Software as a Service – a Phone.com opinion

Check out this blog link to read Ari Rabbans guest opinion feature on IPConvergencetc.com, Edited by Jon Arnold.

We wrote about SaaS and telephony in the past as well and expect this trend to grow much more in the years to come.
For your viewing pleasure, the review is also posted below:

or all the acronyms we are used to in the VoIP industry, the term SaaS, or Software as a Service is not one I heard much over the years. This term was used much more for other data and software products:

From Wikipedia : “… where an application is hosted as a service provided to customers across the Internet. By eliminating the need to install and run the application on the customers own computer, SaaS alleviates the customers burden of software maintenance, ongoing operation, and support. Conversely, customers relinquish control over software versions or changing requirements; moreover, costs to use the service become a continuous expense, rather than a single expense at time of purchase.”

We all know the market for business phone solutions and especially VoIP based solutions (is there anything else these days?) is very crowded. Solutions run from large IP-PBXs to hybrid solutions to hosted PBX (does anyone use the term IP Centrex anymore?) to open source based solutions.

However, we now see more business phone systems / solutions that are tailored as SaaS. These are solutions that work best for the SOHO (or VSB – Very Small Business) market, which represents the largest business segment in the U.S. (and after the last US Presidential primaries debate everyone know about Joe the Plumber and Sal the attorney). There are over 7 million home-based businesses in the U.S. and over 550K new business formations each month.

Truth is, most of the phone solutions out there are not designed with this segment in mind, and if anything they are an after-thought. Entrepreneurs who run a small business typically do not rent office space and do not buy business phone systems. They rely on their home phone, home office phone and their mobile phone. More and more are enjoying the benefits of smart phones but these are still just cell phones – they are not telephony systems.

Whether the business is a one-person operation or a business with 2 – 3 partners, each employee/partner/member relies on their own phone/s. This is where a SaaS solution comes into play, and prior to VoIP, such solutions were not possible.

Companies like ours can now offer this underserved market solutions that allow them to appear much more professional, and present themselves as a business larger than what they really are. More importantly, the actual productivity and value they can get from their phone service increases. Never before could a VSB have a number that would be given out as the main business number and serve all employees of the business. They could not have a recorded greeting welcoming clients and customers to their business and directing them to the right extension – just as larger businesses do with a PBX.

Furthermore, with VoIP and SaaS, VSBs end up “building” a complete PBX-like service directly from their control panel. Once online – using any browser – they can set up features and easily update, or change any aspect of their set up, such as adding extensions, adding greetings, caller ID-based routing, etc.

Most IP-PBXs or hosted PBXs let businesses add (IP) phones easily, set them up at a home for telecommuting, keep the same area code for home office locations, and even integrate with other data solutions. However, the associated price points and IT requirements are simply not for Joe the Plumber.

Let’s come back to SaaS. When you already have a home phone (or get VoIP for a business line at home) plus a cell phone, and you sign up for a SaaS based virtual office phone service, you can enjoy all of these and much more for a fee that a VSB can easily relate to.

Mobility is a word we like to use a lot. Again, the ability to serve the VSB market with tools that bigger business can enjoy is a challenge. Yes you can get a Blackberry server to synch your email, but that is a point solution. When it comes to the need to be reached and transfer calls between 2 or 3 partners or employees of this small business, what do we do then? How do we help synch up everyone? SaaS solutions can do that.

Two issues that always come up for those offering new communications services are: 1) reliability and scalability and 2) how do we make money? The latter is very much tied to cannibalization for incumbent service providers.

This past decade has shown us that when a solution has value it will find its way to the market. For incumbents, SaaS really helps them address a new market, and provide value where they could not do so previously. With VSBs, there is little business to cannibalize in the first place, and SaaS simply creates new revenue opportunities and a better way to retain these customers.

Regarding scalability and reliability, VoIP solutions are becoming mainstream and are far more“carrier grade” than the recent past. Many of the stigmas from VoIP’s early days are long gone, and technology has now become well established for both enterprise and SMB use.

So what about the business models? First, the solution must bring value, and this is what I tried to demonstrate above: for VSBs, SaaS brings just that. Second, it must be priced right. The free model has proven itself in some cases (Skype) but also proved the opposite in so many other examples. Non “phone call/PSTN”-related Web2.0 (and also 1.0) solutions have such lower costs, where free-plus advertisements can work – at least to get to an exit if you are a VC -backed company. However, the cost of terminating minutes and offering “real” phone services require much more creativity, especially if there are no subscriber fees associated with the service.

There are ways of promoting these services, such as offering free applications that are ad-supported or promoted through bundles, and this is part of the market companies like ours are addressing today. These are services that larger carriers can partner with smaller solutions providers, and be quicker to market than they could do on their own. Furthermore, larger carriers can offer these services directly to VSBs, or co-brand them on a partner basis if the partner has an established brand.

To conclude, the SaaS model for VoIP is still evolving, but new applications are coming up that allow VSBs to do so many things they could not have done in the past. The market opportunity is significant, and SaaS provides a flexible solution that can be tailored not just for VSBs as a category, but even for vertical sub-markets within this space. Since SaaS does not require costly or complex infrastructure to support, the economics are attractive, making it a viable solution for any service provider, regardless of size of type.