Hosted VoIP vs. Premise Based VoIP: The Honest Truth

Two VoIP industry leaders give honest answers to tough questions on VoIP technology.

Everyone buying VoIP phone systems these days is faced with the same issue, how to choose between a hosted and premise based PBX. This presents a daunting task for anyone trying to wade through the mountain of information available on the web. But choosing is simpler than you think if you focus on the real issues.

To help you with this we asked two VoIP industry leaders with no business relationship to discuss the real issues behind hosted and premise based systems. As the 1st installment of a 3 part Q&A, this segment covers the technical differences, common road blocks, and issue of company size. Both VoIP experts have been asked to answer questions honestly and as unbiased as possible.

Our premise based VoIP expert is David Byrd, VP of Marketing and Sales at Broadvox. Broadvox provides SIP Trunking solutions (VoIP service) for businesses utilizing a premise based IP PBX. At Broadvox, Byrd is responsible for marketing and channel sales programs as well as defining the product offering. With over 20 years of telecom sales and marketing experience, Byrd has held numerous executive positions with companies such as Hewlett-Packard, Sprint, Ericsson, Telcordia, i2 Technologies and Planet Hollywood Online.

Our hosted VoIP expert is Eric Thomas, CEO of FreedomVoice. As an entrepreneur and pioneer in the virtual office and VoIP industries, Eric Thomas has more than 13 years of experience in the development of virtual office solutions and more than 8 years of experience in VoIP. Thomas was among the first in the nation to commercially sell 800 numbers and supporting virtual office features. The FreedomVoice business VoIP solution is known as FreedomIQ. As a hosted PBX, the service incorporates cutting edge virtual office technology with best in class voice quality.

Moderator: So to begin, David, what is a premise based VoIP PBX and how does it work?

Byrd: A premise based VoIP PBX is located at the customer site. The customer has acquired the equipment and decided to make an investment in human capital to manage and operate it. It is important to note that in an environment with a premise based PBX; the customer does not look to the service provider for any material office features, as all of the features are delivered by the equipment. To elaborate, Broadvox does not offer features like call forwarding and auto attendant because you can get them as part of your premise based VoIP PBX.

Moderator: And Eric, what is a hosted VoIP PBX and how does it work?

Thomas: With a hosted PBX, the only thing delivered to the customer premise is the phones. All of the brains of the system are at the hosted provider’s facilities. This differs from a traditional or IP-PBX where all of the equipment is onsite and the connection to the telephone network is via a T-1 or analogue line. So in the hosted model the service provider bares the responsibility of providing the service to all the devices. While in the IP-PBX model, the customer takes on the service provider role for all the devices including those in remote locations, which in my mind is the big difference between these two offerings.

Moderator: In both of your experience, why do business owners often have a hard time deciding which system to go with?

Byrd: I think one of the reasons is because they haven’t internalized what they consider to be important. I don’t think it’s really about technology. I don’t think it’s always about cost. They have to decide if they ultimately want to be responsible and want to grow an IT infrastructure for their telecommunications needs. Or is it more useful for them, because it’s not necessarily where their expertise resides, to take a look at outsourcing that capability and leveraging the expertise of someone else? Business owners should understand what role they want to play in providing their telecommunication services.

Thomas: I think that is a great answer. And I think that decision kind of fits with where they sit in that model already. They need to determine if they already have somebody who is competent but has downtime or if they would need to hire those people to support that equipment. So those things definitely come into play. I think the biggest issue is that when people start thinking phone system, they are thinking about it on a very simple level, you know, make a call and receive a call. From that standpoint, IP-PBX and hosted PBX look like very similar products. But the difference really has to do with how much equipment you are buying upfront and who is supporting it. Also, in the case of employees working remotely, I think it effects which solution is going to be a better choice.

Business owners need to realize that the capabilities of their technology have an impact on their business. How good are the phone systems business applications? How good is the reporting? These are the things business owners need to consider when making a purchase.

Moderator: Is a company’s size an issue when determining whether to use a hosted or premise based VoIP phone system?

Byrd: I don’t really think it’s about small or medium. I really think that if there is a differentiation, it’s going to be with the really large companies. When we think about it on an enterprise level, in determining whether they are hosted or non-hosted, the situation then becomes dependent on the company having a technology infrastructure that supports a non-hosted environment.

I’ll give you an example. A friend of mine runs a cabinet business so they know how to work wood really well. When he decided to put in a phone system, no one inside of his shop understood anything about servers, PBXs, etc. So he had to ask himself a question. Was he going to make an investment in human capital in order to meet his telecom needs? I recommended to him that he should not. The most sophisticated element of his business is the fax machine; they don’t even do orders using emails. So, it would have been really inappropriate for him to spend a lot of money investing in technology when his primary business is cutting and staining wood. By the way, this is a company with 100 employees.

Thomas: I agree. I think there are a couple things that play into it. When you have an enterprise level company you already have a big IT staff. For them to handle the requirements of an IP-PBX maybe it isn’t as much of an issue as if you have to think about hiring. If you only have one IT guy, you may not want to take up all of his time. You may want him to concentrate on network security or the PCs in the office. The other thing that I think happens is the bigger the company, the more afraid they are about making the wrong decision, so I think hosted to them can sometimes seem more risky because you are giving someone else control.

I think the other thing that plays into it is that more companies are becoming virtualized. We’re getting really big companies using the hosted product particularly when they are multi-location or have a lot of employees. From that perspective, I think it drives towards the hosted solution because the requirement to support all the people outside of the office on the IT staff for a premise based system is certainly more difficult than for a hosted provider. A hosted provider will already have expertise in-house to be able to troubleshoot somebody in say Whitefish Montana on a cable modem who’s having issues with say packet loss. But if you buy an IP-PBX, and you have a guy in Montana, you’ll be trying to deal with those issues yourself, which is not easy when you haven’t dealt with them before. So there is a big difference from that perspective.

Read the next segment: Hosted VoIP vs. Premise Based VoIP: The Honest Truth 2

See coverage of this Q&A on Fierce VoIP