VoIP: Answering the Call

The early chapters of the history of Nexus Integration Services (IS) read like a well-thumbed tale of a company struggling to find its way in IT's vast, unfriendly landscape.

Once known as COM-AID, an NEC voice and data solutions integrator in the mid-1980s, the Valencia, Calif.-based solution provider was bought and sold twice before relaunching in January 2004 under the Nexus IS name. Like many channel companies, Nexus IS has survived by reinventing itself around new technologies and emerging markets. This time, however, Nexus IS is doing a bit better than merely hanging on. The reason? Nexus IS answered the alluring call of Voice over IP (VoIP) technology.

In just one year, Nexus generated roughly $47 million in revenue. That is expected to grow by 90 percent to 100 percent this year--and as much as 200 percent in some key areas. Head count, meantime, has climbed to 260 employees from 140, and more people are being added every week in sales, integration and implementation.

VoIP accounts for this impressive turnaround--in particular, the emergence of affordable solutions that actually work as promised. Thanks to these and some fortuitous market timing, the future is looking bright for Nexus IS and a raft of companies like it.

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"Pretty much anyone is a candidate for VoIP these days, and a large majority of our revenue growth is due to that," says Nexus IS CEO Jon Jensen. Since the third quarter of last year, he says a paradigm shift has taken place in the hearts and minds of customers, who now understand the benefits of VoIP and its potential to improve customer service. Many customers, he notes, are starting to make decisions to replace entire networks because they see the huge ROI they can achieve with VoIP.

But before VARs far and wide begin to scrap or expand their business models to get into technology's latest land rush, they would be wise to learn some of the hard-fought lessons of the VoIP pioneers. While there are plenty of potential customers for VoIP, not everyone is cut out to sell it.

Timing Is Everything

Not since the emergence of security solutions a few years ago has the industry held such uniformly enthusiastic hopes that a single technology category might trigger an overall spending boom. The numbers are all but unanimous: No matter who's doing the measuring, sales of VoIP equipment, applications and services all are heading into the "hockey stick" phase of their adoption curve. Suffice to say, they are expected to spike dramatically between now and the end of the decade. (See "Voice-Centric Vs. Data-Centric").

Several reasons explain why. On one hand, the technology is maturing, improving and coming down in price. But what's turning this from a mere upturn into a potential boom is the serendipitous turn of the IT spending cycle. Phone systems bought several years ago during the last boom cycle now need to be upgraded. And in many instances, the best choice may be VoIP.

"The average life span of phone systems, depending on the vendor and the size of the system, is seven to 11 years," says Jeff Snyder, vice president and chief analyst at Gartner. "There were a lot of PBXs that normally would have been replaced, but instead they got upgraded for the North American Numbering Plan in 1996 [when the FCC changed area-code formats], and then again during the Y2K situation. Then the recession came along."

Now the old-style phones have maxed out their capabilities just as VoIP technology is hitting its stride. "The change rate from digital to IP telephony is about double the speed of the analog-to-digital conversion," says Edison Peres, vice president of advanced and core technologies for Cisco's worldwide channels organization. "People are ready to upgrade, and they're revisiting their PBX, security and data networks because they're seeing that they have a chance to make a decision about everything at once."

They're able to do so because the technologies have finally come together and begun to deliver on the voice and data convergence that has been promised for many years. "If I had a company with 200 employees and was planning to buy a new phone system, I'd have to look at something IP-based," says Nicky Smith, president and CEO of Carolinanet.com, a Web-hosting and systems-integration company in Greensboro, N.C. "This won't be just Fortune 500 companies buying it; smaller companies can buy or lease a switch, put it in their data centers and run applications like conference calling, integrating their Web to their phones and integrating things like Outlook."

That's not to say that a year or so from now, TDM phones will be a distant memory--despite what many VoIP vendors would love to have you believe.

"We don't expect the world to suddenly swap over to IP in 2005," Snyder says. "What we do believe is this year a large number of people are taking it seriously. The majority of large companies, and an awfully large percentage of medium-sized companies, as well, are no longer just thinking about IP, but they're actually deploying it in pilot, testing it with an eye toward what it can do for them. But a lot of companies are limiting their exposure on the new systems until they really have it solid to minimize disruption, because this really is a disruptive technology."

