New York-based consultancy GrowthMark has recently completed a comprehensive research study of the Small and Medium Business (SMB) market for IP Communications and Cloud Services. The study included a survey of more than 850 SMB owners and decision makers across North America, telephone interviews with more than 100 of the survey participants, and mystery shopping of products from nearly 20 leading service providers.

1. STATE SMBMARKETSTATE SMBMARKETof
the
for IP Communications and Cloud Services
NewYork-based consultancy GrowthMark has recently completed a comprehensive research study
of the Small and Medium Business (SMB) market for IP Communications and Cloud Services.The
study included a survey of more than 850 SMB owners and decision makers across North America,
telephone interviews with more than 100 of the survey participants, and mystery shopping of
products from nearly 20 leading service providers.
The study provides valuable insights into the purchase drivers and buying behaviors of SMBs along
with details of what SMBs look for in their service provider.This Research Brief provides an overview
of the North American market for IP Communications and Cloud Services to help Metaswitch
customers better market and sell products targeted at SMBs. It is offered as part of the Metaswitch
MarketVisions program, which provides information, tools and consulting services to help service
providers launch profitable products.
“...”?

2. LOWADOPTIONRATESBUTBIGOPPORTUNITYLOWADOPTIONRATESBUTBIGOPPORTUNITY
IP Communications
Adoption by Company Size
Plans to Purchase an IP
Communications Service
Number of Employees
∗ About 20% of the SMBs surveyed
are now using IP Communications
with higher adoption rates for
larger companies.
∗ 60% of companies who have
adopted IP Communications have
purchased a Hosted PBX
product.
∗ 60% of companies with less than 50
employees and 72% of companies with
more than 50 employees told us they
intend to adopt IP Communications
within the next two years.
5-19
TDM Hosted IP PBX
20-49 50-99 100+
%%
> 5yr
25%
3 to 5yrs
9%
1 to 2yrs
25%
<6mo
13%
<6mo to 1yr
28%
There is a strong correlation between adoption of
IP Communications and adoption of Cloud Services.
Companies who use IP Communications are 2.5 to
3 times as likely to use Cloud Services
About 20% of smaller SMBs and 40% of larger ones
have adopted some type of Cloud Service.Those
who have adopted Cloud Services regularly purchase
more than one service from a single vendor.
Since our previous study in 2010, our latest survey shows positive movement in the adoption of IP
Communications and Cloud Services by SMBs.The survey found that:
0
20
40
60
80
100
8% 10% 7% 11%
9%
12% 15%
18%
83%
78% 78%
71%

3. researchhighlights:
buyingbehaviors&purchasedrivers
researchhighlights:
buyingbehaviors&purchasedrivers
Our research shows distinctive buying
behaviors for different size companies.
Smaller companies with fewer than 50 employees
make IP Communications purchases based on business
need, not for technical reasons. Unsurprisingly, the buyer
and decision maker tends to be the owner or another
high-ranking, but not technical, officer of the company.
Their primary purchase drivers are economic in nature
and they seek to find business value in a new IP
Communications system. We strongly advise service
providers seeking to serve smaller companies to conduct
sales conversations in clear business language and to take
the time to highlight the business benefits of an IP
Communications service.
Larger SMBs with more than 50 employees show
more sophisticated buying behaviors and more nuanced
purchase drivers. The larger SMBs seek to satisfy both
business and technical needs and,often,there is more than
one buyer: a businessperson and an IT person make the
decision collaboratively. Consequently, their purchase
drivers strike more of a balance.The reputation of the
service provider is nearly as important as the economics
of the offer for them.To sell successfully to these larger
companies, service providers must address the needs of
each of the decision makers.
In past studies, GrowthMark found these buying behaviors
to be common in companies with more than 100 employ-
ees. In this study we have seen a significant shift: we now
see the hybridtechnical/business decision-making pattern
in companies with more than 50 employees. Service
providers should take note and be prepared to address
both sets of needs.
The Economics of the Offer
The Reputation of
the Service Provider
Change Event
(moving, growing, etc.)
Product Characteristics
such as Features
Less Important Important More Important
Inner Circle: <50 Employees Outer Circle: <50 Employees
13%
11% 14%
26%
25% 27%
29%
31%
61%
61% 60%
55% 50%
17%
32%
51%
25%
16% 19%
34%
41%
32%
35%
32%

4. ipcommunications
adoptiontrendsbyindustry
ipcommunications
adoptiontrendsbyindustry
For the first time, GrowthMark looked at the adoption of IP Communications by industry
verticals. We found the highest current adoption rates in companies in the Aerospace/Defense,
Energy/Utility,Technology and Financial Services sectors.
More interestingly, we asked surveyparticipants who have not yet purchased an IP Communications service about
their plans to purchase.As noted earlier, 60 to 70% of our panel told us they were likely to adopt within the next
two years.When we correlate plans to purchase with industry we find that Automotive,Transportation/Logistics,
Advertising, Construction, Health Care/Pharma, Manufacturing, and Media/Entertainment are the segments with the
strongest plans to adopt.
GrowthMark does not necessarily advocate development of products specifically for these verticals, but service
providers would do well to carefully study the business needs of these industries and train sales teams to address
those needs with full-featured IP Communications products.
Automotive
Logistics
Advertising
Construction
Health Care/Pharma
Manufacturing
Entertainment
Industries with the Highest Percentage Planning to Adopt IP Communications

