The Need To Adopt IP Telephony Business Models

BY MICHAEL J. SISTO

In a recent customer meeting with a Director Level for a major bank, a telephony question was asked regarding what really was new in voice communications since Y2K. Now at face value, that is a complex question to answer. An even harder question might have been to ask why it is that when vendors talk about the value of IP telephony they often begin by using words like imagine or envision. Perhaps Peter Drucker would respond to this second question by saying that innovators need to be �temperamentally attuned� to innovative opportunities and that it takes a predisposition to consider new business models to succeed.

Regarding the first question, it is hard to believe that the passing of the Y2K preparedness era is now almost four years old. During that time, the telecommunications industry has gone through massive downsizing. With those industry cutbacks came a forcing out of many of the Product Managers who were architects of those telephony platforms that today are looked at as legacy systems. Those changes ushered in a new era of marketing leaders who have done significant product reengineering and are now driving today�s IP telephony solutions under the belief that a company never gets well on its old products.

Today�s marketing of telephony solutions also appears to have shifted from expanding offerings with hundreds of features to announcing a la-carte converged-communications platforms. Those platforms bring design alternatives aimed at reducing total cost of ownership by simplifying operations management and enabling their solutions to run on multiple platforms and operating systems.

This new era of telephony leaders has �turned up the heat� significantly regarding their application development cycles. Evidence of this can be seen in the large amount of new solution offerings both in call center and PBX platform functionality. One reason for the increased pace is that vendors have been concerned about the many consultants who still believe that there are no clear leaders, only an overabundance of challengers, in some of telephony�s emerging areas like unified communications. Even traditional TDM-based PBXs, which usually brought about 500 standard out-of-the-box features, are now viewed by many customers as non-strategic, closed and proprietary architectures. Those customers are looking at the benefits of having call processing that is physically independent from their infrastructure and applications that are independent from call processing. IP telephony supports both of those customer expectations.

In the past, most call center managers required sound management and reporting tools. Those tools coupled with basic features like skills-based routing or computer telephony integration comprised most of what customers needed to run their businesses. Yet call centers today are at least two orders of magnitude more complicated than just a few years ago. Call centers are deploying more integrated solutions that enable greater levels of intimacy and consistency in interacting with customers. They support more distributed designs that enable smaller or virtual contact centers to be deployed across the country at significantly lower costs with applications that are physically autonomous from call processing. Agents can now work at home with tools that actually improve service levels, enable customer segmentation, and seamlessly handle multimedia service requests from Internet transactions.

Unfortunately, many enterprises have yet to embrace the new business models that have been enabled since mid-2001 by those vendors who have launched updated IP telephony platform architectures. Since that time many vendors continue to advertise the availability of IP telephony solutions for about the cost of a PBX upgrade. Yet in a struggling business economy where priorities are increasingly focused on reducing operating costs and producing revenue, the message of which products are capable of producing extraordinary results is oftentimes lost. To do the right thing with IP telephony, organizations should not focus on its underlying technology, but rather on the business models that it can enable. The key is to launch business initiatives that are linked to, not separate from, IP technology.

For a business model to be valid, it must ultimately demonstrate when and how it will improve revenues and reduce costs. The good news is that two major laws of computing power are in effect today. Both laws support IT business models and the continued need for revenue and cost focus. The first is Moore�s law. Moore�s law is important because it validates an IT organization�s abilities to cut costs. It states that the actual number of transistors in a microchip (i.e. basic computing power) will double every 18 months. The second is Metcalfe�s law. Robert Metcalfe was the founder of 3Com Corporation and was best known for stating that networks dramatically increase their value with each additional node or user that is added (i.e. the utility of a network is the square of the number of its users). The 1990s explosion of the Internet is an example of Metcalfe�s law.

One traditional business model that can be used with IP telephony is the Outsource Model. For years, IT has been outsourcing its functional areas to reduce costs and leverage resources. Those areas include application development and maintenance, data centers and network management. Recently, many IP telephony customers are collapsing their traditional voice solutions into their data network infrastructures. Aside from the savings that such a consolidation provides, they could easily outsource the basic management components of IP telephony like day-two maintenance or help desk support to even further reduce costs.

A second, more progressive model that could be used is the E-Business On Demand Computing Model. It supports today�s network era of computing or what IBM first called �e-business� back in 1996. This model enables a utility-like infrastructure that can continue to drive IT consolidation and provide an organization a much more concentrated focus on core competencies. It would allow a company not only to outsource non-core business services but also to create a variable cost structure that would enable doing business at different levels of productivity based on changing market conditions.

A third model is the Franchise Model. This model builds on the theory that risk and revenue can be shared to create new business opportunities and provide advanced applications. In highly competitive industries this model can prevent customer paroxysms because it enables faster speed to market by providing needed capital and shared risk. In some industries that would translate into a unique competitive advantage by enabling adaptation, which is where many firms fail.

An example of this Franchise Model in use could be for a University to partner with a Telco to build a shared campus infrastructure deployment of a Wireless LAN, Public Wireless LAN (PWLAN), or maybe even an IP services infrastructure to recapture revenue lost to students with cell phones. Some versions of that model are already occurring in many ways on a landline basis today. There are also many PWLAN operators and Wireless Telcos who could support customer build outs of infrastructures that might include traditional 802.11 a/b/g solutions or emerging ones like 802.16 for broadband wireless metropolitan network functionality. Architectures provided by such network equipment providers as Proxim (with their Tsunami products), Mesh Networks, or even Vivato could introduce new franchise technologies and revenue sharing options.

Clearly, many more business models will shortly be emerging, driven by new product and architecture functionalities. The handing-off of voice calls between WiFi and cellular networks is coming soon and new phones will emerge that support GSM (Global System for Mobile Communications), GPRS (General Packet Radio Service) as well as IDEN (Integrated Digital Enhanced Network) infrastructures. Even Cisco�s recent announcement of an IP phone that can run on 802.11b wireless LANs raises the question as to what emerging infrastructures and business models are possible.

According to a recent 2003 panel report on CIOs, IP telephony is piloted or being tested by almost 75 percent of their organizations. While the early consensus was that cost savings were not persuasive enough to support broader enterprise deployments, it is encouraging to note that most IT organizations see enough potential in IP telephony to be launching pilots of hundreds of users.

As a hypothetical example, if one of those organizations were to deploy Avaya�s MultiVantage configuration for about 100 users, the investment would be approximately $65,000. Prices could even be higher depending on many options such as the IP phones selected or advanced services that may be needed. Clearly, that is a significant investment. With so many CIOs piloting and testing IP telephony at those levels of investment, it sure does build the impression that there are important reasons to be working on those solutions today. Perhaps it is time to link IP telephony with new business models that may not be obvious or with models that have been around in IT in their basic forms for a number of years.

Michael J Sisto is an IBM senior WW wireless consultant. He works with a line of business executives to architect convergent solutions including IP telephony using Avaya and Cisco's application environments integrated into IBM's software framework for e-business. IBM's enterprise messaging solutions increase collaboration and human interaction by bringing people together with messaging, calendaring and scheduling and collaborative applications.