Out of the Box IT
Osama M. Faris brings out of the box thinking about information technology into focus.
VoIP and UC: Price vs. Value
This article is the third in a four-party series devoted to whether small and medium organizations should host a VoIP phone system with an external managed service provider or invest in an on-premise system. My previous articles discussed what VoIP and UC are, and how your can your business be ready to make a purchase decision. This article continues and expands that discussion with some ideas around price and value.
To be clear, the pricing comparisons in this article are not systematic or scientific. They’re meant for general discussion purposes. Many on-premise PBX solutions are much more expensive than hosted VoIP solutions. Many hosted VoIP solutions are more expensive than some PBX replacements. There are trade-offs to both in terms of whether you want to pay more up-front or down the road. What’s important is to do some pricing research, or, even better, to work with an IT managed service provider to get the benefits of their expertise and research.
Oh, no, charts! I know not everyone is as captivated by the wonders of saving money and Microsoft Excel like I am, but I promise, this blog won’t be boring. Let’s start with a simple metaphor: coffee.
To host or not to host your espresso machine
As many of our customers know, FAR has an espresso machine. It’s not one of the $2,000 types, but it still makes great espresso. We bought it because both my CMO and I like to drink espresso. We ran the numbers. The cost for both of us to stop at Bridgehead every day to buy a double espresso was about: $5/day. That adds up to $1000/year (assuming 200 business days/year) or $3000 in three years, $5000 in five years. Even coffee adds up!
And that’s just for one espresso each. Vince drinks at least 2 doubles every single day (so, his real world costs would have been more in the neighborhood of $5 just for himself). The cost to buy a machine and about a pound of coffee every two weeks was about: $1/day (it was actually 96 cents/day), or about $192/year, $576 in three years and $960 after five years.
For the same price, we had to decide whether we wanted 1 year of espresso that was less convenient or 5 years of espresso that was more convenient. As you can see clearly from our bar graph above, having an on-premise espresso machine was a smart business decision for us.
To host or not to host your VoIP
Now, here’s where the metaphor comes into play. The typical hosted VoIP solution will cost a typical 50-seat business about $50/user/month. That’s about $2500/month, $30,000/year, or $150,000 at the end of five years. Typically, with hosted solutions, you’ll pay less if you sign up for longer, but you can see whether the math goes.
Further, at the end of the first year, you don’t (necessarily) own anything. You don’t necessarily get to reap the dividend of buying (costs drop) rather than renting (costs just keep going). I should add, this is not necessarily the case for all hosted VoIP solutions. With some hosted VoIP solutions, you buy the phones, but that’s not necessarily true of all hosted solutions. And other hosted providers have ways to recoup your investment, and if you really want to host your VoIP, you should look for that kind of solution. But for the most part, you’re renting a service, not investing in equipment, processes and human resources the value of which your business will retain.
But the market is forcing the price of PBX systems ever downward. A solution from ADTRAN, including the installation, the phones, the servers, the phones and the gateway may cost about the same in the first year, but dramatically less over five years (it depends on specific business requirements and the reseller, but ball-park, it should be similar).
If a business wants to pay close to $150,000 to rent a solution for 5 years, or $30,000 to own a more robust and full-featured solution over 5 years, then hosted VoIP is a good business decision. Most businesses will find a solution in the middle, but we find that NetVanta offers a compelling cost/benefit ratio. Even if there are multiple branch offices, NetVanta can easily accommodate those requirements, even if a lot of other PBX replacements can’t.
If a business likes saving money and devoting that savings to making more money, then on-premise is typically a better choice. With a managed service provider like FAR, businesses can get the benefits of both: an on-premise solution that retains value and someone else to do the service.
With a solution like NetVanta, most businesses would save a great deal (and be able to put that money into something else). They’d also see serious productivity gains because of all the value that NetVanta UC Server provides. That brings me to my next point. It’s not just the literal savings; it’s also what you can do with what you save.
Remember, it’s not just about price — look for solutions that help you lower costs and drive productivity
A low price is always good. But it should never be the sole factor in any information technology purchase decision. First, make sure the solution you choose fits the requirements you have. And second, consider that a low price does not necessarily yield the best return over time. A solution that lowers costs and that drives productivity is almost always better than something with just a low, up-front sticker price.
Over three years, for example, $3,000 spent on hosted espressos would have been $1500 each that neither Vince nor I would be able to reinvest in ways that would save or make us additional money. That’s $1,500 that I might be able to put toward a more energy efficient refrigerator for the office, saving me even more money on our electric bill (go green!). It’s $1,500 that he might not be able to put to a trip to New York to make him more productive in the office when he’s back. In short, though, money should never be static; it should always be helping your business make or save more money (or both!), and information technology is a critical part of that process.
Regardless of where the solution sits, for many small and medium organizations, VoIP and unified communications pose some technical and business-related challenges. This is true of both on-premise and hosted VoIP solutions (and it’s actually true of a lot of information technology). But if you have a managed service provider like FAR to managed an on-premise solution or a hosted solution, then your business can reap the benefits and let someone else handle the challenges.
In my next article, I’ll be wrapping up this series with some discussion of other important factors to consider when making the jump to VoIP and UC. Be sure to check back next week!