5. unifiedcommunicationsunifiedcommunications
Since no industry standard definition of Unified Communications (UC) exists, we described UC to
our survey participants as a service that provides:
61% of smaller SMBs and 79% of larger SMBs told us they were interested, very interested or extremely interested
in UC for their business. Both groups expressed a willingness to pay extra fees per month to have access to the UC
feature set,particularly when presented with a deeper description of UC features including integrated voicemail,and
call jump (i.e. the ability to move a call across devices without interrupting the call).
Service providers will need to carefully consider how to package and price UC features.Should you charge separately
for UC or include it as part of a standard Hosted Voice product? Our qualitative interviews strongly suggest that
inclusion of UC with a standard HostedVoice product can be instrumental in driving a higher sales close rate.
A consistent feature set
regardless of whether an
individual uses a desk phone
or mobile device
A single voice mailbox and (if
desired) phone number for
desk phones and mobile devices
The ability to access phone
system features from a
computer, laptop or tablet
The ability to make and receive
calls from computers, laptops
and tablets using a softphone
“UC sounds really useful, unlike a lot of technology. It’s the kind of thing that would make me seriously
consider the hassle of purchasing a new phone system.” - Owner, Denver-based staffing firm
Interest in UC of Companies with <50 Employees
0%
5%
10%
15%
20%
25%
30%
Not
Interested
Already
Have
Interested Very ExtremelySomewhat

6. ipcommunicationsand
cloudservices
ipcommunicationsand
cloudservices
Most SMBs view the Cloud in terms of outsourced infrastructure.They are less concerned with building and
managing virtualized computing environments and more interested in purchasing point-specific Infrastructure as a
Service (IaaS) products.These IaaS products included Cloud-Based email, file storage and firewalls.
Over half of our survey respondents said they prefer to purchase all of their Cloud Service needs from a single provider.
Further, there is a strong correlation between adoption of IP Communications and adoption of Cloud Services. In
our study, IP Communications adopters were nearly twice as likely to use Cloud Services for some or all of their
infrastructure needs.
To take advantage of these findings,
GrowthMark recommends that service
providers strongly consider develop-
ment of a comprehensive SMB product
portfolio that includes IP Communi-
cations and Cloud Services elements.
None 40%
Email Servers 34%
Storage/Backup 32%
Web Servers 23%
19%
19%
18%
7%
Anti-Spam/
Anti-Virus
Business
Applications
Security/Firewalls
Virtualized
Computing
Cloud Services used by Companies with <50 Employees
“The Cloud has made my life
better.... If I have my way, this
company will never purchase
another piece of hardware again.”
- VP IT, Seattle-based food distributor

7. thecompetitivelandscapethecompetitivelandscape
In addition to the decision-maker research described above, GrowthMark also assessed the
competitive environment using mystery-shopping techniques. Using a variety of SMB personas
(e.g. a 15-person accounting firm looking to upgrade its phone system), GrowthMark was able to
obtain pricing for Hosted and Premises IP PBX offers from more than 20 leading service providers
while experiencing their sales process firsthand.
Not surprisingly, our efforts showed that service providers’ offers varied widely from simple, all-inclusive pricing
(phones,CPE,service,usage,etc.) to very customizable,complex offers with a variety of recurring and non-recurring
charges.To compare all offers on the same footing,GrowthMark developed a simpleTotal Cost of Ownership model
that includes all recurring and non-recurring charges added up over the life of a three-year service contract. Our
calculations included transport costs, feature charges, phones, CPE, and usage.To account for pricing variations by
size of sale,we normalize the data and compareTotal Cost of Ownership per user per month.The lowest cost offers
were around $50/user/month; the highest cost offers, over $140/user/month.
Sales processes were equally diverse.Some providers were able to provide quotes within a matter of hours after we
spoke with a knowledgeable salesperson. Other providers required multiple phone calls and emails with sales and
engineering teams before a quote could be generated. The worst providers left our mystery shoppers in a black hole
with no communication for days, or sometimes weeks.We developed a scoring mechanism to account for both
quantitative and qualitative aspects of the sales process.
In general, CLECs fared the best, with prices lower than the group average and better, quicker, more engaging sales
process. ILECs were the worst, by far with four ending up the in “high price/bad process” quadrant of the chart.
“I just can’t understand why it’s so hard to get straight answers from these guys [service providers].Why
can’t they help us figure out what we need?” - CFO,Topeka-based manufacturer
?
??
? $
$
$
Hosted
$
$
$
Premises

8. Sponsor’s Note:All data presented in this Research Brief is taken from market research conducted by GrowthMark in March and April of 2013.The research
was sponsored by Metaswitch Networks as part of MarketVisions, a marketing support program with a package of resources and services to support your
growth, including target market and competitive analysis, pricing and packaging support, brandable brochures, videos, and more.
For more info, visit: www.metaswitch.com/support/marketvisions.
conclusionsconclusions
With relatively low adoption rates and aggressive plans to purchase, the SMB market
continues to present an important opportunity for North American service providers.They
can win their share of the market by presenting SMBs with offers that resonate with the
buying behaviors and purchase drives described in this report.
The correlation between adoption of IP Communications and Cloud Services strongly
suggests that service providers can capture a significant share of SMB spend on voice,Internet
and infrastructure by developing and selling a broad portfolio of voice and IT services tailored
to the needs of the market.
Finally, service providers need to improve their offers by making them simpler and more all
inclusive, and pricing in line with the competition.They would also do well to study their own
sales processes and streamline them to make it easier for SMBs to buy.