The real costs of unified communications

Following a number of other vendors (for a change!), Objectworld recently announced pricing based on a "cents per user per day" model. The price range is system size dependent and can be as low as 5 cents/user/day, we announced 7 cents, because it reflects the middle range price.

Needless to say, the announcement has stirred up a lot of commotion with analysts and the media - as a business, can Objectworld afford it? Objectworld's pricing is so low - how can we offer a price so much lower than our competitors for more functionality? It sounds like a low-budget television commercial, but the truth of the matter is, we're just that low priced (and you can see for yourself with our pricing estimator at www.objectworld.com/pricing/).

The price point for Objectworld UC Server® hasn't actually changed with this announcement. In fact, the pricing for Objectworld software has changed remarkably little in the last four years. We decided to announce our pricing to capitalize on a benchmark that other vendors (like Avaya and Cisco) are using. We don't really like the model, but when in Rome! In this case in particular, Objectworld UC Server based solutions offer far more functionality than those being offered by our competitors, and our price is a fraction of the cost. But this is a value proposition that Objectworld has been offering successfully and telling our customers about for the last 6 years.

More important, our pricing reflects a trend in the market that Objectworld predicted several years ago: namely, that prices in the UC space would drop due to the changing paradigm in the PBX and UC space (are there any old PBX vendors who aren't claiming to sell UC?). But what's driving the prices down?

For starters, the real issue of pricing and survival is that the paradigm in the old PBX, and now the UC space, is changing. Open interoperability standards from the IEEE and IETF such as 802.3 Ethernet, Internet Protocol (IPv4 and IPv6), Session Initiation Protocol (SIP), and Real-time Transport Protocol (RTP) have changed all that forever, making previous ITU standards irrelevant and improving accessibility to standards to anyone with access to the internet. IEEE 802.3 Ethernet and Internet Protocol is now ubiquitous and inexpensive with POE Ethernet for SME deployments at $20 or less per port. Combine that with the effects of Moore's Law making CPU cycles inexpensive (driving DSP solutions ever deeper and constantly removing the need for customized hardware) and we see a typical function increase with decreasing cost for server, gateways and telephones.

Since specialized hardware is no longer required, UC solutions are now software, and software resides in the data center. Data centers are controlled and administered by IT departments. IT departments like solutions that they can administer and control just like all their other software. IT departments and VARs like centralized administration tools like Microsoft's Active Directory™. The requirements for UC functionality, deployment and ongoing administration are changing. And no one vendor can provide all the products required for a UC deployment. UC by definition is a multi-vendor solution, which invariably will use open interworking standards. Evolution is at work. Some species will emerge and flourish and other older species will become extinct. Smaller, leaner players like Objectworld (and even larger players like Microsoft) are of the emerging species kind. I'll leave you to decide which PBX players are on the path to extinction.

Looking at some specifics, what has changed in the last couple of years to lower the cost of UC Server Standard Edition deployments? New hardware products have appeared with increased functionality and lower prices. For example new gateways from Dialogic, Vegastream, Audiocodes and Quintum are now available that allow UC Server to interwork with a very wide variety of PBXs at much lower cost. And Moore's Law has dramatically driven down the cost of vastly increased capacity servers over the last 3 years. On the interoperability side, even the economic barriers to connection of third-party systems by PBX vendors are starting to drop, albeit slowly, as PBX vendors reluctantly drop them to make open systems interconnectivity viable economically.

The cost of Objectworld UC Server SIP Edition deployments has also declined due to gateway and server costs. However, as most everyone knows about 50% of the cost of a UC or PBX system is in the phones. The selection of SIP telephones from vendors like Polycom, SNOM, Grandstream and Aastra have increased dramatically while the price points are consistently dropping. Add in great new SIP paging products from Cyberdata and SIP cameras from Mobotix and the cost of sophisticated UC deployments becomes even lower.

If our published cost is somewhat inaccurate, it's because we overestimate cost. Our pricing is all based on the MSRP of our products and those of our Objectworld Connect™ Interoperability Program partners for gateways, media cards and SIP telephones. Server pricing is based on recent on-line pricing from Dell's web site and includes the cost of Microsoft Windows Server® 2003 R2 Standard Edition. And, as we all know, most businesses can usually get a better deal than MSRP. An Objectworld solution may even be a fair amount less than what we estimate.

As a business, Objectworld is committed to delivering the best value to its customers, because we believe that that's the best basis for a successful business model. But can we be successful with this model? Of course! What customer doesn't want the best value for money that he or she can buy?

What do you think? Have a look at our pricing tool and let us know!

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David, thanks for the detailed explanation. I agree that we will see survival of the fittest in the communications space. I am also impressed with your thorough explanation above. Still, although the core components are getting cheaper all the time, I will always be concerned about how vendors deal with branding.
Still, it is more surprising to me when large vendors focus on how cheap their solutions are. This likely gives ample cover to smaller players in the market.

Still, I know from experience that explaining to customers that something is cheap and at the same time a high-quality product with great value is infinitely difficult.

I wish the larger players (Cisco and Avaya) would focus as much time as possible explaining to customers how these systems will make companies more productive and pay for themselves rapidly. Between UC and CEBP, there is the potential to revolutionize how many businesses work and this message gets muddled when the customer keeps hearing from multiple vendors that they should deploy UC because it is cheap and everyone else is doing it.

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