Don't Make the 'SMB' Mistake: What ISPs Need to Know About Selling to Small Business

In spite of real opportunities to sell VoIP to SMB customers, many ISPs are missing out. A hosted VoIP vendor explains why.

by David Cork Natural Convergence CEO and co-founder [September 10, 2007]

A commonly used term when referring to the small business market is "Small & Medium Business" or the 'SMB' market. This can be a major mistake. Despite being lumped together as 'SMB', the typical small business doesn't resemble a medium-sized business in its organizational structure, communications needs, or spending practices. The most effective channels to reach the small business marketplace are significantly different as well. In treating the SMB as a single market, a common practice by service providers has been to try to scale down product offerings that were really designed for the medium or large enterprise markets. Thanks to advances in VoIP technology, the small business market segment is primed to be a solid business opportunity for ISPs. The keys to this kingdom for ISPs are hosted VoIP technologies and a clear understanding of how to profitably sell to small business.

Technology and Timing Intersect to
Make a Sweet Spot for Small Business
Technology—Hosted VoIP has been around for quite some time, so what is different now? The widespread availability of broadband and establishment of private IP networks changes everything. Service providers now may either own the last mile, or have a partner that does; therefore they can manage the link into the end user and provide a reliable, high quality foundation for VoIP services. Today, hosted VoIP services delivered over private IP networks offer a very different experience than that of consumer VoIP delivered via the best-effort public Internet. Meanwhile, software and hardware for hosted VoIP services have evolved to simplify deployment and maintenance of service.

Timing—The last significant upgrade to key systems took place in the mid-1990s, so these systems are now about 12 years old—ripe for replacement. Key systems and associated Customer Premise Equipment (CPE) are costly and bulky and require Information Technology (IT) expertise not only to deploy but also to maintain—an ongoing and unwelcome expense. In addition, the small business owner contracts with, on average, half a dozen service providers and equipment vendors to realize a functioning telephony system. Chasing down responsibility for a service disruption can be frustrating and costly in time and potentially lost business. It is easy to see the added costs related to these multi-vendor solutions. Still, replacing a phone system is perceived to be a huge disruption and the small business owner must see compelling reasons to undertake such a project.

The hosted VoIP solution immediately begins to become appealing for many reasons; when it is realized that initial CapEx is extremely low and that the system's footprint is the IP phone on the desk. Now, there is room for something else in the basement! Deploying and maintaining today's hosted VoIP systems are so simplified, the IT expenditure can be cut right out of the small business owner's budget Last but not least, the hosted VoIP solution typically cuts down the number of communications service providers from half a dozen to one responsible, go-to party for questions, problems, and answers.

It Isn't Really a Market Unless There's Profit
The profitability of service providers is directly related to their operational expense. So, to profitably service a market like small business, which is very price sensitive, the bundled end solution must allow the service provider to keep operational expenses in check. Simplicity is key to achieving that. The offering must be simple for the service provider to deploy, simple to operate, and simple to maintain.

A hosted solution, where the IP phone is the extent of the CPE footprint, is a good start. The same technology and product evolution that make today's hosted VoIP systems so attractive to small business, also make a better business case for the service provider. The 'simple to deploy' factor dramatically decreases the time the service provider spends with the small business in the initial rollout. Simple, user-based phone configuration allows the end-user to manage services and changes, reducing service provider technical assistance expenditures.

Ultimately, however, having technology, economics and timing aligned doesn't guarantee success with small business. The service provider must also understand and appropriately market to the small business channel. The small business owner tends to be conservative and looks for loyalty from vendors found typically in their local channels. So, a service provider wanting quick access to the small business market must find those vendors already selling to small businesses. The ideal model is to unite the service provider—who is good at hosting and delivering services—with the people that care for the small business on a day-to-day basis.

In a survey they conducted by analyst firm International Data Corp., they predict "hosted VoIP will rapidly grow into a multi-billion dollar market over the next few years because of the demand of specific niches." After examining the state of technology and the appealing economics around hosted VoIP, along with the aging state of key systems, it is easy to conclude that small business is one of those niches. There are unique characteristics to small business and the savvy service provider will do well to understand this market before stepping into the small business arena.

*According to Eastern Management Group, there is an installed base of 32 million key systems in use by small businesses.

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