Convincing customers to overcome fear and moving them into rational buying/spending isn’t going to be easy.
That was President Clinton's locution during his 1992 campaign and this rings true today as to the questions: should I implement SIP trunks; and Should I go hosted? I read with great interest Alan Percy's post SIP Trunking: What Is Holding It Back? and Eric’s post Speaking of the Hosted vs. Premises Debate. Both topics are very relevant and with tension in the SMB/E space that has business owners and vendors at odds.
For the hosted argument, I've written in the past pros and cons in a Mini Series: Hosted VoIP vs IP-PBX Part I here, Part II here, Part III here and Part IV here. No matter what, infrastructure is vital as is local hands on support. The value (present and future) of money is another consideration, but SMBs and large enterprise sometimes forget whose money is at stake. Then, how the solution is managed and maintained including the span of control over the solution plays out via acceptance or rejection by customers. In most situations, money flows where the priorities are. Hosted solutions cannot be ignored and neither can costs and issues of control. There are tradeoffs and they are often found in these two areas so setting expectations remains key.
Hosted voice is being largely ignored by the Telcos but take note--their behavior is the same but their bandwidth plans have changed. The Telcos have bumped up bandwidth packages at higher prices and are obsoleting lesser bandwidth packages such as mine--10/2Mbps. A mistake that SMB/E's are making is the same mistake that some large enterprises are guilty of--and that is thinking that buying more bandwidth will cure all their problems when in reality it solves only a few and continues to mask others. The other thing that Telcos continue to do is discount bandwidth if customers retain analog phone lines. These bundles are not cost competitive when you match them against an IP-PBX with SIP trunking.
For the question of what’s holding people back on SIP Trunks? It's the economy, stupid--or human behavior. You would think that because businesses are trying to cut back and save, that SIP providers would be busier. I don't think vendors appreciate that when the economy tanks that cash is tightly held and spending reined. This conduct is also evident as reported by the WSJ that, "U.S. households saved 4.1% of their disposable income." This disconnect in spending still translates to downturn and it does impact SMBs. The SMBs and their owners behave the same way. Cash is King and having it on-hand for reserves is now deemed more important than spending it on anything other than necessities. Add in that credit remains tight with unattractive interest rates and this doesn’t foster taking on more debt. Consumers and business owners are still thinking about shedding debt and preserving cash but continue to shun investing in technology that will reduce their OPEX.
Customers are clutching cash to sustain themselves without any additional investments in spite of savings. I’ve been talking to our customers (90% SMB/10% Large enterprise with a local presence and State government) and they're in that holding pattern. Repairs and fixes (parts and work arounds) to keep things running are in demand. Two things my customers are buying is hosted email security from MX Logic (recently acquired by McAfee) because they must jump off the old Symantec solution that used MX Logic. They are also dumping in-house email servers and using MX Logic connected to a hosted MS Mail server. The second thing they’re buying (on time) is my time to spend on their accounts and their behalf to review and assess some sense of priority and value to each project that they have "slated for later."
For the past three years (2007-2010) the factory guys have been hammering out repetitive incentives including zero-percent financing (teasers), bundled discounts to buy new systems with software incentives, but they've been largely ignored. The benefits of SIP trunks don’t come without some investment and risk. Cash reserves for SMBs remain far more important than implementing licenses for SIP trunks, UC or a new box or even a hosted solution that promises to save the customer a ton of money. On the backend, the hosted IP-PBX solutions savings is savings that can still evaporate in just two, three or four years when compared to a purchase or lease of their own system, and many of these offers require little if any cash up front. Now for startups and very small businesses rolling over to hosted services, it may make sense initially but it’s going be trickier to leverage hosted services and leasing everything in the office (as was done in the past). Credit has changed and whether this practice can continue remains in question. It's A Numbers Game but I also think the rules have changed with how credit can be leveraged because banks are saying No more than they are saying Yes.
