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Are On-Prem Phone Systems Actually Dead?

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Image: Brian Jackson - Alamy Stock Photo
“Reports of my death have been greatly exaggerated.” –Mark Twain
There seems to be an assumption in the unified communications and collaboration industry that premise-based phone systems are a thing of the past. It is certainly true that many organizations are moving to the cloud.
But not everyone. I have clients who have decided that the cloud is not right for them. After discussing the options and weighing the pros and cons (and even completing a quiz), some clients have decided an on-premises solution is a better choice for their organization.
But why is that? Reasons vary, but here are several reasons why that might be the case:
· Lower long-term total cost: The upfront costs for a cloud solution are indeed lower than a large capital outlay for an on-premises phone system purchase. But over time, per-seat subscription pricing is often more expensive. I have completed multiple comparisons of the long-term costs of on-premises systems vs. UCaaS solutions. Even factoring in upgrade costs, support costs, and other ongoing expenses, the on-premises solutions often offer a lower total cost, especially after five years. Once the higher initial cost of the on-premises solution is absorbed, the ongoing costs are much lower than the ongoing subscription costs of a cloud service. For organizations that anticipate a longer useful life for a phone system, an on-premises solution can offer a lower total cost of ownership.
· Capital expense vs. operating expense: The income streams of some organizations are structured around large chunks of one-time income. For example, a city government can issue a bond to fund needed structural improvements. Other organizations receive donations or hold fundraisers to support their expenses. These organizations tend to prefer a capital expense over ongoing operational expenses; this allows them to keep ongoing expenses lower and control the timing of larger expenses.
Organizations that keep solutions in place after they are depreciated often prefer an on-premises solution because the financial model allows them to sweat the asset and gain as much functionality as possible over a longer time.
Note: some on-premises providers offer a one-time purchase and a subscription pricing model. However, not a single UCaaS provider offers a one-time purchase option instead of subscription pricing.
· More control: Most on-premises solutions include software upgrades as part of their support program. While UCaaS upgrades are typically incremental, on-premises systems gain enhanced capabilities in larger chunks, all at once, as part of a scheduled upgrade. Organizations with a complex environment where multiple solutions are tied together can’t afford outages or feature degradation. Typically, they have strict change control procedures that must be approved by various members of the organization, along with back-out plans in case problems arise. For these organizations, the incremental changes pushed by UCaaS providers are a source of concern. They need to control the timing of upgrades and ensure that they are able to provide training if needed and introduce new capabilities to their users.
· Security and compliance: The argument that UCaaS companies can afford to hire a larger security staff focused on communication technology specifically is valid. But behind the scenes, this is wide variation in security expertise among UCaaS providers. In some cases, the staff might only have one true expert in the area. If that expert leaves the company, customers may not even know of a potential gap in security expertise that once was an advantage for the cloud solution.
Some clients see cloud providers as bigger targets for hackers, who can have a higher impact and compromise multiple organizations at once by breaching a UCaaS provider. Supply-chain vulnerabilities are a concern for many of my clients. They can control their own security but are vulnerable to weaknesses that can be exploited in suppliers with whom they are connected.
In other cases, there are compliance requirements for the location of data residency. While many UCaaS providers can meet these requirements, there is no question about the location of data associated with an on-premises solution.
· Integrations: In our API-driven industry, the complexity of integrations is often trivialized. “It’s just an API” is a common refrain. In my experience, integrations are not always straightforward initially, and they can easily fall apart down the road.
I have a client who worked with a cloud provider on a custom API integration that provided a critical capability. It was difficult to get working in the first place. The cloud provider had one person on staff who had the requisite expertise, and when he wasn’t available, the process stalled. After a lot of effort, we got the integration to work (although without a couple of desired features). Then eventually, the integration stopped working. The cloud provider or customer made a change somewhere, but they couldn't identify where it happened. After significant finger-pointing, the client is now living with decreased functionality.
· Training and support: Most on-premises solutions are sold through partners instead of directly from the manufacturer. These partners often add a layer of additional value that typically includes resources for training with live instructors, using actual phones and user logins. They often provide on-site support for the go-live date, which can include an engineer and/or trainers for quick response and problem resolution. Many partners offer Level 1 support (at least) for customers and assist in identifying the source of a problem. If needed, they often escalate problems to the manufacturer’s tech support on behalf of their customers.
You can obtain UCaaS solutions directly from the UCaaS provider or through partners. Training and support vary widely, and customers who don’t clearly define expectations can end up being disappointed at the brevity of these services. Often, UCaaS vendors charge additional costs for service that might normally be include in an on-premises deployment.
Are You a Better Fit for UCaaS?
On-premises solutions are not right for everyone. UCaaS solutions are usually a better choice for organizations that:
  • Use communications to innovate and differentiate themselves in the marketplace are often better suited for UCaaS solutions, which are continually updated
  • Prefer the operating expense model of monthly subscription pricing
  • Prefer constant, incremental feature updates
  • Prefer to have security and compliance managed by the cloud provider
  • Have seasonal increases in the number of users they support. Enterprises can adjust licenses based on the number of users instead of purchasing licenses for the peak user count and then having them unused during non-peak periods.
The cloud vs. on-premises decision is at the foundation of finding the right communication technology for each organization. In some cases, the decision is obvious. But many of my clients give this choice careful consideration and arrive at different decisions — it’s definitely not a case of one size fits all.

Melissa is writing on behalf of the SCTC, a premier professional organization for independent consultants. SCTC consultant members are leaders in the industry, able to provide best of breed professional services in a wide array of technologies. Every consultant member commits annually to a strict Code of Ethics, ensuring they work for the client benefit only and do not receive financial compensation from vendors and service providers.