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The move to cloud-based and hosted unified communications would seem to be almost complete—there are few product announcements or distribution pushes around good old-fashioned premises-based solutions anymore. And while premises-based revenue may linger on like a bad cold for the foreseeable future, inertia will soon give way to a systemic modernization of approach.

“Despite a major disruption in the 2000s with VoIP and UC, premises-based solutions will very likely keep offering lucrative revenue for at least another decade,” said David Michels, president of Verge1 Consulting, in a blog at No Jitter. However, “while you can still dump money into premises-based UC, innovation has moved to the cloud. Moving forward, the vast majority of R&D spend, cost savings, and new features will be realized from cloud-delivered solutions.”

Hard data from Infonetics backs up the move to the cloud, which is forecasting that the worldwide hosted PBX (News - Alert) and UC market will grow 13 percent this year, while the premises-based PBX and UC market will be flat, at 0.01 percent growth.

“While sales of premises-based PBX systems have been stagnant to declining over the past few years, the market for cloud services continues to expand with businesses worldwide seeking out hosted alternatives,” noted Diane Myers, principal analyst for VoIP, UC and IMS at Infonetics (News - Alert) Research.

Myers continued, “Hosted services seats grew more than 20 percent worldwide in 2013.”

Overall, Infonetics said that hosted PBX and unified communications (UC) services are a growth market that has moved well beyond early stages, with positive activity in every major geographic region. Vendors are also pitching hosted PBX and UC services alongside SIP trunking as more multi-site businesses need hybrid solutions.

Infonetics expects continued strong worldwide growth for the cloud PBX and UC market over the next five years, projecting it will reach $12 billion in 2018 with 62.6 million seats in service.

The premises-based approach has suffered from a few death blows—notably ongoing complexity of communications needs, a move to enterprise mobility and a need for interoperability with partners and employees located outside of the enterprise’s brick-and-mortar locations. Modern UC premises-based solutions have thus sprawled in their administrative and operational footprints, with add-ons and appliances, a slew of applications and tweaks to accommodate firewalls, SIP, virtualization, wireless and more. That means they’re expensive to maintain and update, and lack flexibility.

“All products have life cycles, and premises UC equipment is transitioning from mature to declining,” Michels said. “Customers have had their fill of absurd, esoteric features and are gravitating to a model that allows them to pay just for what they use. No longer is the system upgrade the default and most financially attractive option – especially now that a system upgrade is often a bigger and longer commitment than switching everything to a cloud-based model.”

So, while “premises-based solutions will always make sense for some, just as mainframes and locomotives are still built, distributed and sold,” as Michels said, the modern telecom/IT professional is more likely to combat complexity and price pressure with business-class cloud strategies.

“Unlike that equipment in the closet that depreciates in more ways than one, cloud services continue to update – passively and automatically,” Michels said. “Software maintenance costs and hassles vanish. Cloud-delivered services let organizations and end users use what they have.”

That’s not to say that the transition will be without hiccup. Infonetics’ Myers pointed out that the biggest challenges for businesses evaluating hosted solutions are the wide variety of options available and inconsistent billing structures across the industry. “The competitive landscape for business services is highly fragmented, with an increasing number of PBX and unified communications vendors, enterprise agents, system integrators and resellers expanding into the market along with traditional service providers,” she noted.