The Buying Decision for 2011: On-Premises or Hosted?

By Brendan B. Read, Senior Contributing Editor  |  December 01, 2010

This article originally appeared in the December 2010 issue of Customer Inter@ction Solutions.

The next fiscal year begins soon for many organizations, and they are figuring out how, in today’s challenging economic climate, to best provide customer-retaining/attracting quality service while decreasing costs and improving the bottom line via their contact centers. 

That means examining investments in the right contact center solutions that will help them deliver the results they are seeking. Arguably, what has become one of the most critical factors in selecting the products needed – almost as much as the products’ features and suppliers themselves – is how they are delivered: via traditional on-premises licenses or the hosted/cloud model, software-as-a-service (SaaS (News - Alert)) either by the OEMs or third parties. The delivery method chosen can affect these solutions’ functionality, value, adaptability, upgradability, cost, support, security and the amount IT resources and staff training needed and how they are provided. Each means has its benefits and challenges.

To help firms select the best delivery methods for contact center products, Customer Interaction Solutions interviewed representatives from two leading suppliers: Roe Jones, product manager, Interactive Intelligence ( and Paul Lang (News - Alert), senior vice president, product management and marketing, LiveOps (

CIS:    Compare the benefits and the challenges of hosted and on-premises solutions.

RJ:      Benefits of hosted solutions include: lower up-front capital expenditure and “pay-as-you-go” pricing model; easy to provision multiple sites and remote agents; reduced IT maintenance and management costs; faster application deployment and access to upgrades; and flexible scalability to quickly adjust capacity as business needs change.

The challenges of hosted solutions include lack of control over applications, and security and reliability concerns. Benefits and challenges of premises-based solutions tend to mirror the flip-side of hosted benefits and challenges. Specifically, premises-based benefits tend to be maximum control over applications and fewer concerns about reliability and security.

It’s important to note, however, that, over the last couple of years, hosted solution vendors have made great strides in these areas. For instance, Interactive Intelligence (News - Alert) has addressed these concerns by offering a unique local control VoIP delivery model that enables customers to keep all voice traffic on their networks and record and store all recordings behind their firewalls. Interactive Intelligence also offers scalable server virtualization architecture that provides dedicated servers for increased reliability, security and control. Of course, Interactive Intelligence always recommends that buyers conduct a thorough audit of a vendor’s hosted facility (both the infrastructure and policies) to ensure maximum security and redundancy.

PL:      When considering the benefits that a cloud computing-based contact center model brings, it’s no wonder Gartner (News - Alert) predicts that at least 75 percent of customer contact centers will use a form of SaaS in their operations by 2013.

There are several primary benefits gained in extending capabilities from on-premises contact centers to cloud computing. These include:

·         Greater scalability to easily and quickly manage peaks and valleys in call volume;

·         Lower agent attrition and a larger and more diverse talent pool;

·         Simplified IT requirements;

·         Greater visibility and control to ensure efficient operations and agent effectiveness; and

·         Reduced labor and building maintenance costs, greater business agility and flexibility, and a more “eco-friendly” contact center platform.

In addition, hosted solutions are continually innovating in the market, are always current and giving customers the choice to move ahead at their own pace.

Shifting from an on-premises to hosted contact center solution requires some learning as far as best practices and processes go, as business managers must get accustomed to an entirely new format. For example, no longer is there a need to run a “data closet” to make sure the lights are on, or coordinate a team of IT experts to make a simple routing change.

The real challenge in shifting to a cloud computing-based contact center model comes in learning new ways to manage, encourage and train your teams, especially with home-based remote agents. No longer able to walk the halls to measure their “perception” of progress, business managers need to adopt new ways to maintain and heighten the level of oversight for remote agents virtually. As such, managers will need new checks and balances to remotely train, oversee and monitor agents. In addition, to maintain high levels of customer service, you will need to use different types of key performance indicators (KPIs) to monitor the agents and to provide them with an incentive to perform their best. Finally, when working with remote agents, it’s imperative to proactively set up security processes to maintain a secure IT environment that protects customer and company data.

Just with any move to a new platform you do need to consider security, integration with existing applications, the maturity and unification of feature sets and the deployment flexibility to support gradual innovation. Not all on-demand technologies are the same, so you do need to do your homework.

CIS: For what contact center functions and for what size contact centers and organizations are hosted solutions are ideal? Which ones should consider having their solutions deployed in-house?

