VoIP Provides Recurring Revenue Opportunities for Dealers

Integrators considering a move into IP telephony, otherwise known as Voice over Internet Protocol (VoIP), may be tempted to go after the pure hardware play, as residential and commercial clients switch out their phones to IP models and exchange their legacy PBXes for IP versions.

But doing so could represent a missed opportunity.

Integrators in the VoIP market do agree that there's a good revenue stream in IP hardware such as phones, IP PBXes, and peripherals such as Quality of Service (QoS) cards and Power over Ethernet (PoE) technology. However, that's just the beginning.

"If you're selling Cisco CallManager, your client also needs to buy data access and a calling plan," says John Marcario, president of Savatar, a strategy and technology consultancy in Boston.

"[Clients] are not just buying a PBX, they're buying the voice and data infrastructure. If I'm a VAR [value-added reseller] and I'm just selling a PBX, I just left a whole lot of money sitting on the table."

"The hardware is a nice sale with decent margin, but it's a one-time thing," agrees Adam L. Eiseman, president and CEO of Lloyd Group, an IT integrator in New York City that offers hosted IP services with M5 Networks.

"[VoIP] is not really a product business -- the real money for us is maintaining long-term relationships and locking up monthly fees. I don't think anybody except maybe a large Cisco gold partner is in the VoIP market for the hardware angle."

For integrators, it may be a market worth exploring. According to the research firm Telecom Intelligence Group, the U.S. revenue for converged communications (IP hardware, applications, and services) in the SMB (small to medium-sized business) market will rocket from $2.9 billion in 2006 to $5.4 billion in 2008.

Those numbers reflect partners' real-world experience.

"In the past, we haven't had a lot of demand from people, but that's starting to change significantly," says Nick Pegley, vice president of marketing for All Covered Inc., an IT solutions provider in Redwood City, Calif.

"I think VoIP is becoming more of a mainstream technology."

Jumping In

Moreover, commercial clients increasingly view the VAR integrators as a viable source for VoIP technology.

Savatar's research from a recent survey on VoIP for the SMB market shows that 51 percent had purchased their systems from VARs.

Although VoIP is a promising market, it's not without challenges. For one thing, VARs should expect to prospect. "It's a demand-creation market," says Marcario.

"Our research shows that SMBs will buy VoIP if the economics are right, but if a VAR gets into the game thinking that that all they need to do is sign up with somebody to resell a product and expect customers knocking on the door, wrong. If you want to generate demand, you need to actively go out and create it."

This means that VARS must look for vendors that are willing to put time and effort into priming the pump with lead-generation help.

"You want programs from providers that work with you on lead generation and provide marketing funds," says Marcario.

"Choosing partners is hugely important," agrees Benjamin Irvine, CEO of Octopus Networking, a consulting firm based in New York City.

It's also not a cheap market to enter. VARs that know data must learn telecom technology, and VARs that know telecom must learn the data side.

"People underestimate the work necessary to get into the market," says Pegley.

"It's not like adding another firewall, router or piece of software. It's really a whole new business."

CT Networks, for example, a Hauppauge, N.Y., telecom solution provider, has invested close to $1 million in training and certification for IP telephony.

"It's really our whole opportunity -- for us it's a do-or-die situation," says Barry Goldstein, president and CEO.

The move is paying off, it seems. Goldstein estimates his IP telephony business at around $20 million annually.

The Hardware Opportunity

While partners remain excited about the long-term revenue possibilities of regular service fees and ongoing maintenance contracts, they agree that VoIP hardware and peripherals are a great entry point.



The obvious sells are IP phones, which SMBs covet for their ability to provide unified messaging, sending voicemail to the e-mail in-box, for example.

"It can be a big chunk of the project, as everybody needs one," says Pegley. SMBs generally prefer entry-level models that provide basic functionality, according to Pegley.

Then there's the PBX itself. SMBs tend to go for the simplicity of hosted solutions or trunking VoIP, but partners can also do well with IP PBXes, says Goldstein.

Finally, there's money to be made in network upgrades. At the very least, clients will need a QoS card to manage traffic on the network, as well as PoE to serve as an adapter for IP phones.

But as data and voice traffic move onto one network, most companies must upgrade the network itself, installing beefier routers and switches.

"Phones are the obvious piece, but the network upgrade is not so obvious to clients that need it," says Pegley.

Ongoing network maintenance is also a good source of income. "The old revenue stream from moving and adding phones is now a revenue stream based on supporting the network," says Goldstein.

In the final analysis, many partners view a move toward IP telephony as inevitable.

"Anybody in the data business now needs to be looking at voice as an application, because the lines between the two are blurring," according to Pegley.

And the benefits can be huge. "The payoff is generous margins in a market segment that is growing and largely being ignored by the big carriers," says Marcario.

"VARs can be tremendously successful here."

The VoIP Sell

Partners agree that the following tactics will make for a successful sales pitch.

Plan on a consultative sell.
Integrators need to understand each client's business particulars so they can devise a solution that will make the customers' lives easier, at an economic advantage.

This doesn't mean selling toll-call savings, but rather the convenience and efficiencies of VoIP.

Emphasize ease of use.
Instead of pushing a laundry list of glitzy bells and whistles, pick the few that will improve life for clients.

Most want technology that makes their jobs simpler in some way, whether it's through unified messaging or one pipeline to maintain instead of two.

Sell mobility.
Features that free workers from the home office are very popular, according to partners.

"There's a definite interest in being able to have access to the same capabilities away from a desk as at a desk," says Terry White, vice president and senior program director at Telecom Intelligence Group, a provider of telecommunications research, news, and newsletters.

Sell a solution set.
"If you're selling a solution with hardware, data access and charges for voice, you're sitting on a recurring revenue stream, and perhaps an annual maintenance fee," says Marcario.

"The [integrators] successfully selling in this market are taking the solution approach."

Carol Hildebrand is a business and technology writer based in Wellesley, Mass.