The State of North American Business Customer Adoption of IPT and VOIPThe State of North American Business Customer Adoption of IPT and VOIP
Suppliers and service providers hold the key to stimulating enterprise customer adoption of CPE and Hosted systems
April 1, 2008
In 2007, North American enterprises continued to deploy many VOIP technologies and services, but in many cases overall year-over-year growth was modest, as was use of managed VOIP and IPT services. Although many business users anticipate tremendous growth in deployments of IP telephony, VOIP and IP videoconferencing over the next two to three years, a number of critical inhibitors could delay migration.
Solutions to some of these problems lie in the hands of customers themselves, but many more are the responsibility of suppliers and providers. In addition to ever-present considerations like standards, these include challenges that business customers face with reliability, the complexity of migrating from legacy services and technology, and the lack of a consistently robust feature set. Finally, many companies are also still struggling with the complexities of the business case – enterprises would move faster if the migration process was simpler and didn’t require such a high level of customization.
SPENDING ON VOICE TECHNOLOGY AND SERVICES CONTINUES TO SHIFT
In 2007, 15% of North American enterprise IT budgets were devoted to network and telecommunications services. To continue refining its understanding of enterprise market adoption of IP Telephony (IPT) technology and VOIP services, Forrester surveyed 715 network and telecommunications decision-makers at North American enterprises and found that 31% of their telecommunications services budgets were earmarked for landline voice. Although 22% of those surveyed planned to increase spending on legacy voice technology and services in 2007, almost three times as many -- 63% -- planned to increase spending on IPT and VOIP.
Throughout this article, readers will note that IPT, VOIP and IP videoconferencing spending and adoption trends often vary by industry. Interest in migrating to IPT and VOIP is a case in point. Nineteen percent of North American enterprises said that migrating to IPT and VOIP was a critical priority in 2007. But many industries exceeded the North American enterprise average – including primary producers, professional services, utilities, government, transportation and logistics, and construction and engineering. Interest also varied by size—here terminology can be important: in this survey Forrester categorized “large enterprises” as those which employ 1,000-4,999 employees; ‘very large enterprises’ are those which employ 5,000-19,999 employees; the ‘Global 2000’ are companies that employ 20,000 or more people. Interest or use often correlates directly, or inversely, with size, depending on the technology. These trends are examined in the sections that follow.
IP PBX AND HOSTED VOIP ADOPTION TRENDS
Compared to 2006, spending on IP telephony and deployment rates rose. In the 2007 survey we also learned that:
Enterprise IPT spending levels have increased. In 2007, 63 % of North American enterprise budgets included increases in year-over-year spending on IP PBXs and hosted IPT, compared with 52% in 2006. Fifty-three percent of large enterprises said they’d increase spending in 2007, as did 73% of Global 2000 enterprises. Utilities are also heavy spenders-- 82% of enterprises in this industry reported that their budgets for IP telephony grew in 2007.
Enterprise deployments are inversely related to company size. Twenty three percent of North American enterprises had deployed IP PBXs, up from 14% a year earlier. Enterprise deployment of hosted VOIP has almost tripled --from 3% in 2006 to 8% in 2007. Given the challenges of funding and managing multi-site installations, current deployment levels of both IP PBXs and hosted VOIP decrease as company size increases. However, this is a timing issue, since the percentage of companies which are in the process of rolling out both technologies increases with size. Planned migrations for both IP PBXs and hosted VOIP are remarkably consistent—with the biggest jumps in adoption occurring between 2007 and 2009 (see Figure 1).
FIGURE 1: Adoption Of And Interest In IP PBX And Hosted VoIP Varies With Size
“At what stage is your company in the adoption of IP PBX and hosted VoIP?”
(percentages may not total 100 because of rounding)
Base: 348 technology decision-makers at North American enterprises
Source: Forrester Research Enterprise Network And Telecommunications Survey, North America And Europe, Q1 2007By industry, business services and financial services are the heaviest adopters. North American enterprises in the business services and finance and insurance sectors have most aggressively deployed IP telephony to-date; companies in the public sector and media, entertainment and leisure sectors will be in the next wave of IP PBX adopters. Manufacturers and public sector organizations have been the biggest adopters of hosted VOIP, and companies in the finance and insurance organizations are currently most aggressively rolling out this service. Retail/wholesalers are evaluating and piloting both types of IPT solutions, and are closely followed by organizations in the public sector (see Figure 2).
FIGURE 2: Enterprise Adoption Of And Interest In IP PBXs and Hosted VOIP Varies By Industry
Figure 2a “At what stage is your company in the adoption of IP PBX?”
Figure 2b: “At what stage is your company in the adoption of hosted VoIP and site-to-site WAN VoIP?”
