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November 2008 | Volume 11/ Number 11
Service Provider Insights

Has VoIP Outgrown Traditional Business Service Channels?

As telecommunications service providers look to compete for small business customers, they have historically relied heavily upon traditional Value Added Reseller channels and Interconnects to install customer premise equipment and T1 PRI or analog lines. In the mindset of traditional wire line providers, this arrangement suited both parties, as the reseller made his margin primarily on the sale and maintenance of the hardware and the service provider simply provided the dial tone.

Now, as we move into the brave new world of VoIP for businesses, many service providers try to emulate this traditional channel methodology, partly due to channel inertia and partly to the premise that “if it ain’t broke, don’t fix it”. Unfortunately however, the game has changed and the overall margins associated with selling PBXs and PSTN origination and termination services have significantly declined. Even if the reseller can still earn 20+ percent margins on hardware, 20 percent of a smaller number is, in absolute terms, a small number.

Can Traditional Channels Survive?

As with many technological advances, the introduction and inevitable wave of VoIP deployments will cause wrenching changes within the reseller community. In particular, since VoIP is clearly a blend of both voice and data, Interconnects must adapt to this by becoming data experts in addition to voice. Conversely, data VARs have, not surprisingly, benefitted from the shift to VoIP as they’ve found themselves in a position to now sell voice services and equipment to businesses in addition to traditional data infrastructure sales.

The move from premise-based systems to hosted solutions is another potential threat to these reseller channels. As indicated above, the cozy relationship between the service provider and VAR is being challenged by VoIP deployments and this is certainly true in the deployment of services such as hosted PBX (News - Alert). Without the ability to sell significant amounts of on-premise voice hardware, how can the channel survive? The key is for the reseller community to realize that their business model has to change from a reliance upon upfront margin on product sales to long-term recurring residual commissions associated with the sale of VoIP services. This is a difficult change to make and requires the reseller to see the benefits of selling these services and reaping the longer term rewards versus the instant gratification (and money) associated with an equipment sale.

The Emergence of Non-Traditional Channels

Given that VoIP changes the way traditional channels sell to the small business market, are there some new channels that can be exploited by service providers? Clearly the answer is yes, and this is based on the premise that VoIP services, by design, utilize and integrate seamlessly with data applications and Web Services. This natural integration means that service deployments and support can largely be moved from the domain of the reseller and service provider to the users themselves. In view of this, it is not uncommon for users to purchase VoIP business services directly from a web site and to provision and maintain the service without a third party. While these direct sales can be advantageous to the service provider in terms of margin expansion, there are some potential downsides such as the possibility of increased churn due to factors such as installation or configuration errors and the subsequent frustration of performing debugging and corrective actions. Nonetheless, if these issues can be overcome, direct sales without needing to “roll a truck” can be very appealing.

This type of “self-provisioning” lends the sale of business VoIP to additional, alternative channels such as retail. Retail stores are notoriously difficult channels to deploy profitably, but if done correctly, they can add significant sales and reach customers that otherwise would not be aware of the benefits of deploying VoIP within their business. The key to success in retail is to ensure that the customer is provided with sufficient information to make an informed decision. This means that simply placing the products or services on the shelf and expecting them to sell will not work. Careful attention has to be paid to the messaging and appropriate point of presence collateral material must be present. The retailer himself must also be willing to add credibility to the solution by providing the assumed “right of return” if the service does not meet the customer’s expectations (or indeed for any reason). Interestingly, this retail distribution strategy can work for either hosted (such as Packet8 Virtual Office) or nonhosted (such as the Microsoft (News - Alert) Response Point IP PBX) products and services. As retailers become more comfortable with selling these solutions, there will likely be a significant expansion of VoIP services sold through this channel.

In summary, traditional channels for business services can still be viable, but they must adapt in order to compete with emerging channels that have the potential to reach many more businesses with new, innovative solutions. Ultimately, small businesses wind up winning with expanding product and service choices as well as additional choices in the channel resources with which they wish to engage. IT

Huw Rees serves as Vice-President of Sales and Marketing at 8x8, Inc. and was previously CEO of Centile (News - Alert), Inc., a former 8x8 subsidiary.

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