A Call to IP Phone and VoIP Device Vendors… Achieving Success in the SMB VoIP Market

Fred ZimmermanDirector of CPE VoIP products, Texas Instruments

SMBs: the market proclaims a hot segment

“….the opportunity is ripe for VoIP vendors. The SMB space represents a significant portion of the opportunity, and vendors that have the right combination of quality ease of use, and cost, are well positioned, at least for the next several years….”

- Rich Tehrani, president and editor in chief, August ‘08

“…this year, momentum will swing towards SMBs as they continue to evolve into

more distinct markets with unique needs. Despite the challenges faced by SMB

vendors,

- Alan Weckel, Dell’Oro Group, July ‘08

we believe that SMBs will begin to adopt VoIP in increasing numbers….

“Since its introduction in the late 1990s, Internet-telephone service has been rapidly adopted by big businesses.

Now, that is changing as more small and midsized businesses come around to the technology.”

- Bobby White, technology reporter, August ‘07

But small and midsize counterparts have lagged behind.

SMB market projections

Total IT Spending

2007

$1.3 trillion

Upper mid500-999 empl.24%

Lower mid100-499 empl.37%

SB <100 empl.39%

$440 billion

SMB Segments, 2007$1.3 trillion

2007 Spending

Total Growth 2007-2011

Source: IDC, The Emerging Global SMB Market Opportunity: Tapping Next -Generation "SMB 2.0" Firms, Doc # DR2008_GSRB, March 2008

• Approximately over 35 million SMBs WW• In the US, approximately 500,000 new SMBs per year

VoIP state of the unionLet’s get a reality check…how far have we REALLY come?

Predictions then…

WW IP phones in 2004: 7.6M WW IP phones in 2006: 18.7M

Reality…. WW IP Desk Phones in 2004: 5.1M WW IP Desk Phones in 2006: 11.3M

Source: Dell’Oro 2008 Source: Dell’Oro 2008

Residential

Enterprise

Predictions then… By 2002 all will be in place to make VoIP the defacto standard for Cable

telephony

More than 20M WW cable telephony subs in 2004

Reality now…17M voice cable US subs Source: Texas Instruments

VoIP markets are evolving, but not as fast as expected.SMBs can be the next VoIP opportunity!

IP Phone…a diverse market with diverse challenges

• Wired enterprise IP Phones– Deployments to date primarily with proprietary PBX– Majority of users utilize simple feature set– Market is turning the corner, more IP phones shipped than analog

• Wired residential IP “phones”– Vast majority of residential VoIP are POTS phones connected to gateway– Consumer feature set (call waiting, caller id)

Source: Texas Instruments

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5

10

15

20

25

30

35

40

45

2008 2009 2010 2011 2012 2013

Residential

SMB

EnterpriseKu

SMB landscape

• Diverse environment across SMB space

• Limited technical know-how is typical among users

• Higher turnover = ongoing phone training

• “Need it now” requirements vs. phased approach

• Employees may be part time or working in shifts

• Access to PC is varied and capabilities are limited

SMBs differ from large enterprises:

What does this SMB market mean to IP Phone vendors?

• Residential VoIP features (call forward, call waiting) don’t necessarily translate to SMB

• SMB solutions require customization

• Less concerned with “VoIP” vs. specific traditional features, functionality

• Bottom line: While “cool” apps sell IP phones, functionality and quality on par or better than traditional analog phones is critical

Case study: the VoIP SMB opportunity

• Hosted VoIP services – Launched May, 2007

– Fastest selling product in ADP history

– Initial niche has been small businesses less than 300 phones

– Gaining interest from large, national dealerships

– Recurring revenue

• Customer benefits– Simplifies technology management

– Delivers predictable cost

– Simplifies vendor management

– Increases reliability

– Lowers application costs

ADP IP Networked Services

ADP IP Network Services

Broadband Access

PSTN

PSTN

PSTN

IP Network

ADP Hosted VoiceHosting Center

QoS Enabled Broadband

Access

Broadband Access

SoftSwitch

SBC

Media ServerSunFireV240

Sun

SunFireV240

Sun

ApplicationServer

ABC Automotive

“On-Net Calling”ABC Auto

Body Shop

“Off-Net Calling”Into Public

Telephone Network

Pizzeria

Datadip

CallerID

Real world example: ADP IP Network Services

Customer requirements• Easy to implement, cost effective solutions• Data services/phone integration• Advanced features (soft keys) to enhance response time/efficiency• Optimized use of costly bandwidth to the premise• Ability to support media generated audio• Transparent migration from analog to VoIP (call park, queuing)

