For this column I’m revisiting a popular topic – hosted services. This option is proving increasingly attractive, especially among SMBs, and to help understand why, I’ve prepared this Q&A interview with Doug Johnson, the Chairman and CEO of Telanetix (News - Alert). Aside from exploring this trend, I’m focusing on Telanetix for another reason.

Telanetix is not a service provider in the traditional sense, and nor are they a conventional telecom vendor. However, they are winning their share of hosted business, and with that are demonstrating a viable alternative to conventional service provider offerings.

As momentum builds for emerging technologies such as SaaS (News - Alert), cloud services and virtualization, the definition of a service provider will evolve and present new challenges – and opportunities – for the status quo. Telanetix is but one example of this, and I plan to highlight others in future columns.

JA Your company is in the business of providing hosted communications services, both voice and video. Hosted has been growing nicely in this economy, especially with SMBs – what are your thoughts on why this market is doing well now?

DJ The Small and Medium Business does not have the luxury of buying products and services based on “Return on Investment” over the long term. Even in the best of times, they need to focus on immediate savings. By removing upfront costs, hosted communications services can deliver on this requirement. In the current economic environment, this value based buying decision by SMBs is even stronger. Further, the SMB market is constantly looking for ways to improve “how” its business gets done. Hosted telephony has the advantage of delivering a rich feature set designed for SMB business.  This feature advantage, coupled with immediate savings, is very compelling to the SMB market and is key in driving demand.

JA Most of the drivers for adopting hosted relate to either cost savings or productivity. Everyone wants to save money, but there must be more to the value proposition – what are you seeing on both of these fronts?

DJ The particular “savings” that hosted communications services can provide to an SMB is immediate. They will see an improvement right away in their month-to-month cash flow, as opposed to long term ROI. From a productivity perspective, the hosted nature of the services makes it easier for the service to conform to the expanding or contracting needs of the SMB with highly responsive Moves, Adds, Changes, or Deletions (MACD’s). This way, the changes are moving in step with the business’s workforce, providing just what they need, when they need it.

JA SMBs represent a very large market opportunity that a lot of providers are going after. How does this market segment for you in terms of customer needs and their willingness to use hosted services? How do you compare the small end of this market versus the medium sized businesses?

DJ Interestingly, the larger portion of this marketplace, the Small Business, is the portion that has been poorly served by the communications industry. Medium Businesses, which we define more broadly than most as businesses with 20 to 1,000 employees, typically have an IT staff person to assist with the implementation of the complexity of business phone equipment and services. Small businesses (1 to 20 employees) do not. Since hosted is typically easier than non-hosted with regards to implementation, Small Businesses prefer it if they have the option between the two.

JA Cost savings comes in many ways with hosted. What are some of the savings you’re showing SMBs that they did not anticipate? What are some rules of thumb you’re generally seeing in terms of the magnitude of savings?

DJ Beyond the approximate 40 to 50 percent savings that is seen each month on the phone bill when compared to their incumbent phone company, customers do indeed see additional unanticipated savings. Telanetix has created a rather unique offer of a first-class business PBX (News - Alert) phone system bundled with next generation phone service, leveraging the best of the hosted application model with tight equipment integration.

Because of this combination, we are able to simplify how the system and service work together, and thereby radically simplify the installation and related costs. By custom configuring each system for each customer before we ship it, we make it customer-installable for even non-technical customers. This saves our customers anywhere from $800 to $2,000 in initial installation costs. Telanetix has also created some interesting ways to sidestep the typical wiring issues and costs associated with business phone systems, thereby saving our customers another $100 per desk phone.

JA Aside from these unanticipated cost savings, in what other areas are you showing SMBs the true value of hosted services that is new to them, such as network efficiencies, collaboration, etc.?

