Bottom line alone isn't selling VoIP

Productivity claims draw mixed reactions.

ORLANDO - VoiceCon 2004 demonstrated that more businesses are seriously considering VoIP, but the benefits of the technology remain difficult to justify using just traditional bottom-line analysis.

The event bucked the shrinking-show phenomenon that has plagued the IT industry by drawing 3,500 attendees and 107 exhibitors to the Walt Disney World Dolphin Hotel, up from last year's 3,000 attendees and 53 exhibitors.

A mix of IT professionals from the telecom and datacom worlds heard the latest about VoIP product and service developments. But customers say they still find it difficult to make the case that the technology will save money, so high-profile vendors stepped in urging an alternative rationale: increased productivity.

In a keynote address, Avaya CEO Don Peterson said the real value of converged networks is letting workers produce more with new applications that convergence enables. The technology can save money by consolidating access lines, cutting long-distance costs and reducing the expense of reconfiguring PBXs when someone moves their office, but not always, he said.

Peterson likened the potential voice/data productivity gains to those reaped in the 1990s as businesses adopted PCs, client-server technology, e-mail and the Web. They all contributed to business success, but it's hard to say just how much each contributed in terms of dollars.

So far, it seems these productivity benefits are best reached by targeted groups of employees who have specific business requirements converged messaging applications can meet. Prudential Northwest Properties, a Portland, Ore., real estate agency with about 750 agents, is two years into deploying 3Com-based VoIP and unified messaging.

"For us, the end goal was mobility," says CIO Sean McRae, who attended the show. He says his firm saw some savings by replacing Centrex services and branch-office key systems with a centralized IP PBX, but that wasn't the main value.

The biggest payoff for the firm has been applications that let for agents be more accessible and have better access to messaging and other data resources. "Our [agents] are frequently working from home, in a car or in a Starbucks," where they access the unified messaging system over a VPN with Wi-Fi enabled laptops, McRae says. He says IP gets at least some of the credit for increasing sales, with some workers boosting their take up to 40%.

However, organizations with larger, more diverse workforces say the productivity and business payoffs of IP-based convergence applications are not as apparent.

"There doesn't seem to be any [convergence] applications that could add a real business value," says Edward Jackson, technical specialist with Cardinal Health, a Chicago maker of medical products with more than 30,000 employees nationwide.

"We have such a diverse group of users on such different platforms, it's hard to find one single application that will instantly make everyone more productive," he says. "If we were to buy $1 million worth of [IP telephony] products, it had better produce $20 million in revenue. I don't think any [IP telephony vendors] have products that will do that."

Jackson came to VoiceCon to check out products for a potential migration of sites to IP telephony from TDM PBXs - a mix of Avaya, Nortel and Siemens gear at 90 sites. But he says installing IP PBXs to reduce long-distance or internal administrative costs would not produce savings because most calls - 80% - that originate inside the company are to people outside. "The company doesn't call itself very much," he says.

The strongest immediate driver for switching to IP telephony will be the need to upgrade old PBXs as their usefulness expires, says Brian Riggs, an analyst with Current Analysis. Replacing them with IP technology is the logical way to go. "The soft savings [a customer] might see from a unified messaging system or employees with softphones is hard to quantify," he says.

"There isn't a compelling reason right now to throw out a PBX and install an IP PBX, unless it's a brand-new facility," Riggs says.

Businesses also are having trouble justifying a change from TDM service providers to IP service providers for voice. Traditional voice services are so inexpensive that potential savings are minimal, says Steven Taylor, principal at consulting firm Distributed Networking Associates.

One user at the show, Niraj Patel, the executive vice president and CIO of GMAC Commercial Mortgage of Phoenix, says an IP converged WAN is boosting productivity, but he acknowledged he had no way to prove it. The network supports videoconferencing that he says has led to closing multi-million-dollar deals. Laptops support softphones that give workers the same voice and data access they have at their desks at work.

There are savings, but they are not compelling enough on their own to warrant the transition, he says. TDM circuits with an IP service from Masergy Communications for both voice and data saves $60,000 per year in international voice calls and $100,000 in videoconferencing calls.

The decision comes down to business needs, says John Kealey, manager of applications for Canada's IT Services Division, which researches IT options for government agencies. "If you need to offer new services that only IP supports, then you buy it," he says.

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Copyright © 2004 IDG Communications, Inc.

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