Are On-Premise PBX Systems Best for SMBs?

Note: This article is based on external data from NoJitter that we repurposed into a chart.

The telephony industry ebbs and flows with the latest trends, one being the proliferation of hosted (also known as cloud-based) private branch exchange (PBX) systems. These systems generated considerable buzz when first introduced, pushing on-premise systems out of the spotlight. As a result, there exists a surplus of information on the value the virtual solution can bring to a typical small business.

Now that the excitement is beginning to die down, it’s time to take another look at hosted vs. on-premise systems. Here, we break down the top five considerations to keep in mind when selecting a PBX system for your small to medium-sized business (SMB).

1. Total Cost of Ownership

Arguments in favor of hosted PBXs typically include a cost analysis, as SMBs are more likely to operate on a smaller budget. A small business owner may not have the $75,000 PCG Telecom & Data Network estimates is required to fund the upfront cost of a premise-based PBX for 75 extensions, and will thus consider the much lower $22,500 required for a hosted PBX system to be favorable. However, this comparison ignores the total cost of ownership (TCO). When calculated over the projected life of an on-site PBX system, the cost variance is much greater.

No Jitter, a website that provides commentary and analysis on telephony, communications and networking, featured an in-depth analysis of available PBX deployment strategies. A mock request for proposal (RFP) was issued for 2,000 seats and a 75-person call center, which received responses from 16 vendors offering 24 solutions for consideration.

To assess the TCO for each solution, study authors normalized the data received from the vendors. In comparing the on-site versus hosted PBX solutions over five years, there is a clear crossover point where the hosted solution becomes more expensive over time.

The data shows that cloud-based PBX is considerably less expensive in the first year, as it requires no upfront capital investments in hardware, software or infrastructure build out. By year two, however, the cost becomes equal with the on-premise solution. And in years three through five, the cost of the cloud-based solution continues to increase at the same rate, while much of the on-premise PBX cost was absorbed at deployment. As a result, the hosted solution is more expensive overall.

The perpetual monthly payment typical of hosted solutions sounds more affordable in theory, but when tracked over time, can become very expensive depending on the vendor and features offered. SMBs therefore need to identify both the up-front and long-term costs when researching PBX solutions.

2. Specific vs. Bundled Features

Let’s assume that money is no object and the goal is to find the PBX solution that best meets an organization’s needs. The technical capabilities of on-site versus hosted PBX solutions tend to be about equal, making this less of a deciding factor.

One constant, however, is that hosted PBX providers tend to offer bundled features for a set price per user. As a result, if you simply want, say, an auto attendant and conferencing services, but don’t need call-forwarding or three-way calling, you may end up paying for these extra features anyway. Buyers may therefore need to spend more time shopping around to find a hosted solution that offers a set of features that best fits their needs.

With on-site PBX, on the other hand, SMBs have greater flexibility to choose user-specific capabilities, ensuring they’ll only pay for those they actually require.

3. Ease of Customization

A PBX system must be customized to meet a business’s communication, integration and interoperability needs. This customization is attainable with an on-premise system, as the IT professional overseeing deployment can set it up according to the requirements of the business. With hosted PBX systems, however, the provider has control–not the customer.

Hosted PBX providers often tout the customizability of their solutions, but vendors are often reluctant to make changes for just one customer. Additionally, the cost of customization with hosted providers is difficult to ascertain. Vendors are not forthcoming with this information and usually recommend their bundled offers instead of customized solutions.

4. Quality of User Experience

It’s often argued that the user ultimately cannot distinguish between hosted and on-site PBX calls. If all things are equal and the interaction is a standard call with no interference, this argument is true. But as soon as too much traffic starts traversing the network, this is no longer the case.

On-site PBX prioritizes data traffic to ensure voice quality, otherwise the voice and data packets fight over which gets preference–a reality that tends to occur with hosted PBX solutions. When this happens, voice quality always suffers. The hosted vendor will often offer a Session Border Controller (SBC) device to mediate the issue, but can add to the cost (by several thousand dollars) and complexity of the system. An on-site PBX system can therefore be easier to manage when controlled by an on-site IT administrator, as they can design the operation according to the needs of the business.

5. Accessibility of Tech Support

The availability of an entire technical support team is another common argument in favor of a hosted PBX system. Vendors tout that companies will no longer need on-site technical support to configure, install and maintain the PBX.

However, for an organization that manages much of its data across an internal network, implementing a hosted system won’t eliminate the need for in-house IT staff. Instead, it simply transfers the tech support responsibilities to a third party. If making the switch to hosted PBX isn’t enough to reduce IT staff by at least one employee, then it simply adds to support costs rather than reducing them.

Additionally, relying on support from individuals outside of the organization is not always in the best interest of SMBs, as they don’t have complete control over every detail. Customization is possible with a hosted solution, but is usually offered at a greater cost and only by those providers that have the capacity to do so. Relying on third party support therefore may not be an effective strategy.

SMBs looking to identify the best communications strategy to fit their needs face a complex challenge. The staggering amount of information available focuses on the benefits of hosted PBX to such an extent that viable, objective information is difficult to find. SMBs must first identify both their immediate and long-term needs, then carefully research available systems in order to decide which system will be the best fit.

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