DJ Hosted services provide a variety of functionality not possible with traditional phone service. A major feature is the option of creating a unified number that ties together an employee’s work, cell, and home phone numbers. This, paired with the ability to redirect that number at will, is a big draw for many SMBs. Another attractive feature is the ability to have a business located in one area code, but have local numbers associated with that business from other area codes and still pay only local not long distance fees. We’ve found this last option extremely popular among SMB’s because it effectively extends the geographic footprint they represent, making them look like a larger business.

JA What are the main trends you’re seeing now in hosted voice applications and services for SMBs? Related to that, as the price of telephony falls, how is your company adding value to voice?

DJ The focus right now is on “unified communications”. The interesting side note to that message is that there is a different definition for the term for every company that uses it. Does it mean unifying voice and data? Service and equipment? Landline and Mobile? All of these definitions are used by different players, and all of them are valid, if not comprehensive. At the end of the day, our focus at Telanetix is to provide a simpler experience for the SMB. We find that this differentiates us enormously from our competition, and is a key buying factor for the huge market that does not have IT staff to interpret the communications industry’s complexities for them.

JA You also offer a full suite of video-based services. What are the big trends here, and where are SMBs getting the most value from video?

DJ We believe that as bandwidth gets cheaper, video will insinuate itself across the communications application spectrum. At Telanetix, we are already seeing evidence of this fact in some inclusion of crude videoconferencing capabilities in web conferencing applications. Our current telepresence product is far more advanced, and targeted at an enterprise segment that has extremely exacting standards. We are currently evaluating how that value may be brought in a cost effective way to the SMB segment.

JA Telanetix is a bit unusual in that you’re not a carrier and not a conventional vendor, but you are having success providing turnkey communications services to SMBs. How did you come to develop your offering, and what makes it distinctive in a market with a growing range of alternatives?

DJ Our genesis was on the development of voice applications, providing productivity-oriented value added features for the business market. About five years ago, we became a true next generation voice carrier, adding dial tone to our service offerings. Because of our software-as-a-service heritage, we have been able to add all our applications to our dial tone service to make an extremely robust, feature rich offering. We believe this technology ownership yields two significant advantages; the first is our cost profile compared to others in our space, and the second is our ability to create a more integrated and smoothly operating customer experience.

JA Ease of use is a big selling point for Telanetix, and that’s especially important for SMBs. Tell us what ease of use means to your customers, and how you’ve managed to address that need.

DJ Ease of use starts at the beginning, with ease of installation. It’s followed by ease of interface, which can most simply be defined as the ability to take advantage of advanced features without getting a PhD in obscure industry methods. Finally there is ease of Moves, Adds, and Changes, which is a focus on keeping the service current with the business’s needs.

JA Given the way Telanetix has developed a widely-adopted suite of offerings, what does this say about the definition of a service provider today? Success now seems to depend more on delivering what customers want than building the best network, and if so, your model poses a challenge to traditional service providers. Are you hearing that from your customers? Do you sense that incumbents are feeling vulnerable to alternatives such as Telanetix?

DJ There’s no question that the incumbent service providers are feeling the pressure from the offerings we provide businesses at Telanetix. The opportunity to utilize an IP network for business voice, verses the traditional and expensive TDM network has created an enormous shift and an enormous opportunity.   The result is that delivering simple dial tone is no longer enough and the incumbents are slowly realizing this reality.

What we’ve discovered quite successfully is that delivering business-class quality of service, along with well-suited applications that are thoughtfully integrated, is something that SMB’s have been craving for a long time now. Our customer feedback has confirmed this.

JA As you plan for growth, how do you see the hosted market evolving, as well as the role of service providers compared to how they exist now? What will you have to excel at to be competitive 3-5 years from now?

DJ The Small Business will continue to be the largest customer segment in the business communications marketplace. Their need for simplicity and cost savings will continue, but we expect their demand for enhanced functionality to grow to a degree that it matches that of the enterprise segment. As a result, in order to maintain our success in the SMB market we will have to maintain leadership in all three of these areas.

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