Phone call in

Database

Current customer

New customer

• Reverse phone lookup• Log lead• Record interests• Set reminder calls

• Sales history• Interests• Repair record• Call history• Reminder calls

• Sales history• Interests• Repair record• Call history• Reminder calls

• Reverse phone lookup

• Log lead• Record interests• Set reminder calls

In the automobile industry, customer

service is everything. It can help make

or break a deal in a matter of minutes.

The dealerships we work with simply

need reliable phone service and

features that work as well or better

than current traditional phones.

“

”– Marty Sorenson, GM, ADP IPNS

The VoIP opportunity

What benefits does VoIP have to offer SMBs?• Advanced applications enable

SMBs to “sound” like an enterprise

• Improved professionalism/ image

• Increased sense of stability • Enhanced productivity• Better customer service• Cost savings• Ability to expand geographic

footprint

Call routing

Interactive voice

recognition

Integrated web-based

selling

Find me follow

me

SMB translation….

• Collaboration across industry will facilitate growth

– Technology providers– Equipment makers – Third parties– System integrators

• Quality of service and support is a MUST

• SMB specific features and functions

• Technology advancements

It seems obvious, but benefits of VoIP must be translated into a unique value proposition for each SMB

Applications server

Mediagateway

Customer

Service provider

IP phone vendor

Can you prove your quality?• The nature of IP

– Despite proven technology, IP is non-deterministic– Network dynamics can affect call quality

• Call quality management is table stakes– IP end point instrumentation is a must– Cannot charge the end customer for operator required tools

“”

There is a real shortage of tooling/instrumentation beyond MOS scores that allows us to quickly identify problems along the media path and to subsequently troubleshoot them.

– Marty Sorenson, GM, ADP IPNS

Creating an ideal communication experience

Focus on user satisfaction and everyone wins

TI

OEM

Provider

User

• Real time QoS monitoring

• End point diagnostics and troubleshooting

• Alerts and metrics

Business architecture with IP Phone and quality management elements

IP

NMS at IT

Gateway

Gateway

Network Probe

PSTN

Router IPP

Gateway

IP PBX

Headquarters

BranchOffice

IPP

The HD voice promise• Benefits

– Path to higher quality HD voice experience for SMBs

– Ability to transmit voice at sample rates up to 48 KHz

– Better accuracy, clarity– Less repetition in command

structures– No longer constrained to local

loop– Two times the audio capability,

half the bandwidth– CD quality sound– New applications

• Real time language translation, etc.

Deployments

Residential

Small / Medium Business

Wideband voice value proposition• Wideband or High-definition (HD) voice is a differentiating feature over the

current PSTN that enhances user experience with a richer and fuller HD audio based on TI VoIP technology

• Lab subjective results show significant improvements are realized from wideband voice

• Even low bit-rate wideband coders exceed subjective perception of uncompressed narrowband voice

Graphics and user interface driving broad range of electronics

These technologies are moving from the mobile and consumer devices into desktop IP phone

Advanced user interfaces• Advanced user features

– Ability to program soft screens

– Easy to use, multi-extension features

– Customize music-on-hold, advertising

– Color screens with high contrast

– User activity management

– Recognition (speech, face, handwriting)

• Drive business user benefits– Provide user feedback

– Corporate directory capability

– Internal news, training

– Extend personal area network

– Enhanced user productivity

– Potential revenue generation

Power

Idle mode IP phone features can save SMBs in energy waste and related utility costs

Enterprise case study: Enterprise with 10k phones powered at class 2 POE

6.5w/phone at 24x7 usage $56k/yr to power phones alone!

However… Phones are typically idle 16 out of 24 hours a day

Naturally, power consumption is a “hot” issue for Enterprise and SMB Business Managers

Keys to SMB success

• Call to action is now to tap market potential for VoIP growth

• SMBs are unique – requiring solutions customized toward their varying needs

• Quality, enhanced functionality are critical for VoIP adoption over traditional business phones

• Collaboration is key

• Technology advancements are furthering efforts toward a world where every connection is voice enabled.