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VoIP SMB Market Ripe for Growth

By Greg Galitzine, Internet Telephony Magazine


Recent reports from the analyst community all speak to the potential for growth of the Hosted VoIP market, particularly when targeted at small to medium businesses (SMB). An AMI-Partners report, The Emergence of Hosted Voice Services: Enabling Service Providers to Transition from Commoditized to Value-Added Services, indicated that:

  •   Hosted voice offerings continue to make strong inroads into the SMB sector and the market, while still hesitant, shows strong interest and adoption plans.

  •   The SMB market for hosted voice services will grow at a 55% CAGR over the next three years.

The AMI study warns that hosted voice services are yet to become mainstream in the market, and some hesitation lingers as many businesses still desire an on-premise solution, but the news for hosted providers is not all bad. AMI-Partners believes that the following factors will all work in tandem to create a tremendous market opportunity for hosted VoIP:

  •   Cost advantages;

  •   Predictability of monthly service charges;

  •   Easy-to-use interfaces; and

  •   Feature-rich, productivity-enhancing services.

It is precisely these benefits that will drive many SMB decision makers to adopt hosted VoIP services.

According to Michael Lauricella, vice president of AMI's Telecommunications Practice, Any firm focused on cutting costs and increasing productivity should seriously consider the benefits of a hosted solution. The fact is that hosted solutions present a reliable and viable solution to many of this nation's 6.3 million small and medium businesses as well as enterprise customers.

Research from Yankee Group supports this.

According to the December 2005 report, Assessing the SMB VoIP Market, hosted VoIP solutions are finding particular favor within SMBs, as 70 percent of those surveyed indicate they would prefer a hosted VoIP solution to a premises-based solution.

Yankee Group believes that SMBs would be attracted to hosted VoIP solutions, because it enables them to focus on their core business rather than allocate resources to implement and manage the system.

And, the folks at Research & Markets believe that, the Centrex/Hosted IP market is primed for substantial growth over the next four years, citing growing demand that should continue to perform at a year-over-year growth rate of 90% through 2009.

An article in Business Solutions concurs, pointing to even more analysis from organizations such as InfoTech and Analysis Consulting. The commentary, written by Jay McCall, offered the following stats:

  •   Small business VoIP adoption (companies with around 50 employees) is predicted to grow from 100,000 in 2004 to 800,000 VoIP subscriptions by 2008. (Analysis Consulting)

  •   By 2008, SMBs will spend $5 billion worldwide on VoIP, compared with just $41 million in 2003. (InfoTech)

What's Tempting SMBs to Adopt VoIP?
So why the interest in Hosted VoIP? What's driving SMB decision makers to consider and ultimately adopt this technology? The main drivers are financial (potential cost savings from cheaper minutes and the ability to reduce overall networking costs), and the creation of an efficient, effective workforce by giving them the tools they need to succeed. Hosted VoIP solutions offer enhanced features such as mobility and integrated/unified messaging options, ease of use, the ability to collaborate among multiple branch offices, lower operational expenditures as a result of simplified management schemes, and possible integration of the voice system with more traditional business applications.

Cost Savings
Price is still the number one factor driving companies to consider VoIP, but it's the promise of next-generation productivity applications and services that are the reason many people keep the service once deployed.

With Hosted VoIP, the SMB pays a predictable monthly fee, obviating the steep up-front cost of purchasing a premise-based solution outright.

Tremendous cost savings can certainly come in the form of lower telephone bills. By converting analog voice into packets and transporting these packets over an IP network, corporations are able to avoid the PSTN and the tolls associated with that.

Perhaps one of the greatest benefits of a Hosted VoIP solution is that small business owners are free to focus on their business, not on the operation, maintenance, and management of their phone system, nor do they have to hire a specialist for that job.


SMBs who subscribe to a Hosted VoIP solution to multiple locations can enjoy all the benefits of a distributed phone system, while maintaining a single voice mail store, extension dialing between remote offices, unified messaging, ad hoc conferencing, and more. Security features have increasingly become a major consideration in today's telecom decision.

Another major area of consideration concerns disaster recovery and business continuity. In the wake of such high-profile disasters as Hurricane Katrina, it has become evident that a distributed, fully redundant system is a must. For SMBs who have been displaced due to some calamitous event, a Hosted VoIP provider offers the ability to get back up and running in a matter of hours, versus days. And in an era where downtime costs businesses real money, it's an important consideration when choosing a provider. Displaced employees need only log in from a different location, and provided they have the suitable bandwidth, they'll be back in business in no time.

Yankee Group warned in their aforementioned report that only five percent of SMBs had adopted VoIP as their primary means of communications. Service providers have a lot of work ahead of them to inform and educate the market, but the time most certainly is now. Hosted VoIP providers are faced with a tremendous market opportunity, and they need to move quickly to capture their share. IT

Greg Galitzine is editorial director of Internet Telephony magazine and the newly launched IMS Magazine.

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