The State of Cloud Services

cloud computing

cloud computing (Photo credit: kei51)

My clients ask me all of the time how they can make money at cloud services. The fact is, for small carriers, there are a few opportunities, but the industry still has a way to go to be ready for prime time for small carriers as a revenue opportunity.

I say this because my average client only has a handful of business customers who can really benefit from using cloud services, and so the small volume they might be able to sell to them does not look like a profitable product line.

What is available today?

First, there is a very robust market in providing data storage and back-up of data. But there is only money to be made in this from business customers because residential customers can get mountains of free web storage if they look around. It’s possible for a residential customer to easily store a terabit or more of data for free.

But businesses don’t want to, and probably should not use cheap or free web storage. There are already horror stories of web storage services that have shut down and that have left people without access to the data they have stored in the cloud. So a business needs to store their data where they know they will always have access to it. This probably means storing it with a vendor that has multiple data centers so that there is a duplicate backup copy of everything to avoid the issue of natural disaster.

And it’s not hard for a small carrier to get into this business themselves and to store some data in their own central office. And if their customers want a second back-up copy there are a number of reputable data centers around the country that are owned by other small carriers and that seem pretty secure and safe. There is even a little money to be made to be the middle man and in sending all of the data to somebody else for your customers.

The other thing that is widely available today as a cloud service is IP Centrex. There are a number of national companies that will sell this service to anybody that has a fast enough data connection.

But one of the catches to this service is that these nationwide sellers do not offer phone numbers everywhere. This means that when they go to sell in rural areas they probably do not have the ability to do number porting to let the customers keep their local numbers. This is a big deal for businesses. We have always assumed that the nationwide sellers work through some other nationwide CLEC to terminate traffic, and those CLECS, like a Level3 have gained the ability to do number portability in RBOC areas, but for the most part they do not have those agreements in place for the rural areas.

But number portability aside, it is possible for anybody to resell the IP Centrex services. If you are competing in a neighboring larger town you could offer these services in the cloud as a reseller of one of the nationwide carriers. The margins are not nearly as good as if you offered this on your own switch, but they are okay.

Finally, the real promise of cloud services is that it could offer the software a business uses everywhere on any device. These are huge advantages to large companies having this ability and many of them have migrated their software to the cloud. But they have done so with a lot of effort. Most companies operate a unique set of programs. While a business may use the standard nationwide software like Microsoft Office or Quickbooks, most companies also run a number of unique and homegrown programs. The real challenge for a company that wants to take its software to the cloud is not getting the big name software to the cloud – because most of that software now has the option of cloud licenses. The issue is in moving all of the home-grown and one-off software that a company uses. As I mentioned yesterday, many companies still operate some PCs with Windows XP. It’s not as automatic to move older legacy systems to the cloud as you would hope and it takes some effort and trial and error to get some things to work in a cloud environment.

And there is no profitable product out there yet for the small carrier who wants to offer cloud software to customers. There are bits and pieces, but no easy platform that just lets you sweep your business customers into the cloud. This is probably coming, but it is not here yet.

So in summary, other than data storage and IP Centrex, there are not a lot of viable, money-making ways for a small provider to make money yet on cloud services. But I think the day when you can is fast approaching. There are bits and pieces already available for offering cloud-based software and the options are growing all of the time.

Voice – Still Relevant

A landline telephone

A landline telephone (Photo credit: Wikipedia)

At the beginning of this year the Center For Disease Control issued a report called Wireless Substitution: Early Release of Estimates From the National Health Survey, January – June 2012. The summary of that report is attached here as Wireless Substitution 2012.

The CDC asks over 20,000 households each year a number of questions associated with health issues, and starting a few years ago they started asking about basic telephone coverage. In 2012 they expanded the telephony questions to include questions about landline and cellphone usage.

The results of the study are statistically reliable. They worked hard to get the sample they use to look like America as a whole and the results are 95% accurate, plus or minus 5%. This means that if they asked everybody in the country these same questions, the results would be within 5% of the results of the survey, which is very accurate for a survey.

Some of what they found was very interesting. The most interesting statistic to me is that 65% of all households still have a landline telephone. As late as 2000 the industry had about a 98% penetration of households. As the chart on the first page of the report shows (showing wireless-only households), landline subscribers dropped slowly until about 2005 and have dropped at a steady pace since then due to migration to cell phone usage.

I have heard for years from experts who have declared the voice business dead. Many new telecom ventures are launching without a voice offering, because they believe it is irrelevant. The most visible of these is Google in Kansas City, who offers only data and cable TV. But I look at a product that is still in 65% of households as something that is still very attractive from the carrier perspective. Cable TV only has a nationwide penetration of just over 75% and even after all of the years of decline, voice is still not that far behind cable.

