Bringing the Cloud Down to Earth

You’ve probably heard the words “cloud computing” and “hosted servers” tossed around a lot lately. Although frequently addressing business servers, such as backup servers, mail servers and accounting systems, when applied to phone systems, these solutions offer SMBs exciting new opportunities –  but, as with any emerging technology, there are pros and cons to consider.

In an effort to bring your head out of the “cloud” clouds, we will define and examine a whole host of communication system solutions (both puns intended) – providing you a clear and balanced assessment of each. The end goal is to help you decide which of these technologies will work for your business and give it the competitive edge to not only sustain, but thrive, in this economy and beyond.

Hosted, Premise, and Hybrid Defined

In a hosted solution—sometimes referred to as “the cloud” – your phone system runs on a server that is not resident on your premises, but rather resides within a virtual machine at a third party location. Your business is assigned a segment or slice of the machine and many other businesses may reside on the same virtual machine. An analogy might be a high-rise apartment complex, composed of many floors where each window represents a different customer’s data.

In a hosted PBX configuration, only the phones and a router are delivered to the customer’s site. Hosted solutions have the benefit of providing a low cost of entry and often are touted as “worry free” solutions for business owners. But it is a misconception that just because customers cannot see their systems they have no concerns – digging deeper, we find it’s not quite so simple.

A premise-based system is one where the system hardware resides on site at your business along with your phones and phone lines. You have acquired the equipment and decided to make an investment in human capital to manage and operate it. Features of your system – such as call forwarding, auto attendant and voice mail – are delivered by the equipment, not by an outside resource. A premise-based system may be purchased or financed through a leasing agreement. The system is both a physical and material asset for your business.

One other option for businesses may be a hybrid-hosted phone system which combines the benefits of premise and hosted IP phone systems to maximize flexibility and reliability. While the customer maintains server equipment on their premises, critical phone system data is uploaded and stored securely at a hardened data center.

All Systems Have Common Components

While the physical location of equipment and residence of data may differ among your phone system solution options, the solutions themselves have many basic components in common.

In all cases, a customer will invest in phone sets for the business. Desktop, cordless, and conference phones would all be located at the customer site with at least one phone required per employee. Additional phones potentially will be needed for conference rooms, break rooms or lobbies. Over time, phone sets are the largest expense in telephony deployment, particularly for large businesses and as small companies grow. Costs vary widely based on the phone set features and sophistication. In the case of a hosted system, you will not only purchase the phone sets, but will pay a monthly service fee per phone in your business. As you grow, this fee can be substantial, and it never goes away.

Customers will invest in cabling for all the phones which need to be plugged in to wall outlets or powered via Power over Ethernet (PoE). Data switches are required for connecting the phones to your local area network (LAN) and powering the phones, and routers are needed to prioritize voice over data and provide a secure connection to your VoIP phone service provider. A VoIP Gateway appliance is used to connect a system to a legacy analog, T1 or ISDN-PRI phone service.

Determining Where Your Data Lives

A key differentiator between hosted and premised-based systems is where the server, and hence the data, for your system resides. In most cases, your Voice Server can be readily housed in your office since it is the size of a PC server or smaller and only requires a normal, air-conditioned office location. Placing it with other company servers is common practice. Customers who house their phone servers on premise can typically provide remote access to their vendors – a requirement often stipulated in a support contract – so that system administration and maintenance can be done either remotely by the vendor or by the customer themselves. 

Hosted solution providers often tout their solution as impervious to catastrophe. It is true that an advantage of a hosted system is that if your office experiences an event that would destroy on-site computer systems, an off-premise system still enables your voice mail to work and calls to be routed elsewhere (e.g. to cell phones) during the emergency. On the other hand, if there is a catastrophe at the location of your hosted facility (for example hosting facilities where natural disasters have taken place) it may have a longer term impact on your business and the many other customers housing their data at the same hosting facility. Support may not be available for some time, even though there is no emergency in your local geography. You will need to wait your turn to get back online as the hosted facility tries to address the needs of dozens, perhaps hundreds of customers. 

Natural disasters may not be the only enemy of businesses that opt for hosted systems. Given the economic uncertainty of so many businesses, a sudden financial breakdown could close a hosting provider without warning and provide you no recourse to recover your server – or worse to retrieve your company data.