RJ:      Hosted solutions make the most sense for customers with any of the following requirements: fast deployment schedule; minimal capital expenditure; and flexible purchasing model that accommodate spikes in interaction volume (e.g., businesses that are seasonal or event-driven, such as retailers and ticketing companies). It also makes sense for cost-effective disaster recovery (DR) and business continuity (premises-based buyers can also deploy a DR-only hosted solution); and for multi-location and teleworker support. Organizations that have very strict regulatory and compliance requirements may find premises-based solutions more desirable.

In some cases, hosted solutions will not meet the needs of organizations that require highly customized applications. Though hosted vendors are rapidly adding sophisticated applications to their offerings, some may still not exist via this delivery model. For instance, business process automation will be difficult, if not impossible, to find in a hosted model. In addition, the degree of customization and complexity would likely make this type of application more ideal for a premises-based deployment.

In terms of size, many industry analysts report that larger hosted deployments are already beginning to outpace SMB deployments, with the trend expected to continue. This is understandable, given that hosted vendors are addressing the reliability and security concerns that are most prevalent among very large organizations. In addition, while cost is a main hosted driver among SMBs, for larger organizations, the breadth and depth of applications is a key driver. Many hosted vendors now offer very sophisticated applications for both the contact center and enterprise.

PL: All functions that make up a contact center solution are and can be hosted or, more specifically, cloud-based. This includes the meeting and greeting performed in the IVR system, selecting and routing calls/contact to the right agent with skills- or performance-based routing with or without a screen-pop, real-time monitoring, call recording, and evaluation of calls and call records.

CIS: What technology applications are best suited for hosting and which ones should be premises-installed and why?


RJ:      Today, virtually all contact center applications can be delivered as hosted solutions. These include CRM, sales force automation, help desk/tech support, and the traditional contact center features such as IVR, ACD, screen-pop, monitoring/recording and reporting.

One consideration for hosting, however, is the degree of application customization and complexity required. Some hosted vendors offer very limited customization options. In addition, should the customer want to eventually migrate from a hosted to a premises-based solution, many vendor solutions will require a complete re-write of applications – a daunting task when these have been highly customized. Interactive Intelligence recommends that buyers ask if a hosted-to-premises migration is even possible and, if so, what potential application re-writes will be required. If the hosted vendor also offers premises-based solutions, and if it also functions as the ISV, odds are good that this migration is possible with no impact on applications, regardless of customization or complexity.

PL: In the contact center, with Web-based technology as the foundation, all applications can be deployed as on-demand platforms from the cloud. Whether it is call routing with self and/or assisted service, recording and reporting through to in-depth analytics, there are no real limitations to hosting. Bandwidth is ubiquitous, scale and security concerns have been addressed, and cloud-based applications have all of the necessary applications and tools to get the job done with a powerful simplicity of use.

CIS:    Outline the advantages and downsides of OEM-hosted versus third-party-hosted solutions.

RJ:      The advantages of OEM-hosted over third-party solutions are greater flexibility (e.g., bug fixes,  new features, migration to premises-based solutions); lower costs by eliminating a third party; and simplified vendor sourcing and management, again, by eliminating a third party. A potential downside of using an OEM-hosted solution might be lack of vendor experience in hosting applications. However, this will vary significantly, so a thorough evaluation of a vendor’s hosting track record is recommended – particularly access to hosted customer references.

PL: With third-party hosted solutions, “technology innovation” is almost an obsolete term; the pace of innovation is the same as on-premises solutions – namely, slow. Due to multiple code bases, the technology is always behind the pace compared to other solutions in the industry. There is also feature over-bloat and implementation that occurs at a slower rate, generally taking six or more months. Each deployment requires expensive process, verification, and audits, with changes often needed for hardware and foundation software (OS and database) and heavy IT staff is required for costly implementation and maintenance.

SaaS/cloud-based solutions are always current with the latest and greatest updates being rolled out frequently. There is a single code base that enables seamless upgrades. Implementation can be possible in just days, resulting in faster time to market while business users can make updates directly. With a SaaS provider, 99.99 percent is the price of admission and multicarrier redundancy is inherent. In most cases, including LiveOps, SaaS provider are PCI Level 1 and HIPAA compliant with SAS (News - Alert) 70 certified data centers and 1024-bit RSA encrypted DB.

Brendan B. Read is TMCnet’s Senior Contributing Editor. To read more of Brendan’s articles, please visit his columnist page.

Edited by Stefania Viscusi