Voice is a very profitable business. If Google wanted to offer voice in Kansas City they would need to buy a softswitch, which might cost $1 million for a market that large. And they would have to interconnect with the existing PSTN. They would have to cover some one-time costs for each customer like number portability. After covering those costs everything else is profit. Voice can be auto-provisioned so that it doesn’t take any people to activate it. And it can be sold in a very simple package so that there are not a lot of options. Voice doesn’t need to be a complicated product.

From a business plan perspective, not offering voice is leaving a lot of low-hanging fruit on the table. For Google in Kansas City, the breakeven on paying for the voice investment could be measured in terms of a handful of months. After that it would add significantly to the margin per customer and to bottom line.

I have a hard time understanding why Google or anybody would not offer voice. With residential customers it is low-hanging fruit. And voice is still mandatory to get many business customers. Businesses bore the brunt of the competitive CLEC push a decade ago and many of them were burned by having one vendor for voice and another for data. When something went wrong both vendors would point at each other rather than fix the problem. And so a lot of businesses insist on buying all of their telecom products from a single vendor. Further, most businesses care more about reliability for voice than they do price. Voice is the lifeline of many businesses and they want it to be served by a capable vendor on a reliable network.

When Google approaches a business and wants them to buy a 1 Gigabit data pipe they are basically telling that business to keep their voice on copper or relegate it to somebody selling VoIP on the Internet. There are many companies selling VoIP this way and the quality of the connections vary widely. There are good products sold this way, but also some really sketchy stuff, so a business has to be very wary. Most businesses are just not willing to take a chance buying voice from a vendor they don’t know and who doesn’t have people in their market. They have been down that path before.

Most of my clients still offer voice services and all of them do pretty well doing so. My clients who sell to business customers report that voice is still the way to get into the door. Many of these clients are now selling IP Centrex, but that is still a voice product.

And so I look at Google and other providers who have elected to not sell voice and just scratch my head. Are they afraid of being regulated? In most states regulation of competitive voice providers is very light. Do they think voice is just obsolete and not worth the effort? This survey and all of my clients who sell voice demonstrate that this is just not the case. Voice is still very relevant and still very profitable.

Value Added Selling – The Only Way to Go!

Customer Service Think Tank hosted by Dell

Customer Service Think Tank hosted by Dell (Photo credit: Dell’s Official Flickr Page)

Today’s guest blogger is Mike Fox. He was one of the founders of CCG and we still work together on a number of projects. Mike is working at Fox Management Advisors and can be reached at (307) 431-6543.

In my last blog I discussed how it is important for your customers to make an emotional attachment to your brand.  You want them to think of you first when they are in the market for any telecommunications product or service.  A corollary concept is for you to focus on adding value to everything you sell.  Many telcos are order takers.  By that, I mean that they sell a suite of products that customers know and understand.  The customer is already sold. This has been the nature of the telephone business for many years.  Furthermore, for a long time, customers really had no choice but to call the telephone company when they wanted telecommunications services. So, we all got into the mode of order taking rather than selling value.

But, the world has changed in this regard (as you well know)!   The telecom world has entered a new age.  Residential customers are dropping traditional voice (landline) and video (cable TV) services at an alarming rate. Businesses are no longer happy with just vanilla voice lines or trunks. The successful communications company of the future must sell products that are different from what they sell today. These products must be attractive to the new generation of customers.  This will force many companies out of their comfort zones.  How (and what) do you sell to customers who only want broadband from which they will tie in various Over The Top (OTT) devices like Roku?

Are there additional revenues beyond simply providing the Internet pipe?  Of course there are, but they may be harder to identify and even harder to monetize.  This might mean selling products like IP Centrex, cloud services, SIP trunks, unified communications, advanced security, transparent LAN, MVNO wireless or a host of other new products. And a decade (or less) from now it will mean selling products that we haven’t even envisioned yet.  Some smart guy or gal is in their garage as I type thinking up the next “killer app” for our industry.  We just have to be ready to sell our customers on the value of this new product. Not just on the value of the new product, but HOW the new product will be valuable for them.

Selling a new product that customers don’t fully understand requires different sales skills.  You need to educate the customer on the benefits of the new products – i.e, consultative sales, which is quite different from order taking. Consultative sales means sitting and understanding what the customer most needs, and then offering a package from the suite of possible products that best fits the customer’s needs.

Actually, the very first step in selling a new product is for you to understand the VALUE PROPOSITION of each product in your portfolio. The value proposition means knowing how a product will benefit the customer. You cannot sell new products just by showing that they are new; unfortunately, many sales people take this approach and try to sell the ‘cool’ of the new product rather than the value. You have to show the value and make the customer understand how this new product or service will make their life or business better.

