As demand for hosted VoIP continues to grow, its appeal is broadening beyond the small business sweet spot. That’s good news for hosted service providers looking for new customers – but they might soon find themselves taking on incumbents in the middle market and beyond. That’s a future that will likely trigger a wave of consolidation as hosted VoIP players scale in order to compete, evolving into what could be a new class of CLECs.
Hosted VoIP is going through the classic hockey-stick growth curve, said Dave Gilbert, CEO at Simple Signal: a long slow ramp-up followed by a steep climb. “We are finally at the blade where it takes off,” Gilbert said. “We all went for five to 10 seats when we got into this business, but I think we’re done with that.”
Previously mistrustful of hosted services, larger enterprises no longer want on-premises PBXs. “Now they do trust cloud-based services, and see that it’s easier to budget, there’s scalability and there’s low capex.”
The question is what that means for competition as time goes on. Are hosted VoIP players destined to be the next great thorn in the sides of incumbents?
With analysts predicting little to no slowdown in hosted VoIP adoption anytime soon, the market is seeing a profusion of providers flowing into the space in the near term, given the excellent margins the service provides. “For service providers like ours or even Verizon Business or others that run on the Broadsoft platform, the cost benefits will be tremendous,” noted Ari Rabban, CEO at Phone.com. “And there’s plenty of opportunity as all the other issues, reliability and objections are going away more and more.”
However, that doesn’t mean they’re all going to be viable players in the long term. “As you have more network providers entering the space I think it's going to be more difficult as a standalone play as customers look for integrated offers,” said Randy Ritter, vice president of marketing at One Communications, a traditional CLEC that sees itself as moving with the times. “There’s also the convergence of transport modes that customers look for, in FMC and wireless.”
The inability to provide the mobility piece could be standalone providers’ Achilles heel. “About 28 percent of workers use only their mobile phone,” pointed out Caitlin Clark-Zigmond, senior director of product management at New Global Telecom. “We’ll see a lot of increase in the amount a mobile phone is used, which means hosted offers will be even more prevalent because they do facilitate the cell phone as a remote control for services and features.”
Meanwhile, as larger businesses embrace hosted VoIP, the service itself is also evolving to become part of broader overall communications strategies like unified communications. “As more complex capabilities are made available, businesses will want to use trusted vendors who can bring the full sweep of capabilities,” said Dave Lemelin, analyst at In-Stat. “The smaller boutique hosted vendors have to develop best-in-class partnerships and excel in provisioning and maintenance of the customer relationship to be in that position for the long term. Now is the time.”
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