networks, Raab notes, the triple burdens of moves, adds and changes become a lot less troublesome. Moving an IP phone between desks or even offices is simply a matter of plugging it into the data network at the new location, where it will connect with the PBX and start working as if nothing had happened. He adds that the more sophisticated conventional PBXs also have that capability, but are still dependent on having their own wiring reaching every location.
On the other hand, going IP can bring significant costs and challenges. It may, for example, require upgrading the corporate data network so it can provide good voice quality. It will also require buying new IP phones to replace the digital sets, more than likely proprietary, that the previous system used.
And it will require significantly more IT expertise. "There are more moving parts when you're putting voice onto a data network, and the level of reliability that voice likes to have is above what data networks had traditionally provided," says Raab. As a result, going to VoIP "raises the bar" in terms of both network equipment and skills required, he states.
The latter factor is also significant in determining what size companies will go with IP PBXs. "We've seen enterprises adopting IP more rapidly than small businesses," says Raab. "You need more IT skills to keep an IP PBX running on a LAN than you do to have a little key system in the closet where you touch it every two years to blow the dust off. A lot of small businesses just don't have the in-house technical know-how."
The predictable result is that "hosted voice over IP becomes more attractive to small businesses than to larger ones," Raab says. But this trend, too, is still in its early stages. So far, "hosted services are not taking a big lump out the IP PBX market," he adds.
Conspicuously missing from all this is, of course, any discussion of the intangible advantages that come with all the flexible, innovative features IP brings to telephony. And for good reason: It's hard if not impossible to sell such advantages in a way that makes dollar sense to the cautious money-watchers who have to sign off on purchases.
In fact, working up a spreadsheet showing the cost decrease, or revenue increase, that results from employees' accessing their voice mail via the Web, or their e-mail via phone, not to mention from all the more exotic capabilities that VoIP makes possible, may in some circles earn one a reputation for flakiness.
So until someone figures out a bullet-proof method of attaching tangible dollar amounts to inherently intangible productivity — and even creativity — improvements, those pushing for more VoIP in the enterprise will be better off limiting their arguments to technology payoffs even a CFO can understand, because they go directly and visibly to the bottom line.
Labels: VoIP News
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