Small Business VoIP: Get Ready To Rumble!

Updated: September 18, 2006

Silly headlines aside, a small war is about to break out in the small business VoIP space. Up to now, VoIP has been sold and promoted aggressively to residential users and enterprises , and the action has been quieter in the small and midsize business market. That is about to change.

At the Fall VON show last week in Boston, VoIP News met with tens of VoIP companies and service providers. Approximately half of these companies were announcing or planning an aggressive move into the small and midsize business market (SMB) in the coming year. A few were even essentially betting the future of their companies on this move.

The SMB market is already a big market for companies like Aptela , Covad , Speakeasy , Pingtel , Digium and many more. But even these companies expect to see growth in this market. As Charles Hoffman, president and CEO of Covad said to us, "We welcome it - our real competition is AT&T and Verizon - the more [other VoIP providers] get into [the SMB market] the more the market grows for us as well."

The sweet spot for this market seems to be in the 10- to 100-employee range. The majority of the companies already in the market are targeting this group and the same is true of the new companies entering the space. Some, like 8x8, parent company of Packet8, are moving up from the residential arena. 8x8 is primarily targeting the lower end of the market but is expecting this portion of its business to grow very rapidly - and since its margins here are better than in the cutthroat residential VoIP market, it makes perfect sense for its basic small-business hosted VoIP service. 8x8's hosted business solution, called Virtual Office, is currently 20 percent of its total subscriber base and it wants to grow this part of its business to be 50-50 residential-SMB as rapidly as possible.

Speakeasy, which is a high-service, high-touch SMB hosted VoIP provider, is looking for 25 percent growth in the coming year in its VoIP business (it also provides Internet hosting services).

allworx, a customer premise equipment (CPE) VoIP supplier, is also aggressively targeting the same market with a solution that is designed to move customers away from their existing analog/key systems to a new VoIP solution that matches or betters their existing functionality at a lower cost - and by matching, it means matching every function of a key system, including intercom and paging features which are often missing from SMB VoIP feature sets.

Pingtel, another CPE VoIP provider (but one that uses an open source software model based around SIP Foundry software), is also targeting the SMB market, although its solutions scale up to thousands of users and are robust enough for large enterprises.

And there are many more. What they all have in common is a desire for a great deal of growth (or indeed, all their growth) to come from the SMB market. This is pretty much a win-win situation for customers. They get more options and vendors from which to choose than ever before. Vendors are going to get aggressive on pricing. So for the average small business, early 2007 is going to be a great time to consider the switch to VoIP. There will be more options at a lower cost than ever before.

For VoIP vendors, while the competition for customers is going to be fierce, the news isn't as bad as it might seem. The market does really seem to mostly be about converting old analog and Centrex customers to VoIP rather than cannibalizing one another. The news isn't so good for AT&T and Verizon and the telcos, however. They can expect increasing rates of attrition in their current landline business.

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