Hosted PBX Street Prices Scattered About
Are hosted PBX street prices $20 per month as sometimes pitched on the Web? What about a significantly lower price from a different vendor, or a higher one from another? Now, for good measure, how do these street prices jibe with $46 per month for a major vendor's SOHO solution using Eastern Management Group's pricing database and validated and presented in a recent post? Is it that vendors' prices are as random as a round of buckshot scattered hither and thither? Our research finds that's frequently the case.
The Eastern Management Group is engaged in a multi-year examination of the global hosted PBX market. We recently published research in a new report, "Worldwide Hosted PBX Market 2017-2022." We reference selected vendor UCaaS street prices in this post, drawn from detailed vendor prices in our report.
The Pricing Model
Using our proprietary pricing database, we're able to conduct apples-to-apples comparisons of vendors' offers and street prices. For the table below, we created a hosted PBX model with 15 basic features from 10 vendors. In this post we'll omit UC features such as collaboration and a contact center since those are accounted for in our other pricing models, as well as in the report. The 10 vendors in the UCaaS model represent VoIP, cable, IP PBX, ILEC, IXC, and full-service companies. 8x8, Comcast, EarthLink, Mitel, RingCentral, ShoreTel, TDS, Vonage, Verizon, and West are the cloud providers.
What Features Are Included?
Hundreds of features are available for hosted PBXs. Many are included in a basic PBX feature package, or can be priced into it. Feature packages don't vary significantly from vendor to vendor.
What's the Right Price?
For an identical model, the most expensive hosted PBX from our 10 UCaaS vendors is three times costlier than the cheapest. Six providers price their services so low that, in our opinion, they may be leaving considerable money on the table. If, for example, a UCaaS service sells for $4 per seat per month below the market willingness to pay, that's $48 annually per license. If it affects, say, a half-million seats, that would mean $24 million comes off the bottom line annually, potentially equivalent to more than $50 million in additional annual revenue using our financial models.
So, what's the right price point? The sales tag should reflect customer willingness to pay and accurate information about the price leader's offer. Capturing market share from the leader may require a competitor to price its hosted PBX 10 to 15% below the leader. That may be good enough. However, in our 10-company model, three of the UCaaS competitors priced their services 40% or more below the leader. Six of the 10 priced low enough to be well off the mark of what we expect would be customer willingness to pay. Such discounts are unnecessary to capture similar market share.
Wrong Price Consequence
Some hosted PBX vendors can and should charge premium prices, as reflected in our model. But what about the more common occurrence of charging too little for UCaaS licenses?
A UCaaS vendor with prices that are unnecessarily and possibly dangerously low puts itself -- and its customers by extension -- at risk in a number of ways:
- The platform becomes underfunded
- Service (tier 1, tier 2, and tier 3) deteriorates
- Churn picks up
- Adjacent businesses erode (e.g., network, managed services, wireless)
- Dealer discounts and rebates suffer
- Dealers lose commitment to the hosted PBX vendor
- The vendor could go out of business
From the perspective of a CIO, lowballing is a slippery slope that could potentially lead to regret. Vendors must have sufficient resources in reserve for the long term to support and satisfy the customer, let alone stay in business.
Of Course, It's Rocket Science
With hundreds of UCaaS vendors, entering the market comes with a sense of urgency. Doing so with the wrong price, however, is risky and unnecessary -- especially since the right price is easy enough to determine. But pricing is never so easy that it's found in the universe of Internet come-on ads.
This article is based on Eastern Management Group's service provider consulting experience and the company's exhaustive "Worldwide Hosted PBX Market 2017-2022" report. For any questions ask our researchers or [email protected].