Base: 348 technology decision-makers at North American enterprises
Source: Forrester Research Enterprise Network And Telecommunications Survey, North America And Europe, Q1 2007Enterprise use of managed IPT services is steady. By definition, companies which use hosted VOIP are using a managed IPT service. Another 5% said they were ‘very interested’ in this type of approach, and 24% were ‘somewhat interested’. Current use, and interest in using managed IPT services, increase with company size, and thus also closely correlates with the number of locations to be managed—the greater the number of sites, the higher the interest in a managed IPT service. Companies in the manufacturing and media, entertainment and leisure industries are the greatest users of managed IPT services today. Retail/wholesalers and companies in the media, entertainment and leisure industries also are “very interested” in using managed IPT services in the future.
WAN VOIP ADOPTION TRENDS
WAN VOIP deployments vary by size and are consistent with a number of the trends we’ve seen with IP telephony. Since most companies that employ IP videoconferencing do so to facilitate collaboration between employees who are not co-located, it is fitting that its adoption trends closely correlate with WAN VOIP. Specifically, in this survey we learned that:
Enterprise VOIP spending levels are unchanged. In 2007, 47% of North American enterprises planned to increase their year-over-year spending on WAN VOIP services— consistent with 2006’s spending levels. Planned spending increases with company size-- 41% of large enterprises said they’d increase spending, as would 49% of Global 200 companies. The biggest spenders are companies in the manufacturing and retail/wholesale industries – in each case, more than 50% of the companies in each sector planed to increase spending on VOIP.
Enterprise deployments correlate with size. Compared to the North American average of 17%, current and near-term WAN VOIP deployments increase with size. For instance, 22% of large businesses were in the process of rolling out VOIP, compared with 28% of Global 200 companies. On IP videoconferencing, the sense of urgency increases with size—5% of large businesses and 11% of Global 2000 companies said implementation of IP videoconferencing was a critical priority in 2007. Twenty percent of North American enterprises have deployed IP videoconferencing; most importantly, current or planned use of this technology consistently increases with company size. (see Figure 3)
FIGURE 3: Adoption Of And Interest In Site-To-Site WAN VoIP and IP VideoConferencing Increases With Size
(percentages may not total 100 because of rounding)
Base: 348 technology decision-makers at North American enterprises
Source: Forrester Research Enterprise Network And Telecommunications Survey, North America And Europe, Q1 2007Manufacturing and business services firms are strong WAN VOIP adopters. Different industries have greater prominence at each stage of adoption—as for current adopters, companies in the manufacturing and business services sectors exceed the North American average. Companies in the utilities and finance and insurance sectors outpace their peers in rolling out this service. And enterprises in the retail/wholesale and finance and insurance sectors are most aggressively evaluating WAN VOIP. (see Figure 4)
FIGURE 4: Enterprise Adoption Of/Interest In Hosted VoIP/Site-To-Site WAN VoIP Varies By Industry
“At what stage is your company in the adoption of hosted VoIP and site-to-site WAN VoIP?”
Figure 4a: HOSTED VOIP
Figure 4b: SITE-TO-SITE VOIP
Base: 348 technology decision-makers at North American enterprises
Source: Forrester Research Enterprise Network And Telecommunications Survey, North America And Europe, Q1 2007Financial services, utilities and the public sector lead IP videoconferencing adoption. Among North American enterprises, companies in the finance and insurance sector are the greatest current adopters, and those in the public sector are most aggressive in rolling out this technology.
Use of managed VOIP services is unchanged from 2006. Overall year-over-year adoption trends were flat; 2007’s levels are consistent with IPT CPE—6% of North American enterprises already use managed VOIP services, 8% were ‘very interested’ and 25% were ‘somewhat interested’. As for current users, size doesn‘t matter, but industry does—with 12% of manufacturers and 11% of utilities as the heaviest current users. For those who indicated they were ‘very interested’ in using managed VOIP services, companies in the media, utilities, and finance and insurance sectors express the most interest—at 11%, 14% and 13% respectively.
INHIBITORS TO CONTINUED ADOPTION
Although adoption of IPT and VOIP technologies and services continues, organizations aren’t yet sold on their complete migration off of legacy voice systems and services. For instance, 23% of North American enterprises said they have “no plans” to use IP PBXs, and 45% had no intention of using IP videoconferencing. Only 42% of the companies who said they were interested in VOIP provided a timeframe for their migration to hosted VOIP services and 53% could do the same for WAN VOIP services (see Figure 5).
FIGURE 5: Planned North American Enterprise Migration To Select VoIP Technologies And Services
“In what year do you anticipate completing your company’s migration to each of the following technologies?”
Base: 348 technology decision-makers at North American enterprises
Source: Forrester Research Enterprise Network And Telecommunications Survey, North America And Europe, Q1 2007WHAT CAN SUPPLIERS DO TO IMPROVE CUSTOMER RECEPTIVITY?
