Pros and Cons of Hosted vs. On Premise Phone Systems (Part 2)

Jim Machi : Industry Insight
Jim Machi

Pros and Cons of Hosted vs. On Premise Phone Systems (Part 2)

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In Part 1 we discussed some of the considerations that would affect a cloud vs on-premise solution. Now I’d like to start digging in.

Let’s start with cost.  A voice communication system that is in your building (sometimes also called on-premise or customer premise equipment (CPE)), has larger upfront costs.  You typically must pay for it upfront, likely pay for installation as well, which should include the company checking out your network and connection to the outside world and configuring your phone numbers, and then there would be yearly maintenance costs so you get upgrades and bug fixes.  So, you have high upfront costs and then you pay the maintenance fee.

With a hosted voice communication system, you will certainly have less upfront cost.  You’ll pay by seat, per month.  And you’ll probably have to do more self-help as well in terms of setting up users and configuring your network.

In terms of pricing, usually a company will try and get a hosted business communication system to yield the same revenue within 2.5 to 3 years as it would have received for a CPE phone system.   This has both benefits and concerns for both parties.   A vendor is taking a risk that you’ll like the system and keep using it for many years.  And a company is taking that same risk, but also can more easily pay as you grow and doesn’t have to buy an overprovisioned phone system.   All in all, from what I’ve seen, it seems to work for both the vendor and company and is a fair approach.

In the end though, pricing out systems is more about total cost of ownership.  It’s not as simple as looking at the hosted price over a set number of years and comparing it to the CPE price, though that certainly is a large factor.   You’ll also need to include the cost of having your people involved as well.   With hosted systems, because of the remote nature of the system itself, involving upgrades, security, and updates, you’ll likely need your people more involved.   And this will ultimately contribute to the total cost of ownership.

Another consideration is maintenance, including flexibility, of the business phone system.   With a premise system, you will likely get some training on how to add users.  With the hosted system, as mentioned above, you’ll have to deal with more self-help.  So someone on your staff will likely need to be the “go to” person with this system.   Both systems will get you upgrades and updates.  With the premise based system though, someone may need to come onsite or do the upgrade remotely. 

With a hosted system, this is all done for you by the provider.  You don’t have to worry about any of that.  However, they’ll do this when they think the best time is, not when you think the best time is, so you’ll lose some level of control of the system with a hosted phone system.  For instance, your IP phone may go offline for a short period of time as it upgrades.  Think about what you go through with Windows upgrades – just kind of happens when it happens.

Let’s say you are not sure what features you want in your business communication system.  You may want simply voice and voice mail.  But you are not yet sure of unified communications or fax.   With a premise based system, the provider will need to come in and install those features when the time comes that you want them.  And with it, likely additional costs.  With a hosted system, the provider can simply turn them on for you.  Assuming they have the features of course.  Sure there will additional per seat costs and your “go to” person will need to learn more because he or she will need to manage this, but it will be relatively simple to turn them on.   Next week we’ll look at UC, features and quality.

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