Upgrades and Updates

Despite vendors’ intentions and testing precautions, issues frequently occur with updates (fixing bugs) and upgrades (adding new functionality and features). It is wise to be prepared for some level of disruption, particularly when an upgrade is to take place. If your system is hosted, an upgrade is done at the pleasure of and frequency determined by the hosting company and often without notice to the customer. When notice is given, it may be just moments before the action takes place. Here is an example from a phone service vendor received 30 minutes prior to the action:


Planned Date and Time of Work: Start: Sunday, April 17 2011, 10:00 pm CT, End: Sunday, April 17, 2011, 11:59 pm CT.  Estimated time of maintenance: 60 minutes

Location of Maintenance:  DALLAS

Summary Description of Maintenance: Server Maintenance

In an effort to continue to provide you with the best level of quality, service and performance possible, please be advised that emergency Systems Maintenance on has been scheduled…You may experience short periods (two minutes or less) during which calls may need to be redialed.

The warning of possible downtime is, of course, an estimate, and in most cases sufficient to cover any disruption. But sometimes things go wrong, and sometimes these actions take place during office hours. Furthermore, many upgrades are designed to go one way only. If a problem presents itself during a vendor recommended upgrade, you may not have the option to rollback to a known working version of your software. Instead you will painstakingly wait for the vendor to work through the problem until it is solved.

Customers with systems on their own sites have more control in determining when an upgrade is done and how it is backed up, either because they are doing it themselves or they are scheduling a visit from their vendor.

Choosing the Right Solution for Your Business

Hosted solutions can shine for virtual companies, where employees work out of their individual homes and there is no central office. For this business model, a hosted phone system gives the appearance of being one company with extensions, though each rings to a different location. Employees can still transfer calls to each other and provide a cohesive and professional image to their customers. Be advised to proactively assess the quality of internet service at each remote location (especially employees’ homes) as these connections play an integral role in the efficacy of this approach. Basic DSL and cable service frequently do not have sufficient upload speed to handle the demands of VoIP.

In considering a hosted solution, it is important to know what limitations you will encounter. For example, most hosted solutions lack a feature to “record all calls.” The virtual system is complex, with multiple tenants having voice data that needs to be separated for secure access only. So if you need the benefit of call recording for note taking, to capture detailed information or instructions, for training sales or customer service employees, or for just maintaining a record of transactions, you will have more alternatives among premise-based systems.

For companies with a central office or headquarter location, selecting either a hosted solution or a premise-based solution can work. Phone systems should allow secure remote access by your vendor so that troubleshooting tasks can still be handled efficiently by “the experts,” yet you maintain physical control over your company data and assets.

Choosing the right solution may be very specific to a customer’s business model, the critical nature of their data and their security requirements. Where redundancy is key, some customers opt to purchase a server to be housed at their site, and maintain a backup server in a rented host facility. This approach ensures a mechanism for quick recovery after a catastrophic event at one or the other location. In this scenario, the customer still owns both servers.


Financial Considerations

In making your decision to go with a hosted or premised-based system, you must consider the financial implications of each option. The purchase of a server represents a one-time payment (for the life of the server). Your business can grow, and as you add phones you will pay for that additional asset. When you purchase a system, only your phone service costs (internet and trunks) recur monthly. You own this system, and it is a financial asset in your business. If you opt to lease a system, you can pay for it over time (typically 3 years) and own that asset as well.

With a hosted system, you are paying a monthly fee for the use of a telephone system. It is essentially a long-term rental, for the life of using the system. Most businesses keep their phone systems for 7 years or more. During this time you will continue to pay monthly, and every add-on feature is quoted as an additional monthly fee. If you add a phone, you will pay for the phone set hardware and pay a monthly fee to use the phone. 

The breakeven point between hosted and premise-based systems is typically 2 to 3 years, so it is incumbent upon you to do objective total cost of ownership (TCO over 5 years) analysis before you make your decision so that you can be assured that, as your business grows, you are getting the best value for your dollar.

Alternate Access offers hosted, premise-based, and hybrid phone systems. We believe that the best choice is the one that best fits the customer’s communication requirements, operations, structure, and pocketbook. Contact Alternate Access today to help ascertain the best solution for your business model.