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On-Premise VoIP vs PBX Services

VoIP vs PBX Services

The jargon in the business phone system industry is enough to make even the most tech-savvy entrepreneur’s head spin. However, if we cut through all the strange wording and focus on the features that make each system unique, we can develop enough of an understanding to make a well-informed decision for our own business needs. According to Morning Markets, 65% of businesses are expected to utilize some form of VoIP service by the end of this year. The growth is largely due to the cost savings and flexibility advantages of VoIP over traditional landlines. However, two distinct forms of business VoIP services have emerged: on-premise (the equipment is physically located in your office) and cloud-based (the service is accessed through the Internet). Although this may seem confusing, this article will provide even the busiest entrepreneur with a good idea of which service is a better fit.

Setting The Record Straight

VoIP vs PBX Services

To make sure we’re all on the same page, we’ll start by defining VoIP. The acronym itself stands for “Voice over Internet Protocol,” and refers to any service that provides users with the ability to make phone calls through the Internet rather than a normal analog line. It’s not that different from what you’re used to—VoIP works just like a regular phone, but exchanges the phone plug for an Ethernet plug or WiFi. You may already be aware of these VoIP services, but you may not know that consumer versions of VoIP are now the norm for most home phones. We’ve come a long way since low-cost, low-quality providers such as Vonage, and now most companies won’t even install analog services unless specifically requested by customers. In fact, you’re currently using VoIP if you have AT&T U-Verse, Time Warner’s home phone service, or Ooma—and you’re smart to do so, as VoIP services typically provide customers with free long distance and rates that are cheaper than analog.

The PBX System

Business VoIP combines VoIP phone service with the features of a business phone system, including employee and department extensions, call transferring, specialized call routing, voicemail, and more. In the past, businesses installed a PBX system to get this functionality. PBX stands for “private branch exchange,” an individual phone network used solely by the business in question, and it typically costs thousands of dollars to install. In addition to the money spent on the products and service themselves, an IT professional would need to be hired to put everything together, resulting in a significant expense by the time the setup process is finally complete. Luckily, present-day business owners need not cough up thousands in order to employ a functional phone system, thanks to technological advances made within the last decade. Virtual PBX services—“cloud services” maintained and upgraded by third parties rather than the business itself—provide the customer with an alternative to purchasing, installing, and maintaining individual PBXs within in an office.

As was previously mentioned, there are two kinds of business VoIP services. The first is on-premise business VoIP, which uses VoIP lines and an on-site (or “on-premise”) PBX. On the plus side, the presence of an on-site PBX means the customer’s phone service is not dependent on a third party for the phone service. (However, the phones do still need high-speed Internet to function properly, which is important to keep in mind when considering VoIP.) Furthermore, if your business has a large number of employees located in a single office, the pricing options often scale in your favor. On the other hand, freedom from third-party maintenance does not necessarily guarantee full independence—customers must still rely on an IT specialist to maintain equipment and resolve any Internet issues, which can mean additional fees. On-premise VoIP is also problematic for on-the-go business people, as the phone system is limited to the office where the PBX is located.

Small Businesses Should Consider Cloud Business VOIP

If you have a small, growing business, you may consider cloud hosted business VoIP. Companies who offer this service host the PBX systems themselves, meaning that a business switching to VoIP only has to purchase phones. These are mailed to the customer preconfigured and ready to go—no technician needed. Any necessary management or maintenance occurs through an online portal. As one would guess, the setup costs are much lower for cloud VoIP than on-premise, primarily because the PBX is hosted elsewhere. Additionally, the phones are not confined to a single office and can be used anywhere with an Internet connection. This is ideal for on-the-go and remote employees alike, and also something to take into account if you’re a business owner looking to work from alternating locations throughout the year. Other pros to the cloud include automatic upgrades to phone system features, courtesy of the provider, and easy integration among desk and smart phones as well as softphones. (“Softphones” refers to software used when making calls through your computer rather than a desk phone or mobile phone.) Downsides to using cloud business VoIP include dependence on the PBX-hosting company, as the provider may occasionally suffer from an outage that temporarily leaves their customers with poor call quality or the inability to make or receive calls altogether. Businesses with a large number of employees may want to consider on-premise services, as pricing for the cloud business VoIP is usually based per user.

Whether you prefer on-premise or the cloud, VoIP has something to offer every entrepreneur. If you’re still using an outdated phone line, or looking to outfit your business for a low price, business VoIP is for you and your wallet.

By Leo Welder

Leo Welder Contributor
Leo Welder is the founder of ChooseWhat.com, which guides entrepreneurs through the startup process. Using How-To’s, Comparisons, “STARTicles” and a community forum, the site helps people choose cost-effective, often cloud-based, tools to build an easily scalable infrastructure.
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