SMB Telephony Needs Were Increasingly Met by Hosted and Cloud PBXs in 2012

70% of hosted and cloud systems were purchased by businesses using less than 30 phones  As originally published in By John Malone, Eastern Management Group Small businesses (SMB) accounted for the majority of hosted and cloud PBXs purchased in 2012 according to research from The Eastern Management Group.  Almost 70% of all sales worldwide were systems under 30 phones. Service providers moved farther down-market offering hosted and cloud PBXs to ever smaller businesses, particularly in the 5-20 phone range. The Eastern Management Group hosted and cloud study was a 2 year worldwide research project involving more than 16,000 service provider and information technology managers. While traditional service providers have been experiencing an erosion of their business access lines, their customers have also turned to competitors for premises-based PBXs.  Service providers say that competitors can offer PBXs identical to that of the service provider, but for less money.  Hosted and cloud PBX systems are an antidote for these problems the study found. Hosted and cloud systems make the SMB customer sticky; they’re not going anywhere.  Hosted PBXs also may provide inoculation for the service provider’s brand. Hosted and cloud customers like their systems.  Worldwide about 70% say they are very satisfied.  Less than 1% reported significant dissatisfaction with the hosted and cloud system.  Returning these satisfied customers to a premises based PBX may be problematic for competitors for the foreseeable future, since just 6% of hosted and cloud customers  say they will buy a premises based PBX the next time around. That’s encouraging news for service providers. More good service provider news is that the worldwide market for hosted and cloud systems is growing at double digit rates; and hosted systems are twice as profitable for a service provider as PBXs that are premises based, according to The Eastern Management Group. Stickiness is not the only positive attribute of hosted and cloud PBXs for the service provider.  Hosted systems represent a large source of incremental revenue and profit.  These systems are a magnet for new applications and services such as video, hosted data center, security, even Microsoft Lync; all of which show good end customer demand. Customers see value coming from the service provider. Other advantages to the service provider are they already have the customer, they maintain the customer’s records, and they have an operational billing system. Service Provider Hosted and Cloud Challenges Hosted and cloud PBX services are new for service providers and many face a steep learning curve.  The most common issues are:
  • What features to offer
  • How to price seats
  • How to sell
  • How to scale
  • How to finance the initial investment
  • How to identify a true peer group to reduce the learning curve and minimize the business risk
Why SMBs Buy Hosted and Cloud PBXs A few decades ago many service providers went after the hosted market to serve customers that wanted to avoid the large capital outlay of a PBX.  Many were new businesses.  Farther back in history (circa 1961), a service provider’s central office based phone system may have been the only option for customers requiring line capacity that exceeded the largest PBXs of the time.  Remember, there was no 20,000 line PBX back then. Eastern Management surveys found that cost or capital expenditure is not the main reason why customers select hosted and cloud PBX systems.  It is also not new businesses acquiring their first telephone system, or established companies needing capacity.  Eastern Management Group interviews showed the plurality of customers install hosted and cloud systems to get productivity improvement features.  Cost lags productivity in the value proposition.   Worldwide Market for Hosted and Cloud PBXs North America (United States and Canada) service providers sold the majority of hosted and cloud PBXs in 2012. This is expected to decline a few percentage points each year as other world regions increase their usage.  Latin America (LatAm) is one of the world’s fastest growing markets with 58% year over growth in 2012. Western Europe remains the second largest hosted and cloud market. The market may grow unabated provided service providers have capital to add hosted and cloud PBXs.  But service provider speed bumps along the way are ROI compared to alternative uses of capital; offering the right features; focusing on the SMB not just the enterprise; and making certain that offering hosted and cloud is not perceived as a necessary evil to the service provider. About The Eastern Management Group John Malone is the CEO of The Eastern Management Group one of the world’s premier strategic research companies.  Information about the study Worldwide Hosted and Cloud PBX and Unified Communications Market is available from The Eastern Management Group.  Learn more about The Eastern Management Group on our web site.  Visit us at              
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