Finally, in order to understand the value proposition you must know your customers well. As I said in my previous blog, make them part of the club. Get to know them, and encourage them to get to know you and your company. Basically, you need to get out and talk to your customers.  Find out what they are looking for, what excites them, and what their needs are both now and in the future. Once you understand those needs you can craft products and services that will provide what your customers want; and you will have built the foundation to support a strong, loyal customer base.

Advantages to Customers of SIP Trunking

SIP stands for Session Initiation Protocol and is a technology at the enterprise level for delivering multiple voice connections to a PBX or key system over an IP data connection. In order for a business to utilize SIP they must have a PBX with a SIP-enabled trunk side and their data provider must be able to deploy and switch SIP.

Hot Desk, GTi, University of Glamorgan

Hot Desk, GTi, University of Glamorgan (Photo credit: jisc_infonet)

SIP Trunks at the enterprise level of the network replace PRIs between the central office and PBXs. A PRI is a dedicated T-1 transport circuit and can support 23 bearer paths for voice, but a SIP trunk connection typically rides an existing data circuit and can be used to carve out as many voice paths as are wanted within the limits of the bandwidth available.

Following are the reasons that businesses want SIP trunks, and thus for carriers to sell them. This list is discusses the advantages for the small and medium business customer.

Saves Money. SIP generally saves money. SIP trunks replace PRIs which are inefficient. It is not unusual for a customer with a PRI to be using only part of the capacity and yet they have to pay for it all since it is a linear product. SIP trunks are typically carved out of a company’s data or Internet connection and can be sized as needed within the constraints of the bandwidth. It is typical for a business to cut their costs at least in half using SIP trunks compared to PRIs due to the efficiency.

More Efficient Use of the Data Connection. Most businesses will already have an Internet connection and SIP trunks are carved from those connections. Most businesses use their data connections in a bursty fashion, meaning there are times of the day when they use a lot of their bandwidth, but also many times when they use very little. SIP trunking can take advantage of the unused capacity in most company data connections. Companies often do not need to increase the bandwidth they are buy SIP trunks and can fit them into their existing data product.

Enables Unified Communication. SIP enables all of the various features that comprise unified communications such as access to the phone system from cell phones or tablets, integrated voicemail and email, video chat, instant messaging and other features that make businesses more productive.

Enables Upgrade to an IP PBX. Businesses more and more want the kinds of features that are available with an IP PBX and IP handsets. Many businesses are choosing to buy an IP PBX to get these features rather than buy IP Centrex from their telco provider. The general advantage for a business to have their own IP PBX is the ability to customize their communications network, something that many service providers do not offer with IP Centrex.

Allows Multiple Locations to Act like One. With SIP trunks and an IP PBX a business with more than one location can have a unified telephone system that brings the data and voice together for all locations.

Any carrier that sells enterprise data service to businesses should offer SIP trunks. Even if you sell IP Centrex, customers who prefer to have their own phone system are going to want SIP trunks.

Hosted IP Centrex Service

In a few other blogs I have referred to IP Centrex as a new service for businesses, so I thought I ought to explain the service. Hosted IP Centrex service uses data-centric phone sets to replaces key system, PBX system or existing Centrex service. The IP Centrex phones can be controlled by a softswitch or by connecting an IP PBX to a legacy switch.

A number of CCG’s clients are having success selling IP Centrex to business customers. The product includes the best features of a large PBX plus many additional “value added” services that are only available through IP based phone service. The product can be integrated with a subscriber’s computer systems to provide such features as dialing from Outlook, common databases for all employees, etc.

There is a wide range of phone sets available that include a screen that allows a caller to manage their calling. The product requires a customer to buy new IP handsets and many of my clients lease sets as part of the price.

This product has a large potential market since it can be tailored for the very small or very large business. It is easy for the carrier or the subscriber to customize features for each phone or for the whole system.

There are a number of benefits of this product to both the carrier and to subscribers. Some of the biggest advantages:

Benefits to the Carrier

  1. Can be sold to any business subscriber regardless of what service they had before. It’s a good replacement for B1’s, trunks or traditional Centrex.
  2. Subscribers become stickier to the extent you can get them hooked on custom features not available elsewhere.
  3. Allows a carrier to sell service outside your traditional footprint. You just need to find businesses that have a decent high-speed data connection. This also means you can sell voice services to all branches of a customer’s business and not just to those in your footprint.
  4. It promotes the Company’s data products and is easily bundled with data.
  5. The product has a lot of pricing flexibility and can be sold to compete with multiple B1’s or traditional Centrex. You should be able to profitably beat the price of any traditional phone product.

