Cloud vs. On-premise VoIP: Why Cloud Is Winning

30 Oct Cloud vs. On-premise VoIP: Why Cloud Is Winning

The popularity of cloud Voice over IP (VoIP) services has driven a number of mergers over the past two years as traditional IP private branch exchange (PBX) vendors embrace the cloud for its ability to bring new customers and revenue to the table. Several factors are driving the growth of cloud VoIP and its spread beyond general business operations into certain vertical markets.

At the heart of cloud VoIP’s success is the shift of phone services from a mixture of capital and monthly expenses to a billing model based on a monthly per-phone or per-seat basis—call it Phone as a Service (PaSS). Under the old model of phone service, businesses had to spend money to buy an IP PBX and desktop phones, pay for hardware and software service contracts, pay for skilled technicians to configure and maintain the phone system, and pay for Session Initiation Protocol and/or analog trunks to connect the phone system to the outside world. Buying phone equipment is a capital expense, so it has to be budgeted and the hardware depreciated over time.

PaSS does away with the need for businesses to pay up front to buy a bunch of IP phone hardware and then maintain and depreciate it. Instead, a business leverages its existing broadband connections for phone service, with the PaSS provider maintaining the IP PBX and providing the phones on a lease basis bundled in with the monthly per-seat cost. Accounting is happier because it can pay for phone service as an operational expense on one bill because the PaSS provider is the single-point provider for PBX services, hardware leasing, and the actual local and long-distance phone service.

Because phone service is purchased on a monthly per-seat basis, phones can be added or returned as needed. Businesses can buy what they need when they need it rather than having to purchase a large IP PBX model in anticipation of future expansion or being stuck with excess phones after a downsizing. For small-to-medium businesses, cloud-based VoIP is by far the most affordable option for phone services.

Traditional on-premise IP PBX vendors have embraced cloud VoIP by acquiring PaSS providers. ShoreTel purchased cloud-based M5 Networks in 2012 for $146 million, later rebranding the offering as ShoreTel Sky. Digium, creator of the Asterisk open source IP PBX, purchased its way into the cloud business in 2013 with the acquisition of Atlanta-based VocalCloud. The merger of Mitel with Aastra was based in part on Aastra’s strength in VoIP cloud services.

Education and hospitality are two vertical markets where cloud VoIP is making significant gains. Colleges have seasonal populations—on-campus students, faculty, and staff—that require more phones and services during the school year, but less over the summer. Complicating matters for resident-life planners is the need for actual phone service in the dorms, with students bringing their cell phones to school in place of a landline.

Hospitality loves cloud VoIP because it allows them to get updated phone service without having to carry the expense of a new IP PBX. Hotel firms and independent operating companies buy and sell properties like players in Monopoly, with each acquisition bringing a different phone system and hardware. Cloud VoIP enables a company to get rid of old equipment while consolidating voice services through one provider. Mitel recently announced it is working with several channel partners to deliver cloud servers to hotels.