Cloud PBX – a Turbulent Transition for VARs
The “Cloud” transition of Voice and PBX has been well underway for many years now. Infonetics cites 13% growth in 2013 for hosted PBX with steady growth into 2018. While on-premises sales are decreasing, many channel companies are challenged with adapting their business model and service offerings to meet the changing end customer preferences for cloud based communication solutions.
The challenges that traditional interconnects and VARs face with cloud adoption are a combination of technical and financial. Technically, some of the early cloud-based solutions did not offer parity for features, functionality and service compared with on-premises solutions. Deploying voice solutions in a public cloud network requires a different skill set than on premises. Financially transforming your business from one that operates on project- and product-based sales to one that operates on monthly recurring revenue brings about challenges on many levels. UCStrategies interviewed Damon Finaldi, General Manager, Tele-Data Solutions, to better understand some of the real world challenges that VARs face when transitioning to the cloud.
Tele-Data Solutions in Union, New Jersey has been in business since 1981. Damon Finaldi is the second generation owner of the family business specializing in business communications technologies, servicing SMB customers like auto dealerships and law firms. Damon estimates 20% of his 400 customers have a cloud-based solution. For new customers, “they all go cloud.” Existing customers with on-premises PBXs have three main reservations to cloud adoption according to Damon, “Voice quality, features, and increase in operating expenses.” They don’t really care where the PBX resides as long as the service is the same. Customers don’t want to incur additional monthly expenses if their existing PBX is “paid for” and works just fine. Damon had several false starts with cloud based VOIP services. First playing the role of essentially an “agent” where they would introduce a national hosted VOIP provider into their account, moving the PBX to the provider in return for recurring agency fees. He also tried working with early vendors with cloud offerings, but they ran into several problems, including poor service quality and direct competition from the partner, which could potentially jeopardize their relationship with their customers.
Financially the main challenge Tele-Data faces in the cloud transition is cash flow. Paying their employees and fixed expenses out of monthly revenue streams instead of lump sum project-based fees is not something that you can transition to overnight; it is a painful process over time. Additionally, deploying cloud-based voice solutions often requires new skills for the consultants and engineers. Damon mentioned specifically the needed to invest in training on networking technologies like routers, firewalls, and tools like Wireshark.
As the company set out to offer a cloud solution to its customers, Tele-Data required a solution that matched or exceeded competitors’ on a feature by feature basis. More importantly, Damon wanted to ensure that there was no “channel conflict” with the vendor, and that the vendor was committed to a 100% channel model and had a partner program to help with the transition by providing networking skills training and compensation up front for cloud contracts. Finally, Tele-Data wanted to be able to own the infrastructure and build their own service around it.
By working with Estech Systems Inc (ESI), Tele-Data’s business has evolved now to where they are primarily focused on monthly recurring revenue. They have refocused their business on specializing in managed services for voice communications. Ultimately their plan is to become more of a Service Provider than a traditional VAR (ESI is building a white label model where partners are the Level 1 & 2 support). Damon notes that the ESI partnership and technology is a cornerstone of their business and success, providing Tele-Data the ability to own the relationship with the customer and build their own monthly recurring revenue around a quality solution.
Providing cloud-based voice services will create many new challenges for VARs. It’s more important than ever to work with a vendor that will help mitigate the financial and technical challenges, providing more revenue and growth opportunity for the partner, and more options for customers.
This paper is sponsored by ESI.