Benefits to Business Subscribers

  1. The Subscribers get a telephone system that equals the features of a high-end PBX.
  2. The Subscriber no longer needs to buy or maintain a PBX. The customer can buy the IP phones or lease them from you.
  3. Subscribers can portray a unified professional image to the public. Employees at remote locations can be integrated into the telephone system. And small companies can act like bigger companies by the use of the various features. Remote employees can be made to feel like a part of the Company.
  4. Subscribers can tailor the phone system and each phone to meet their needs. There are hundreds of features available including many that were not available on analog systems.
  5. Subscribers can easily manage the features available on each set using the Subscriber portal that allows for easy and immediate changes to the features on any or all phones.
  6. Phones are portable and an employee can quickly move their phone from desk to desk or office to office and keep the same extension, voice mail and features.
  7. Phones can be programmed to be nomadic (portable, but not mobile). This means that an employee can take the phone out of the office and work at home or in a hotel as if they were in the office.  All features and functions of the phone remain unchanged.

Launching a New Product

At CCG we often introduce clients to new products. Historically our clients had the leisure to introduce products slowly since they were not operating in highly competitive markets. However, today we see speed to market being a major factor in being successful. Since there are many steps needed to launch a new product and because it will touch every part of your organization, it is mandatory that you are organized and have a plan to develop and launch a complex product on time and do it well. Lack of organization will inevitably lead to delays, or worse, to a product that is half-baked and full of problems.

At CCG we are experts at the process of launching new products and many of our clients now include CCG as part of the new product development and launch team. We can provide the needed discipline and the extra manpower and expertise needed to insure that a product is launched on time and is customer-ready.

The following (using the example of launching IP Centrex) is  a list of the basic steps required to launch a new product. This list is abbreviated but demonstrates how launching a new product will touch every part of your organization. Without a clear plan it is easy to get bogged down and delayed.

Steps needed to launch IP Centrex

Define the Product. Define the specific market for the product. In the case of IP Centrex, should you have different packages to reach different parts of the market? (For instance there might be a version for typical small business, a more complex product for more businesses like doctor’s offices, and a product for businesses with a centralized receptionist). Define the equipment and software needed to launch the product. What kind of handsets / functionality do you want to offer? Will you let subscribers use their own devices like smart phones and tablets? Will you support integration of phones and computer systems (Outlook, etc,)? Will you be supporting 911 portability (supporting 911 when the customer moves the phone off-premises)?

Determine Technical Readiness. Is your switch ready to support the product or do you need an upgrade? Will your OSS/BSS support the new product’s billing and operational requirements? If you are going to launch using something other than a softswitch, take the steps needed to choose the right gear and/or partner. Find a 911 mobility vendor to support remote 911 if you go this route. How are you willing to distribute the product – over your own network, over leased facilities, or over the open internet. Anticipate and address any IP addressing issues. Analyze the customer premise network requirements –  premise wiring alternatives, customer demarcation points, VoIP quality assurance capabilities, etc.

Product Pricing. Create a name and branding for the product. Determine the market prices of competing products (trunks for existing PBXs, B1s, traditional Centrex, other VoIP providers, etc.). Determine your pricing strategy (one price fits all vs. pricing based upon what the subscriber is using today). Determine your pricing elements (individual service elements like stations, talk paths, features and calling plans or a more all-inclusive element). Determine if you are going to sell and/or lease handsets as part of the product. Will this be bundled with other products like data or long distance?

Testing. Buy test handsets/stations. Activate and then test each switch feature with the handsets. Create a common or custom profile configuration for supported and chosen handset types. Make sure that you have an easy way to load the profile configurations into handsets/stations. Make sure the chosen features will work with each other (a common problem when combining multiple complex features). Test OSS and billing system.

Regulatory. Are tariff updates needed? If you are going into new markets will you need to open new 911 PSAPs? If sold as a regulated product, how does SLC charge apply? Are there any CALEA issues?

Sales and Marketing Readiness. Define the value proposition for the subscriber. Develop marketing literature. Update website. Develop order form that will capture the complexities of the product.

Internal Training. Train salespeople and CSRs on how to use the product. Train help-desk staff. Train anybody who will install or train on the product. Should your own company be the first test customer?

Customer Training. Develop customer training material/manuals.  Consider a web tool andor video tool. Develop training plan. Will you train every employee or train the trainers? How much will you charge for training? How do future subscriber employees get trained?

Implementation. Develop installation plan/checklist. Order IP stations. Perform any customer premise network changes required. Install and verify data connection(s). Install stations and any managed network equipment required. Develop plan to verify that every station is updated and provisioned correctly. Conduct subscriber training sessions. Ask for subscriber feedback on the quality of the implementation. Render and verify first bill.

NOC/Customer Support/Troubleshooting. How will you handle customer support? Will the first level of trouble shooting be done at the CSR level or by specially trained individuals? Who will have access to the tools and training required to assist subscribers?  Will billing issues and technical issues be handled by different employees or by the same employees?

Ongoing Product Maintenance. How do you stay abreast of new features, services and apps that may benefit your subscribers?  How and when do you introduce updates to subscribers?