Raise Your Voice

Verteks Consulting, a small VAR in Ocala, Fla., that has been selling VoIP since the late '90s, has seen a 30 percent bump in revenue during the past year to $1 million from $600,000, almost all in its VoIP practice.

For Stormwood, a network integrator and Cisco Systems and ShoreTel business partner in Atlanta, VoIP solutions have grown over the past 18 months to more than 50 percent of revenue from less than 20 percent.

And Data Comm Networking, Burr Ridge, Ill., a solution provider with 22 years in telco services, has seen its VoIP business grow to slightly more than half of all new installations. That's up from zero two years ago. "Voice-over-IP is quickly becoming the dominant choice over the traditional TDM [Time Division Multiplexing] system," said Dennis Gorecki, marketing manager at Data Comm.

Solution providers and vendors say that more and more, it's small and midsize businesses plunking down the cash for VoIP applications. Vendors including 3Com, Avaya, Cisco, ShoreTel and Zultys have developed a clear focus on that segment, adopting things such as Web-based training and managed services offerings to help their partners penetrate the market. Zultys, for one, which sells its VoIP handsets exclusively through the channel, said solution providers are the only way to reach smaller prospects.

"We would never have the resources to get to all the small-business customers clamoring for VoIP solutions," said Iain Milnes, president of Zultys, Sunnyvale, Calif.

Many SMB-focused solution providers that have invested in developing their VoIP expertise are now starting to see some real return on that investment.

Stormwood, for example, gets almost all its VoIP sales from companies with 20 or fewer users, said CEO Nate Griffin. He said he first started noticing the small-business appetite for VoIP about two years ago. Griffin said he built his business around serving enterprises with hundreds of users, and then all of a sudden he started to see eight- and 10-user companies opting for IP communications systems rather than traditional TDM, or key, phone systems.

Griffin said he never thought this would happen. Now that it has, he's bullish on the small-business VoIP market. Stormwood has closed about 50 deals with small businesses in the past year and is now ringing them up to the tune of three to four more a week, he said. "I don't expect that to tail off anytime soon," Griffin said.

CRN research supports his claim. In a February poll of 292 solution providers, VoIP ranked second behind only antispam technology as the highest category for sales expectations in the following three months. And the number of solution providers that expect VoIP sales to grow at least 6 percent has risen steadily, to 65 percent in February from 52 percent in August 2004.

Not surprisingly, then, the number of solution providers planning to sell or recommend VoIP systems to their customers also is rising steadily. In February, the number was 28 percent, up from 23 percent in October.

Large corporations still rank VoIP higher as a spending priority than do small businesses, but they are catching up and hold the best promise for future channel sales growth, according to separate end-user research from CRN.

Large companies see VoIP migration as an expensive proposition because of the additional cost of doing a data network upgrade, said Elizabeth Herrell, an analyst at Forrester Research. This means they won't tend to migrate to an IP-based system until they're opening a new facility, or when a system has reached its capacity or equipment has become obsolete. "Essentially, now, the market drivers for the adoption of VoIP are the same as for the adoption of traditional phone systems," said Herrell. So, in the large-business category, where VoIP is competing with all the other IT-spending priorities, she said, they're "pacing themselves to upgrade as needed."

Yet, while larger companies are taking this more gradual approach to VoIP migration, it's not so with small businesses, said Mike Arden, principal analyst at ABI Research. "VoIP is starting to take off strongly on the business side—primarily among small- to medium-size companies—because these are the companies that don't have the installed equipment on a PBX system," he said.

When evaluating VoIP, small companies respond to the cost savings, the added features that produce productivity gains, the ease of use and efficiency of management, and the fact that these systems are upgradable, solution providers and vendors say. "Being more in control of your communications system is certainly a driving factor for a smaller business," said Zultys' Milnes.

Cisco partner DSi recently helped its headquarters city of Greensboro, N.C., implement IP telephony throughout. Now, building inspectors with wireless laptops and IP phones can drive into a city parking lot that is a wireless hot spot, grab their e-mail and phone messages, and upload reports from their cars. "[City officials] were able to cost-justify it because they said the productivity gains were the equivalent of four additional building inspectors," said David Hope, vice president of sales and marketing at DSi, which is expecting to deploy 60 VoIP installations this year vs. 30 last year.

Solution providers say they're seeing adoption among companies where you would expect it—multisite firms with heavy intracompany phone use. But VoIP deployments are finding homes in unlikely places, too. "Seventy-five percent of the new VoIP business we're getting is at single-site implementations," said Don Gulling, CEO of Verteks Consulting.

Solution providers say small-business sales are also much easier to close. Usually, solution providers can make their pitches directly to the decision maker and, consequently, the sales cycle is much shorter. Another attractive thing: the services opportunity. "We've found VoIP to be a very attractive services revenue stream," said DSi's Hope. "The smaller the business, the less likely they are to have anybody on staff to support a VoIP infrastructure, so we're doing that."

Solution providers say services associated with VoIP include network assessments, implementation services, training for users and administrators, and maintenance and support plans. "That's where all the money is," Gulling said.

The reason for that is very simple, said Forrester Research's Herrell. "Voice is not just another application on the network," she said, "it's a very complex application on the network."

The big trend that vendors and solution providers foresee this year is a push toward industry-specific applications. Financial services, insurance, health care, legal, retail and education are verticals where this group believes inroads will be made this year. "The next phase we're starting to see is a vertical market build-out," said Mack Leathurby, solutions director of enterprise communications at Avaya, Basking Ridge, N.J.

Last month, 3Com released an education module for K-12 schools that performs functions such as absentee notification—it dials out to parents to let them know their child hasn't arrived at school. "They need to have that information to get the funding they need," said Mike Leo, manager of convergence marketing at 3Com, Marlborough, Mass. The system also has an emergency function that starts recording a conversation automatically when anyone from the school dials 911.

Another area of growth will be in mobile computing, said Steve Timmerman, vice president of marketing at ShoreTel, Sunnyvale. "The whole tie with mobility will be a great theme this year," he said.

For example, Leathurby said an Avaya partner had worked with an insurance company to tie its mobile workers back to the main office to enable quicker claims settlement. "Where VoIP has a very strong future is integrating into business processes and business transformation," he said.