Factors Impeding North American Enterprise Adoption of IPT and VOIPUneven adoption levels of new services technologies are quite normal. However, in the case of managed IP telephony and WAN VOIP services, providers could do a great deal to lower barriers to adoption. Some of the most important current inhibitors for enterprises include:
The math can be challenging. Companies that had assumed an easy back-of-the-envelope ROI for either IPT or WAN VOIP find that it’s not a slam dunk. According to our research, the payback window for IP PBXs typically ranges between 24 and 60 months. Since Hosted VOIP or managed IPT services can avoid many capital expenses, the window shrinks appreciably—which can provide them with a distinct financial advantage compared to owning IP PBXs. However, as we’ve seen, overall enterprise interest in managed and hosted IP telephony services lags considerably behind use of other managed network services, such as managed MPLS –which has a 35% adoption rate in North America. It’s entirely possible this reflects lingering enterprise customer perceptions about legacy Centrex services—whose capabilities distinctly lagged those of major brands of digital PBXs. Many service providers have done very little to-date to fully disprove the same problems won’t apply to IP Centrex. And on WAN VOIP, the business case is still much easier for international calls than it is for domestic calls.
Managed IP telephony offers are immature. Like many other managed service providers, not all facilities-based telecommunications services providers support the same IP PBX manufacturers, so choice is limited. More importantly, carrier support for inter-vendor feature interoperability is extremely limited. Current capabilities of hosted VOIP services are comparatively limited to those of IP PBXs. And providers are slow to deploy important new hosted VOIP features, such as 2G (cellular) extensions. SLAs are often very limited in scope – they are far from reassuring to a company seeking to outsource voice desktop functionality.
WAN VOIP offers are immature. SIP trunking services are very new---so new that many providers have yet to deploy standard backup and overflow capabilities. PSTN feature parity typically is lacking; SLAs are reactive and often focus on data-performance metrics. IP toll free services are also quite new, and many providers have yet to introduce complementary capabilities, like network-based IP ACDs or IP IVRs. Most companies have never used managed PSTN services, and so they often fail to appreciate the value of using managed WAN VOIP services until they are well into trying to deploy this service on top of their MPLS networks. As already seen, adoption of IP videoconferencing is in lock-step with WAN VOIP; customers will evaluate this technology more closely as their WAN VOIP deployments proceed.
Migration is prolonged. At this time, migration to IPT and VOIP is highly customized—it all starts with the legacy products, services and infrastructure currently in place. Each migration plan uses this as its foundation. Although customers prefer incremental change, upgrading legacy infrastructure, products and services are very great challenges. But suppliers have yet to offer meaningful alternatives to this type of approach.
Converged networks require converged organizations. VOIP suppliers aren’t the only inhibitors to adoption—enterprises themselves can also stand in their own way. Inside an enterprise, employees who have different types of network expertise, such as voice versus data or LAN versus WAN, often reside in different organizations. Some may report to the CIO’s organization, while others may report to the CFO’s organization. But the nature of VoIP deployments and convergence requires that these groups all work seamlessly together — permanently. Often, companies find the optimal way to accomplish this is to reorganize. Such significant change takes time to identify, appreciate, accomplish, and then move forward with key VoIP and other convergence initiatives.
PROVIDERS CAN BE KEY ENABLERS OF GROWTH
Among the range of activities that providers should consider to stimulate adoption, I strongly recommend that they
Improve VOIP reliability, and stand behind it. The SLAs for PSTN service are implicit—the price of a call is refunded if the call attempt is blocked, terminated prematurely, or of poor quality. No major facilities-based provider offers aggressive, easy to understand and measureable per-call VOIP SLAs. Compared to these woefully inadequate SLAs, SLAs for carrier-managed IPT and hosted VOIP services are even worse. No wonder customers are leery. If suppliers put themselves in customers’ shoes, they would be too.
Recognize the reality of company budgets and appetites. Companies don’t have unlimited resources to throw at IT or network projects. They have priorities, and often take a phased approach to implementing VOIP and IPT. Today, many companies worry about the effects of a recession, so an effective VOIP migration strategy may even require additional phases – or other types of remedies (see below).
Make migration less painful than it is today. At the very least, suppliers should give companies a choice between an extremely protracted process that is highly incremental and makes the greatest use of the company’s current infrastructure, or one that is much faster, and gets the pain over with much sooner. It’s possible that since productivity benefits also will accrue faster with the second approach, it could yield the greatest ROI.
Target early users inside of larger organizations. Providers should supply companies with modular solutions that make use of hosted or managed services that are highly reliable, affordable and which provide key features and functions that revolutionize their departments. To borrow a phrase—“nothing succeeds like success”.
Lisa Pierce, a Vice President at Forrester Research, specializes in enterprise-class fixed and mobile telecommunications services.
