September 15, 2006 -- The difficulty buying Voice-over-IP (VoIP) for small and medium businesses (SMBs) in the U.S. hasn't dampened enthusiasm for the technology, but neither has it compelled providers to get better connected with buyers in this lucrative market, according to new research from telecommunications consulting firm Savatar.
According to the firm, while the SMB market is showing some growth - 17 percent of SMBs out of 560 companies surveyed have deployed VoIP, versus 15 percent in Q1 2006 and 12 percent in Q3 2005 - for those who haven't yet made the jump to VoIP, there is confusion about what solution to buy and from whom to buy it. Seventy percent of SMB decision makers are still unclear where to turn for the best VoIP options, according to the analysis.
"Providers are still not generating demand for VoIP with SMBs," says John Macario, president of Savatar. "Providers have a 'wait and see' attitude coupled with a quote process that takes more than a month, and that's not helping them capture the market. SMBs need to be educated about the benefits of VoIP; they'll buy from the provider that can help them make the decision on products that are economically advantageous for the SMB's business."
Macario continues, "The good news is once SMBs are converted, they tend to be highly satisfied with VoIP, would recommend it to their peers, and are interested in buying complementary services, such as wireless."
Non-traditional providers winning SMB VoIP mindshare and market share
According to the report, when SMBs were asked, "Whom do you think of as a business VoIP provider?" non-traditional telecos (up 9 percent), cable companies (up 5 percent) and ISPs (up 4 percent) showed the most growth from Q1 to Q3 2006. Wireless companies, mentioned by 9 percent of SMBs, made the survey for the first time. "No one" dropped 4 percent (from 15 percent in Q1 2006), but still comprised 11 percent of the market, one percentage point higher than traditional telcos at 10 percent.
SMBs still have no preference for a particular VoIP service provider. VARs, typically authorized partners of one of the equipment companies like Cisco Systems or Nortel, were cited by 38 percent of the respondents. Non-traditional telecos, such as Cbeyond, accounted for 19 percent of purchases. No other type of provider, including incumbent telcos or ISPs, came close to these numbers.
Economics reigns for buyers and those mulling it over
Savatar reports that, as in its four prior studies conducted over the past 18 months, SMBs have made their preferences clear: they want lower total cost of ownership (TCO), lower monthly recurring costs (MRC), and better system management from their VoIP systems. Sixty-nine percent say that economic factors (TCO and MRC) are the most critical element of their decision-making process.
"Buyers know exactly what they care about, and it's not the features that everyone wants to talk about. Providers need to drive the economic and systems management messages home," contends Macario.
Selling to the SMB: capitalize on satisfaction; up-sell complementary services
The firm concludes that providers have an opportunity to capitalize on the high satisfaction of SMB VoIP customers by establishing referential accounts and case studies. Once deployed, SMBs recommend VoIP at a high rate. Sixty-nine percent of those surveyed said they would highly recommend the technology, and 22 percent said they would recommend it.
In addition, providers have follow-on sales opportunities with SMBs, especially for services like wireless. Fifty-three percent of those who have deployed VoIP want to buy wireless from their VoIP provider, and 43 percent of those who haven't yet deployed it, said they would purchase wireless from their VoIP provider. SMBs are interested in consolidating their telecommunications spending, but providers should move cautiously, says the firm.
"While the fixed mobile convergence feature set is maturing, the market is not yet there, and providers aren't yet skilled at selling basic VoIP products," notes Macario. "Trying to sell services based on the latest market buzz is like the computer industry trying to sell the latest and greatest processor when the operating system still crashes. Providers should focus on developing the SMB VoIP market first, and then up-selling their customers on useful enhancements like wireless."
"This research underscores that the SMB market is a compelling opportunity for Level 3's business partners," comments Myrle McNeal, senior vice president of voice markets for Level 3's wholesale markets group. "Our sponsorship of this study is an important part of our continuing efforts to identify actions to help our customers capitalize on the SMB opportunity."