In Search of the Killer App

As with any hot technology, VoIP has its rabid fans, naysayers and those who are still unsure about it. Many voice and data VARs have yet to commit to selling it, but those on the fence should take note: Though the VoIP market's upward curve is just beginning, time is running out to establish yourself in this field. "If a reseller wants to get into this market at the SMB level, I wouldn't wait two years; now is the right time," says John Poncy, director of product management for VoIP vendor Avaya. "In the enterprise, it's definitely too late to get in."

Nexus IS is an enterprise-focused VoIP reseller that got in at the right time. A Cisco partner, the company has found itself competing against a lot of large service providers. But CEO Jensen says he's unfazed by his competitors' size. "They still do a lot of box pushing; they deliver basic services but are more interested in just locking up circuits long term," he says. "The enterprise VoIP sector has a very expensive cost of entry; you need a deep team of talented people to get to this level and sustain it."

What Nexus IS adds is the flexibility and personal touch of a smaller service provider with the broad level of expertise of a larger one. "The challenge is that it's not a cookie-cutter approach to each network, but we have experts who can step in on the front end and show a company what it needs to do," Jensen says. "As a systems integrator and services company, we have to design and implement the network, but also take care of ongoing needs, just like in the TDM world. The clients still require things like mission-critical monitoring, for us to dispatch technicians to the site if they need support."

All the sector's observers agree that a strong channel presence is crucial to getting companies comfortable with installing and maximizing VoIP's potential, regardless of the size of the client. "Customers may want to have a relationship with the vendor who made the products, but at the end of the day, they're depending on their VARs," says Saied Seghatoleslamai, vice president of strategy for Avaya's SMB group. "Resellers have a big influence in this space because of it."

One of the primary tasks for resellers is helping their clients understand the applications that make VoIP so appealing. The VoIP sector is much like the early-adopter days of wireless or Linux in that it's at the phase where application and tools developers are trying to come up with what they hope will be the killer app that vaults them into the limelight and cements the technology's place in the infrastructure. So far, those efforts have resulted in the new phones themselves, and applications for things such as unified voicemail and e-mail, call centers, voice and video conferencing, and the integration of remote offices or workers with the rest of their organizations.

None of these are the types of innovation that, by themselves, will make a customer rush out to buy a VoIP-enabled network, but they're all part of a broader shift toward giving businesses a different way of communicating. "Things like customized call-center applications are very expensive and time-consuming, and are much easier when you've got them all working on the same network," Gartner's Snyder says. "We are beginning to see some of these applications coming through. That's of benefit because immediately you can see small improvements in productivity, efficiencies in getting people to communicate together."

But he says the applications themselves aren't a huge selling point. "You can set up ad-hoc conferencing, which means bridge numbers are no longer necessary, and conferencing services can be expensive," Snyder says. "So that in itself is interesting--it's kind of cool--but it's not going to rock your world; it's not a killer application. And for a majority of enterprises, we don't see killer applications anywhere. What we do see is the emergence of a killer environment. Some of these types of applications give you the ability to see lots of incremental improvement in your productivity and your efficiency supporting other business initiatives. And that's where the true value of IP telephony is going to emerge."

Selling the Client on VoIP

As any VAR knows, fuzzy promises of long-term productivity gains are not the best way to land a sale, especially when the technology in question requires a substantial up-front cost. But that's one of the real selling propositions of VoIP. Contrast that to selling security, which was aided by the immediate threat of high-profile viruses and worm attacks, and you begin to appreciate the subtleties involved in selling this technology. Unlike security, there is no pressing motivation like a virus or worm to make people realize that as painful as the security-installation costs were, they paled in comparison to the effects a successful cyberattack would have on their business.

Thus, the VoIP reseller's job is more onerous than merely convincing potential customers that the new technology solves a problem they're not sure they have. Emphasizing productivity gains that can be achieved through the adoption of VoIP can help, but only so much. That is especially true in the SMB space, where the person making the purchasing decisions also often doubles as the boss and almost always lacks the budget of his or her enterprise counterparts.

"When you're talking about how much more productive VoIP will make you, it's hard to put a dollar amount on that," says Sean Kelley, vice president of IP communications for CBE Technologies, a services provider in Boston. "I'm not getting any customer pushback on VoIP anymore, but I need to focus on where I can sell hard-dollar ROI. It's tough to sell soft-dollar ROI to a CFO, but if I can get the right combination of technologies to get a VoIP system to pay for itself in under three years on a five-year lease, I'm a hero."

