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Weighing the Value of Hosted vs. On-Premise Communications

The choice is shaped by factors including legacy infrastructure, size and skills of IT staff, relationships with vendors, and the likelihood that a company will grow (or shrink) in the next few years.

Next week at VoiceCon, I'm moderating a session on Hosted and Managed UC. And while the panelists and I will be exploring the benefits of the cloud as it applies to the communications market, companies will continue to debate the relative advantages and disadvantages of hosted versus premise-based solutions.Against the backdrop of the global recession, the choice between a hosted and a premise-based solution is shaped by many factors, including a company's legacy infrastructure, the size of its IT staff and their skills, management's relationships with vendors and service providers, and the likelihood that a company will grow (or shrink) in the next few years. In the end, the perceived return on investment (ROI) will likely tip the scale for one business model over the other for any given organization.

Elka Popova, the Global Program Director for Unified Communications at Frost & Sullivan, recently published two case studies illustrating how and why companies choose one delivery method over the other. I've condensed them below. Clients can see the full report at

Hosted UC: In 2007, Pillsbury Winthrop Shaw Pittman LLP, a law firm of about 1,800 employees with 11 offices in the U.S., was ready to replace its 20-year-old Nortel PBX, as well as a mix of voice messaging systems. Warren Jones, the CIO at the time, was determined not to compromise when it came to choosing the organization's communications system for the future. Included on a long requirements list were a reliable dial tone and carrier-grade reliability; integrated, cost-effective audio, web and video conferencing with click-to-launch capabilities; a single throat to choke, from a vendor that was committed to agreed-upon SLAs; complete device redundancy in the network, with automatic failover; and full mobile access. In short, the CIO wanted an affordable solution that could meet the firm's existing needs and deliver the advanced capabilities of a next-generation UC solution to every employee.

Initially, Warren considered a new premise-based solution. But the robust systems that could meet all his needs cost too much, especially in a redundant architecture. What's more, he wasn't sure his staff was ready to manage a complex UC infrastructure. So in 2007, Pillsbury began using hosted UC services from Cypress Communications; by 2009, the firm had deployed the solution to all its employees. Functions include telephony, presence, chat, audio conferencing, web conferencing, desktop videoconferencing, unified messaging, file and desktop sharing, Outlook integration, ACD & call center support, disaster recovery and automatic failover.

With the hosted service, the firm was able to get more functionality and more bandwidth for less money-and it avoided an upfront capital outlay, since Cypress includes the cost of switches and phones in its monthly service charges. Pillsbury couldn't be happier with its solution.

On-Premise UC: In 2005, NET, a provider of gateways and other telephony-related equipment, started looking for a replacement for its ROLM 9751 PBX. The company planned a "forklift" update to its aging infrastructure at two major sites. NET evaluated IP-enabled and pure-IP PBXs from Nortel, Siemens and other vendors, but none could provide unified messaging integration with Microsoft Outlook-and most carried a high price tag of around $300,000. NET also wanted to deploy enterprise-grade IM, to replace the consumer services its employees were using.

As a Microsoft partner, NET's IT staff was able to evaluate and trial Microsoft's Live Communication Server (LCS), which offered a uniform IM client and the ability to make outgoing VoIP calls. Two years later, NET migrated its LCS users to Microsoft's Office Communications Server (OCS) 2007, and in early 2009 the company upgraded to OCS R2.

NET has rolled out OCS R2 to all 260 employees worldwide; it serves as their primary communications tool for voice, IM and audio and web conferencing, replacing an external conferencing service and the legacy PBX. NET's IT director, Carmel Wynkoop, sees many benefits from OCS, including less-expensive on-net and off-net calling (especially valuable to the 30 percent of employees who work remotely); unified messaging, which has boosted the productivity of NET's IM users; lower-cost mobile communications; diminished device expenses, thanks to soft phones and headsets replacing desktop phones; and reduced travel due to OCS's conferencing and desktop-sharing capabilities. NET estimated its annual savings at about $110,000 using OCS 2007; it expects to see even bigger reductions from R2, especially due to its superior conferencing capabilities.

There were some implementation challenges, of course. UC is complicated, and since NET was an early adopter, its staff wasn't experienced with the technology, and they didn't have access to technical documentation. But even today, we would expect most businesses deploying UC on site to seek professional services from their vendors and channel partners. Also, without available SIP trunking services, NET uses its own gateways to connect to the PSTN via regular PRIs. Other companies will have to deploy VoIP gateways as well, since they will play a major role in UC implementations for the foreseeable future.

Clearly, there is no single deployment model that will fit all organizations; whether to use on-premise software or a hosted service offering will be a decision that gets made on a case-by-case basis. But there may also be a happy medium: managed UC services, which allow companies to outsource the management of the applications they deploy on site.

Please join me and my fellow panelists on Monday for a look at why hosted or managed UC may be the answer for your company--or, quite frankly, why it might not.The choice is shaped by factors including legacy infrastructure, size and skills of IT staff, relationships with vendors, and the likelihood that a company will grow (or shrink) in the next few years.