Hosted VoIP/UCaaS is Going Upmarket!

Trefor.net welcomes VoIP Week contributor Huw Rees, Senior Vice President of Business Development at 8×8

The hosted VoIP/UCaaS (aka cloud communications) market is growing strongly in the US and it seems that the UK market is not far behind. According to Frost and Sullivan, Gartner, and others, US CAGR is somewhere around the 25%+ mark, and certainly the results from the few pure play publicly traded companies in this space seem to be consistent with these figures. So what is really driving this growth? What is really going on under the bonnet (or hood, for those of you in the US)?

What appears to be happening is that cloud communications is being adopted by much larger businesses than it was even two or three years ago. The early adopters for hosted PBX services were the very small businesses, typically less than 20 employees. In terms of IT, these businesses were generally unsophisticated and the owner could make the decision rapidly without asking a lot of detailed questions, especially when the provider would clearly save him/her money and often offered some kind of money-back guarantee. Thus, with nothing to lose, these small businesses signed up in significant numbers. Larger business were not so quick to jump on this bandwagon, however, as they needed clear answers to such questions as availability, reliability, feature set, scalability and — of course — compliance and security. Their questions in these areas were not easy to answer in the early roll out of these services, and unfortunately some of these items (especially compliance and security) are still not being properly addressed by many providers.
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As some of the vendors started to address these mid-market and even enterprise-level concerns, CIOs started to pay more attention. They began to see the clear benefits of a sophisticated, scalable service that they could subscribe to, effectively getting out of the telephone management business and concentrating their IT resources on projects that were critical to their business and part of the differentiation their business had in their markets (i.e., stop managing boxes in closets and start bringing real value to the business). Gradually at first, businesses of a few hundred employees signed up, followed by 500+, and now businesses significantly greater than 1000 employees subscribe to these services.

For the service provider, larger customers provide major benefits. For instance, they have more sophisticated IT teams, and so the ratio of support calls to deployed phones is reduced. Also, the acquisition cost is potentially less on a per-phone-deployed basis. And perhaps most importantly, the churn rate from larger customers is dramatically less, as larger businesses are generally more stable and therefore tend not to cease business with anywhere near the frequency of the very small businesses. This reduction in churn rate clearly benefits the service provider’s top line, as to grow revenue you must, of course, stem any revenue loss from defecting customers.

As we look forward to 2015, the trend of larger businesses moving to cloud-based communications will continue, to the point where the enterprise market will also start to adopt these services. Soon enough, it will not be uncommon for businesses with many thousands of employees — perhaps even tens of thousands of employees — to start subscribing, which will result in a booming business for the service providers that are truly ready to tackle such a scale.

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