By William Van Winkle		  
 
SINCE I’M SUPPOSED TO BE A humble journalist, I seek to cultivate humility. This past weekend, I walked around the neighborhood, passing out fliers trying to solicit survey participants for a book I’m writing (www.daddybook.com). I got to feel a bit of the cold shoulder I reserve for those dispensing religious fliers and seeking ballot signatures on my doorstep. Don’t people know I’m just trying to gather survey data and help the world, not sell them something? Hey, come to think of it, that must be a lot like what those other knock-knock people feel too. Nothing teaches quite so well as seeing things from the other guy’s perspective. I’ll try to keep this in mind as we head into an election year.

You can’t be a good journalist (or reseller) without humility. Once you think you’re right about something, that you understand this or that technology or niche completely, you’ve locked your mind against change and opportunity. To succeed, you have to stay humble, and that’s not always easy. Take my assessment of VoIP from the past year as an example.

Here at RAM, we’ve been talking about doing a big feature on VoIP in the channel for over a year. We tried to engage help from D-Link, but that went nowhere. Cisco, despite being a major player in the space, didn’t seem overly enthusiastic. Few if any of the resellers we talked with described VoIP as being a significant item in their lineups, which might explain why those we queried had never tried Microsoft’s Office Communications Server 2007. The mighty Skype was only generating 38 cents of revenue per account per quarter at the end of 2006. And even in our offices that switched to Vonage, there were multiple quality issues ranging from obliteration of voice quality in the face of a prolonged file transfer on the same cable connection to my own debacle involving spotty carrier performance in my neighborhood. With so many issues and so little apparent excitement for the topic, we shelved it. Our perception told us that VoIP was treading water in the channel until further notice.

Sure, we saw the early 2006 statements from Yankee Group saying that business VoIP would exceed 30% annual compounded growth through 2010, whereupon it would be a $3.3 billion market. OK, whatever. Maybe that was happening somewhere else. Then Infonetics popped up in June of this year saying that Q1 sales of pure IP PBXs were up 76% from the same quarter last year, and hybrid PBXs are also on the rise. But that’s misleading because Infonetics also said that overall enterprise telephony was flat in North America for Q1. And for a potential money-saver like VoIP to be flat in the enterprise, I can only assume that means even more dismal results in the SMB space.

So goes my set of VoIP perceptions. Now, imagine my mixture of surprise and skepticism when I found myself speaking with Dave Zwicker, vice president of marketing for VoIP provider Whaleback Systems, and he commented: “We’re beyond the if of mass VoIP adoption and into the when. It’s like asking if analog cell phones are going to become digital. When do you use an analog cell phone anymore? So we ask, what’s the available market for small businesses making the VoIP conversion? There are 3.4 million small businesses in our target market—-that’s 5 to 999 employees. We’re growing as a company 50% quarter over quarter as a result of addressing that market opportunity.”

OK, so maybe it was time to learn some humility. I dug for more details.

I’ll assume for space reasons that we can dispense with a lengthy dive into Voice over IP and its benefits. Suffice it to say that going with digital voice on the network allows for far more flexibility on how calls can be routed, the features that can be applied to calls (call recording,conferencing, voicemail via email, etc.), and the cost savings that businesses can realize owing to consolidation of service vendors and/or equipment. That said, SMBs normally have two choices when upgrading their traditional public switched telephone (PSTN) systems. The first is to get a Private Branch eXchange (PBX), which serves to route the calls within organizations and connect them to the public network. There are old-style PBXs, IP-based PBXs, and hybrid designs that cover both analog and digital technologies.

Regardless of which type of PBX is involved, it still entails the customer buying a piece of hardware and putting it in his facility. The good news with this approach is that the customer has total control over the device and its functionality. One might think that another plus would be not having to pay for monthly charges tied to the equipment, but that’s sort of a fallacy. The customer is still on the hook to stay abreast of telecom technologies, pay someone to maintain and manage the equipment, and update it as his company grows. Moreover, PBXs tend not to be cost-effective in the 5- to 50-seat market, which, of course, is where SMB resellers excel.

Alternatively, buyers can opt for a hosted VoIP service, wherein the company uses a “soft switch,” each user seat gets SIP (session initiation protocol, the open industry standard for VoIP calling) phones, and all calls and call features are enabled solely through a network. Hosted services tend to draw attention because they’re cheap, but buyers get what they pay for. Our own internal experience with Vonage is a perfect example on the consumer side. Vonage is cheap, but there is little provision made for quality of service, and it was too easy for the company to point its finger at the cable provider. Regardless of whether Comcast was at fault, a new customer wants help, not a run-around.