I spoke with a metal fabrication plant and they initially cut heads to meet expenses and now are closing. Saying that state resources are dry is an understatement, and "just parts" satisfies them, and we’ve even ponied up donations of used gear. Health care is holding out because they need cash to retain staff while patients put off specialty procedures because of large deductibles. We are about to shutdown a branch for a customer that has two years left on the lease and gear, early termination liability charges to the carriers, and they have to fire the 35 souls occupying the space. In one of our larger factories, a senior Vice President from corporate was walking the plant putting sticky notes on Nortel phones. We went in and disconnected those phones (not lines or billable services connected to them). The VP said, "I don’t want to pay for them."
Our school accounts are novel in that they do anything it takes to survive because that’s what they've done in the past. We've had interesting challenges hinged on providing a low budget solution. "Just enough to get by for now, we’ll talk later." Budgets aren’t there, but taxes are increasing with new taxes in rogue forms to subsidize the cost for health care if you’re a food service worker in San Franciso, to porn taxes on girly shows in Texas. Four-day school weeks are in effect in some states and in other States like Maryland, State governments are now prying into the pension and retirement monies of teachers, firefighters and police. The States want to shift the costs to county governments meaning they want the employees to pay instead.
Another long time customer is an accounting firm and speaking with their CEO about some of their customers she told me that, "some are hanging on while some should close, some should sell and even while some have closed or sold, most won’t out of fear of embarrassment."
The SMBs have taken pretty hard hits in many instances. I’m not saying that the rest of the country is like it is here, because it’s not--the Washington, DC area is typical of being in an insulated bubble--albeit this time around, the insulation is pretty thin. It's either worse elsewhere or there may be a few places better off. The statistics don't lie about personal bankruptcies, business closures, construction permits (new work or renovation) advertising and other economic indicators.
The changes that consumers and business owners have exhibited thus far indicate a departure from past behaviors. As local, state and federal governments continue to come up against shortfalls in visible budget areas and create novel ways of reducing expenses, you can guess that taxing consumers more will have as much appeal as reinstituting a six or seven day work week--and I am keenly aware that yes, many of you are already putting extra hours in. Yes and taxes are going up--er, have gone up. In the same breath that economic hopes are dependent upon Americans reducing debt, the WSJ also reported that Americans also account for about one fifth of global economic activity with their purchases and what's not reported is how much of this activity is attributed to sustainable spending. When you look at this carefully, the expectation of debt reduction along with expectations of the global economy; there’s an unrealistic supposition to do both--reduce debt and spend.
New Millennium Research Council of Washington, D.C. announced that, "the recession has cell phone consumers’ number, as two out of three new wireless subscribers in the U.S. go prepaid." Post-paid or contract cell phones are out of favor with the majority of consumers and this indicates more discretion in their spending. Aside from being able to escape huge penalties, consumers can shed cell phones without incurring early termination fees by using cheap prepaid cell plans. Still, depending upon who you talk with, whether they are a sole proprietorship with one or a couple of phones, an SMB or an enterprise--as Alan points out in his post, it could be one or more reasons why businesses aren't moving fast enough to adopt SIP trunking. Of all the potential issues holding customers back--at least for the SMB, I think it's mostly about cash-on-hand with an elevated fear (of risk). The behaviors of the consumers and SMBs are telling a much different story than the reported "continued recovery." In fact, a couple of days ago, Dr. Janet Yellen, CEO of the Federal Reserve Bank of San Francisco presented her view on the U.S. economic outlook that summarizes her belief that unemployment will remain "painfully" high for several years. Human behavior seems to suggest that folks will be hanging on tight to cash-on-hand out fear of the future.
Businesses remaining immobilized from spending run risks that can compound existing cash flow problems. Rejecting cost savings is understandable but weighing the risk vs. payoff is seemingly ignored. It’s a pattern that’s human but sooner or later businesses need to let go and I think they will out of necessity. Fear can become paralyzing and in no better an example do I see it working and taking hold than in today’s business environment. Convincing customers to overcome fear and moving them into rational buying/spending isn’t going to be easy. It's human behavior again because before the meltdown, spending was out of control and folks didn’t walk away from their debts as they do today.
Matt Brunk is president of Telecomworx and a No Jitter blogger.
