Marty Parker
Marty Parker brings over three decades of experience in both computing solutions and communications technology. Marty has been a...
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Marty Parker | July 28, 2015 |


UCaaS Providers Move Upmarket – Check Your TCO

UCaaS Providers Move Upmarket – Check Your TCO You might just find that UCaaS per-user pricing can help you justify a move to the cloud now.

You might just find that UCaaS per-user pricing can help you justify a move to the cloud now.

Many industry watchers, including myself, have seen UC-as-a-Service (UCaaS) providers primarily as serving small businesses. The UCaaS providers' own data have proven that out. For example, 8x8, which is growing revenues at over 25% per year, earned $48 million in revenues this most recent quarter from 40,000 customers, according to quarterly and annual reports. This is $1,200 per customer per quarter, or $400 per customer per month. Assuming some discounts, the average 8x8 customer has around 20 users.


But, and here's the big surprise, almost all of the Leaders and some of the Challengers and Visionaries in the August 2014 Gartner Magic Quadrant for UCaaS are moving upmarket. The Magic Quadrant Leaders include 8x8, ThinkingPhones Networks, Orange Business Services, West, and HP. Seven other UCaaS providers are poised on the border of the Leaders quadrant, including RingCentral, Mitel, Microsoft, Google, Avanade, Verizon, and ShoreTel.

In addition, other companies are entering the UCaaS market, including some major resellers that see that value-added opportunities exist almost as much with a cloud IP PBX as with an on-premises system.

Some have asked, "Why are these companies going upmarket?" First, of course, the upmarket opportunity is seen as a strategy to accelerate growth and to leverage their investments, as explained below. Second is the same classic answer Sir Edmund Hillary gave to the New York Times in 1924 when asked why he climbed Mount Everest: "Because it's there." For whatever reason, the trek is on to scale the market upward.

The foundations for these moves are pretty clear. In the past five years, UCaaS providers have been:

  1. Establishing the infrastructure necessary to go upmarket. This includes geo-redundant data centers, software reliability assurance, network robustness, and other actions. This enables many of the UCaaS providers to quote financial guarantees of at least 99.9% availability, with some going even farther in their claims (8x8, for example, says it can achieve 99.997% availability, right up there with the fabled grail of five 9s).
  2. Creating the customer service methods and capacities. Mid-market and large enterprises are just as interested in using UCaaS help desks as are smaller companies. UCaaS providers have been developing automated customer service portals, training videos, and help desk skills to support larger organizations. Sure, UCaaS providers will need to be careful with the pace of this skills-based expansion, and we consultants still hear occasional horror stories, but the service tools and methods seem to be ready for growth.
  3. Organizing field implementation and services capacity. Whether an organization is small or large, the management wants to be able to call the UCaaS provider and easily order an installation anywhere in the country (international can come later). The UCaaS provider will be expected to take the details of the order and then do the rest of the job -- get the connections set up, drop-ship or even install the router and the phones, and provide basic user training. Additional services unique to a site (paging, door alarms, customized training, etc.) will be available at a charge, but the core functions will be expected at a standard price. The UCaaS providers seem ready for this.
  4. Building voice and data carrier network relationships. Since we are talking mostly about voice communications systems, customers will want UCaaS providers to connect their calls to and from public switched telephone networks (PSTN) and cellular voice networks. This will eliminate the headaches customers incur negotiating carrier contracts and should enable them to cut costs, since UCaaS providers can buy PSTN connections in bulk.

Based on all of this, it sure seems that it's time for an upmarket surge in UCaaS. A lot of attention and energy will be added to this surge by Microsoft's Skype for Business Preview program and pending general availability of Skype for Business Voice services from the Office 365 cloud, including telephony and, likely, a network of local implementation partners (see #3 above).

What should mid-market and larger enterprises be doing about this? First, check your total cost of ownership (TCO) for your on-premises solutions. If you are careful to include all of your costs for equipment and license maintenance, operational staff, help desk staff, field installation costs, voice and network carrier charges, and vendor billing management, you may be surprised at the TCO amount. You may even find that the UCaaS per-user pricing is lower than the sustaining costs alone, justifying a move to the cloud immediately rather than waiting for the normal system replacement cycle.

This will be especially true if your organization is highly dispersed -- i.e., with many local offices, stores, schools, service centers, or similar sites at the edge of your business. For years, UCaaS providers have been growing by serving these small locations, one at a time. Now, there's every reason to believe they can serve dozens or hundreds of the small sites that many organizations struggle to support with traditional on-premises small IP PBX or key telephone systems.

Remember that this need not be an all-or-nothing choice. Perhaps UCaaS is best for the edge of your operations, while traditional on-premises systems are still best for functions such as contact centers.

And, yes, there may be many other benefits, such as getting some UC features that aren't already included in your current on-premises systems, without a major upgrade.

Based on these trends, it's a good time to do this review. The timing may be just right as the UCaaS providers move upmarket.


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