Whaleback does a best-of-both-worlds approach. The company’s CrystalBlue Voice service plants a hybrid IP/PSTN gateway on the customer’s site but manages it and every call that goes through it via Whaleback’s own network operations center (NOC). Voice quality is assured because Whaleback mandates having a separate broadband connection strictly for voice. A low-cost DSL line is sufficient for smaller companies; the goal is to make sure that there’s no competing traffic on the connection as well as bandwidth enough for the company to scale up in users. Whaleback figures about 100 Kb/s of bandwidth for each VoIP connection.

“Unlike other VoIP providers, we’ve invented a PBX software that replaces buying the PBX that you now no longer have to own and manage, and we invented our voice quality management system,” says Zwicker. “When you pick up the phone and make a call on Whaleback, somewhere in the Whaleback NOC is an image of that call as it’s traversing a patchwork of networks. Our management tools at the NOC trace that call and monitor the call quality end-to-end. Alerts fire off if too many packets get dropped, you hit a congestion point in the network, there’s excessive delay or something called jitter—-all of the things that can make voice sound gurgly or syllables clipped or echoing on the line. We have the statistical monitoring tools to know when those impairments happen. And then we reroute your calls around them. Then we dig into the network and fix the problem. If it’s a network we don’t own—-and it usually is-—then we’ve got the diagnostic tools to get on the phone to the service provider or carrier and work out the problem with them.”

So the first thing I like about Whaleback’s approach is that it emphasizes quality and value-added support for a reasonable cost. At low volumes, each seat runs $49.95 for unlimited calling in the U.S. and Canada. The customer’s up-front activation fee includes the price of a new SIP phone, system configuration, installation, and training. While the reseller plays a role in the deployment, Whaleback handles the consultation and configuration of the PBX with the client, taking care of all the programming and feature tweaking to exactly fit the client’s needs. Moreover, nearly all support after the sale goes through Whaleback, so the whole deal is largely hands-off for the reseller. According to Zwicker, resellers make almost as much money up front as they would have made selling a normal hardware PBX, but then you receive an ongoing income stream, a chunk of the monthly service revenue, that doesn’t exist in the hardware-only sales model. Over the course of a 48-month contract period, a reseller should make roughly double the money with Whaleback versus a typical VoIP deployment. Additionally, a Whaleback sale offers more bottom-line benefit from the lower time and support commitment.

“We sell first and foremost through interconnect VARs,” says Zwicker. “These are the people who carry hardware from the big networking vendors. They like our value proposition. They can sell to smaller businesses that can’t afford their own PBX and to the larger ones interested in simplifying their support model and outsourcing the phone system. But I think even more compelling for the interconnect VAR is they can change the way they run their business from a series of one-time hardware sales, where there’s always margin pressure and products are over-distributed. Our model is that the interconnect VAR starts a recurring revenue stream in motion. This happens every time they sell a customer a Whaleback contract. Contracts are from two to four years in length. Say they’ve got a 50-seat customer. That’s 50 seats of revenue set in motion for four years. With normal VoIP sales, you make 90% of the money up front with maybe 10% recurring. With Whaleback, you make 30% up front and 70% is recurring. So we’re seeing a lot of interest from VARs who are trying to transition their model into recurring revenue streams and relieve some of that monthly and quarterly income unpredictability.”

Naturally, a VoIP sale like Whaleback’s opens up several other sales opportunities. Obvious items include Polycom phones and the like, but VoIP easily feeds into things like upgraded switches, IP-based security, and other ways to leverage the LAN for improved operations and efficiency. VoIP is an ROI play, and one advantage of Whaleback’s system is that buyers have a stable, constant monthly bill with which to get a firmer grip on their ROI numbers.

Another thing to consider is that VoIP is a big field that only stands to get bigger as the analog-to-digital migration continues. You have to get in somewhere. Rather than jump into a spot like Cisco’s system, rife with technical training and requirements, why not pick something easy and better suited to your typical client?

Speaking as a whitebox system builder guy, I and many like me have been put off by the perceived learning curve of this towering hurdle called telephony. We don’t understand PBX configuration, but we do know how to set up a switch. We don’t know phones, but we do get network appliances. The point to emphasize is that one of the SMB channel’s biggest stumbling blocks with VoIP may be a mental one. If you stop thinking of VoIP as “some other business” and instead consider a product like Whaleback’s as a managed service that sits on your everyday LAN deployments, the barrier vanishes. This is just about packets and jacks. Oh...and making easy money. 		 
         
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