The Risk of Equating Revenue to Sales

The Risk of Equating Revenue to Sales

By Dave Michels June 5, 2013 Leave a Comment
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The Risk of Equating Revenue to Sales by Dave Michels

Last week Infonetics announced that PBX revenue is down. The report stated that “the global enterprise PBX market (TDM, hybrid, and pure PBXs) totaled $1.8 billion in 1Q13, down 9% from the previous quarter, and down 10% from the year-ago 1st quarter.”

Does that mean sales are down? Most will say yes because revenue is commonly equated to sales, but it isn’t that simple. The problem is PBX solutions are becoming less expensive. For example, software or softgoods are eliminating the need for dedicated hardware such as telephones and servers. That can cut the cost of a deployment 30 percent. Plus, many features and capabilities such as presence are migrating from optional upgrades to standard.

Consider newspaper sales for a moment. The format largely changed from a physical good to a service. Newspaper sales are way down, but news consumption is probably actually higher. Equating product revenue with sales or industry even industry health may not be accurate.

What do we use instead? That is the $64 million (or $45 million) question.

If everything is soft – then perhaps it is best to count licenses, but that’s problematic, too. For one, each vendor approaches licensing differently. Bundling confuses matters as not all licenses are actually consumed.

Lines might be a nice thing to count, but what’s a line anyway? Sometimes lines and trunks are separate, sometimes not. Regardless, lines have become quite conceptual. Keep in mind the average user has calls appear on four devices – including external devices like mobile phones. Is a softphone and hardphone that share the same extension the same line? What about POTS lines that receive forwarded calls? Some vendors don’t even require an internal line anymore.

Another problem is lines are generally sold individually as opposed to ports which came by the dozen – the 13th port required a 24-port system. Comparing 24 ports of yesterday to 13 ports today sounds like a decline. Multiply this per location and things add up to a virtual depression.

Many vendors are moving toward counting users, but this too is difficult to compare. Some users literally represent a single extension – some have a virtual switchboard of endpoints. Clearly a UC solution that doubles the number of endpoints should be considered a larger system than one with the same number of users that does not.

Figuring out what to count is half the battle; getting the figures (and normalizing them) is the other. If a service provider buys licenses for inventory, does that count? How do we count open source implementations (premises and hosted)? What about non-PSTN solutions that do not interconnect to the PSTN, yet still get used regularly for voice and video calls?

Measuring industry health and growth are not as simple as it might seem. We can agree that the industry’s premises-based revenue is down, but not what that really means.

The issue of industry transformation is creating a whole set of issues – for vendors and channel partners. Any organization that relies on transactional margin is getting squeezed. That’s why business models need to transition away from margin-based transactions. The emerging models embrace recurring revenue streams such as hosted residuals and/or professional services such as integrations and implementations.

Transitions are both dangerous and exciting. We are navigating new conditions and it is critical to use the right measures as well as question the old ones.

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