VARs might also find that they can play on a customer's competitive sense when trying to convince them of the wisdom of adopting VoIP. "There are so many compelling reasons to adopt this right now that few people have any questions about whether they should implement it," Jensen says. "When a customer begins to see the benefits of it from day one, it forces everyone in that company's vertical sector to make the investment themselves."

Jensen and other VARs have reported offering potential clients free trial programs to let them see how VoIP can improve their business processes. "We've done some very small implementations in the noncore part of a client's business," Jensen says. "There's no real benefit for us, but we let them play with it for six months so they can see how it improves their business."

Carolinanet.com occasionally does something similar on a smaller scale. "For some of our customers, we'll plug in a phone and let them make calls on it for a week," Smith says. "Once they see that it's nationwide and it really does work, that usually gets them over the hurdle."

Striking a Balance

The key element for any VAR getting into the VoIP space is expertise. One of the primary debates about the newly converged sector is whether it's tougher for resellers with a voice background to ramp up their data-networking skills or vice versa. John Combs, CEO of VoIP vendor ShoreTel, says both groups bring something to the table. "For every 10 channel partners we sign up that have a voice background, eight or nine are successful; for every 10 with a data background, six or seven are successful. But the data partners drive a lot more business," he says. Why the disparity? "VoIP is a lot more about voice technology than data, but the data folks bring a lot more aggressiveness in growing their business," he says.

Either way, the balance is crucial to a smooth-running VoIP installation. "The real danger point in deploying IP is in the implementation teams; the team deploying your system has to be really capable of delivering a good strategy for reliability and security and have an appreciation for the user experience--managing quality of service, delivering dial-tone and handling real-time communications from non-real-time applications," Gartner's Snyder says. "Most of Cisco's channels are very much data-oriented, which means they speak the language very well to networking engineers, but what they historically have not been able to do is speak to the voice side of the house or understand how voice differs form data. That is [why] failed Cisco sales have often been the result of poor implementation teams, more so than shortcomings in the product."

As a Cisco reseller, Jensen's task as Nexus IS got into VoIP was to build up both sides of the company's skillsets, something he says the company's convergence-oriented background helped make easier. "In the old days, a lot of companies in our business were box pushers, but that eventually [became] a commodity," he says. "If you want longevity, you have to be in a position to hire the best talent, because if you know it better than anyone else, you can continue to differentiate yourself."

Combs agrees, saying that the best path to that is through bringing in the right people rather than relying solely on the retraining of existing personnel. "Of the 60 partners we've added since last year, about 50 had prior PBX experience--top-performing companies with established businesses that had gotten into VoIP," he says. "The key difference to making a change to a new industry is hiring people who have experience servicing and selling the product."

A significant part of a VAR's decision to pursue the VoIP market has to do with which vendors to partner with on the technology. Should it be Cisco--a large vendor with a data background and a one-stop-shop plan for its converged networks--or a platform-agnostic telephony vendor like Avaya or Nortel? Or maybe an up-and-coming niche vendor, such as Nuvio or ShoreTel, is the answer.

CBE Technologies partners with both Cisco and 3Com on VoIP, choosing one over the other based on which one seems like the best fit. "We work with a lot of Cisco bigots with Cisco infrastructures, so that makes them the easy choice, but when you're looking for a system for fewer than 400 seats that's easy to manage and has a good price/performance ratio, I lean toward 3Com," Kelley says.

Carolinanet.com has chosen the niche route, partnering with Overland Park, Kan.-based Nuvio for VoIP clients as diverse as a newspaper, a consulting company and a network for court reporters. "Cisco wants to sell you metal, but I want to buy a service," CEO Smith says. "Nuvio is using its own switch technology that it developed from open-source code to go after the guy who wants to hook up six to 30 phones."

No matter how promising the VoIP market is, it won't amount to a hill of beans for resellers who make hasty or ill-informed partner choices. Regardless of whether a VAR chooses to go big or go niche when it selects a partner, ShoreTel's Combs says his advice is always the same: "You have to figure out what your investment will be in terms of things like training, certification and how much inventory you'll have to carry. And you'll have to focus on the success of customers who already have the product, which is crucial but often overlooked," he says. "But above all, you have to sell a product you believe in."

With additional reporting by Jeffrey Schwartz