For a decade, unified communications media coverage has focused on unified communications as a service (UCaaS) while mainly ignoring other platforms like hybrid-cloud and server-virtualization. Premises PBX, a fourth platform, has hardly gotten a second look from the press.
UCaaS, the purportedly inexpensive (one might challenge this assumption), all-singing-all-dancing, award-winning UC platform , will finish 2021, having captured a third of all new PBX sales for the year. However, UCaaS sales are upstaged by premises PBX shipments.
- Among enterprises with more than 1,000 employees, 61% of those that acquired a new UC system in 2021 purchased a premises PBX, which outsold UCaaS by more than one third.
- Small businesses with less than 300 employees that acquired a phone system in 2021 bought a premises PBX 25% more often than UCaaS.
- While some verticals like retail have embraced UCaaS with avidity , not all are in this camp: the banking sector purchased premises PBXs four times more often than UCaaS; schools did so three times more frequently, and healthcare businesses twice as often.
- As the data above shows, the PBX industry is past the stage where premises PBXs are just for big companies and UCaaS just for small ones.
Customers had compelling reasons (purchase drivers) for acquiring a premises PBX solution in 2021 over other alternatives. In one of the many surveys for Eastern Management Group’s PBX report 1,000 IT managers identified the influential factors as:
- Security features
- Productivity Improvement features
- Self-serve provisioning
- Dealer provided security and regulatory support
- Dealer provided system and network support
IT managers that bought a premises PBX also rated price and total cost of ownership as top purchase drivers.
There is a lot of future opportunity in the premises PBX market. New PBX sales, including premises PBX, will exceed 50 million seat/line licenses every year for the next several years, and that's just if the average installed system remains in place for 8-9 years. Should turnover increase to 5-6 years, which the Eastern Management Group thinks it should, total sales will be more significant.
Where PBX Vendors Need to Invest
Several premises PBX vendors have proven equal to the task of growing their business and sloughing off concerns about the growth of UCaaS. Here's how some are doing. All premises PBX providers should invest in the following areas:
- Research & Development - R&D is the lifeblood of product innovation. In our opinion, the minimum premises PBX vendor R&D investment should be 10% of revenue. The latest financial reports show Cisco spends around 13%; Sangoma, a premises PBX provider for SMB customers, clocks in at 15%. Given the many premises PBX providers, some may spend more on R&D especially in the business startup phase.
- Dealer Support - Good support is expensive. It can cost $10,000-$30,000 to add a new dealer to a vendor's channel. A global dealer training program can be more than a half million dollars. World-class dealer support requires continuous training, promotions, best-in-class discounts, deal support, and substantial discounts so dealers can grow their businesses . Dealer support can amount to five to 15% of revenue. In our opinion, Cisco dealer support is a gold standard.
In addition, those premises PBX vendors most likely to be around in 10-years will surround themselves with channel partners that are highly trained, well-compensated, financially established, and receptive to best-in-class support from their vendor partner.
Vendors at the Forefront
According to Eastern Management Group's annual IT manager satisfaction surveys, dominant PBX providers like Cisco, Avaya, Atos, and Alcatel-Lucent Enterprises get good customer-satisfaction scores, as do small-business-first specialty firms Sangoma and Yeastar. To an enterprise customer, Cisco is a deep-pocketed dominant provider, and it shares PBX shelf-space with players like Avaya, Atos, and Alcatel-Lucent Enterprises. Sangoma and Yeastar do an excellent job addressing the SMB market.
Premises PBX Headwinds
The premises PBX industry faces headwinds due to competition from hundreds of UCaaS competitors and has had departures among its ranks. Panasonic announced it will close its PBX telephone systems business by 2023 citing:
- A sharp decline of the market and rapid shift to cloud-based solutions
- A technological mismatch between factory and future market needs and trends
- Lagging behind their competitor's R&D activities
- Constant financial deficit due to the reasons above
- Shift to new types of demand (e.g., Teams, Zoom) significantly accelerated by COVID-19, which makes the future of our business untenable and unpredictable
Despite challenges, the premises PBX industry will be around for a long time to sell and support large enterprises and small customers. How long? In 2025, another Eastern Management Group survey shows 55% of businesses will use premises PBXs to account for most company communications.
While new vendors have not been queuing up to enter the premises PBX market, this is a missed opportunity. We'd like to see more new premises PBX companies, which should be welcome by all PBX customers.