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Premise-based or Hosted IP PBX?

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Hosted VoIP solutions are becoming more popular among many businesses. The following four benefits are listed among the top benefits that make hosted VoIP increasingly more popular:

  1. No requirement for high upfront investments
  2. Flexibility to add, change or delete users
  3. No need for maintenance contract or dedicated IT staff
  4. Ability to have remote extensions

Opting for a hosted IP PBX may be the right decision for some companies, but there are also several limitations buyers need to know about:

  • In a hosted system, the “brain” of the system lives in the network cloud and is dependent on a last mile broadband connection to the customer premise for signaling, feature operation, unified communications and related features. This impacts availability and quality of the service. Even service providers that control the underlying infrastructure, such as AT&T, at best can deliver five-nines service quality, which is 10 time inferior comparing to the premise-based solutions.
  • In many cases, in the long run, hosted solutions are more expensive than buying and maintaining an on-premise PBX. Even at a low price of $30 per hosted VoIP line per month, over the period of seven years the Net Present Value (NPV) of a hosted solution is twice that of an on-premise PBX – including expenses to manage the PBX by a third party. Per my analysis, if a business is going to exist more than three to five years, buying and maintaining an in-house PBX makes it economically more attractive.
  • Developing a custom application to drive specific system behavior (for example, CRM integration) is challenging at best with a hosted PBX solution. Hosted service providers cannot afford to support custom applications developed for a specific customer as the risk of introducing problems to their network is too high: a single problem may impact thousands of customers.

Despite the limitations, many businesses still benefit from hosted VoIP solutions. These businesses usually fall into one or several of the following categories:

  • Need to set up or scale their operation quickly
  • Have to deal with frequent moves, adds and changes
  • Have many locations with very few (less than 6) employees per locations
  • Want to avoid the hassle of managing a PBX

As technology evolves, hosted VoIP limitations gradually disappear and prices become more attractive, hosted VoIP solutions will be gaining more popularity among businesses of all sizes.

My advice to businesses that are on the crossroad between hosted and on-premise VoIP solutions is to make a decision on a per application basis.

In many cases, the best approach to deploying VoIP infrastructure is hybrid, with a combination of in-house and hosted applications. For example, for companies that occasionally run voice- and web- conferences it is more economically efficient to subscribe to cloud-based conferencing services, while maintaining an in-house PBX. Whenever agility of deployment, pay-as-you-go approach and ability to stay focused on the core businesses are critical, hosted solutions would be the right choice. In other cases, a traditional premise-based solution would be a better option as providing higher service availability, more flexible customization options and better long term economics.