Cloud (Hosted) VoIP vs. On-Premise IP PBX - Which is better?

Although hosted/cloud communications have gained widespread market acceptance, and most of the major manufacturers of PBX equipment are also moving their offering to a "cloud-based" solution, there is still a fundamental choice that each business must make:  Buy an on-premise PBX or buy communications as a service / Hosted VoIP system?

We go round for round to determine which approach is best:

Round 1: The power is out or the local internet connection is down: which approach keeps your business up and running? 

On-Premise - Internal calls still work (only if the PBX is on backup power) but connection to the outside world is lost.  Incoming callers hear fast busy but the main # of the business can be re-routed to cell phones / other numbers via the phone company.  Employees cannot take phones home or to satellite locations nor can they re-route their individual extension to their cell phone. 

Hosted - Internal calls will not work at the site but incoming callers will get to voicemail or be re-routed to cell phones, including individual extensions for each employee.  Employees can take their phone home or use a soft phone to retain full functionality if the outage persists, which creates a natural business continuity plan. 

Winner of Round 1:  We give the clear edge here to Hosted, both because there is more flexibility to re-route all calls and also because there is a long-term continuity solution if the outage is more permanent. 

Round 2:  Which approach offers more features / benefits?

On-Premise - The devil is in the details.  There are some very good PBXs that have features that are world-class and can integrate with a company's CRM or other software.  Like everything else, you get what you pay for and advanced features cost money.   Upgrading to new features may cost more money in the future or require more hardware which can be both expensive and a hassle to implement. 

Hosted - Again, it depends on the details.  Some hosted companies are "one size fits all" and offer adequate features but very little customization.  Other providers are highly customizable and can integrate their features with CRM or other software.  Upgrading features is usually standard as the provider evolves their offering (typically requiring no investment on the customer's part) . 

Winner of Round 2:  Slight win for Hosted but with one caveat:  for some specific scenarios there are PBXs that may be a better fit.  This is quickly changing as high-end cloud providers are filling in the gaps.  For 95% of the marketplace, Hosted offers same or better features and because those features evolve and get better with time we give the win to Hosted for this round.

Round 3: Which is more affordable? 

On-Premise - Certainly the model is different for premise-based PBXs.  These typically require an capital expense, significant installation fees and then a vendor maintenance contract that covers adds/moves/changes etc.  Most business decision makers don't love the idea of writing a big check for phone equipment but they see it as an investment and can of course use that phone system for years to come with only the monthly cost of vendor maintenance and phone services. 

Hosted - Most hosted models have little or no upfront costs and instead charge a "per user/phone" cost each month.  This typically means that the monthly costs are higher than a premise-based PBX, although in some cases this may not be true.  Hosted VoIP completely replaces vendor maintenance, phone service costs and of course the capital expense. 

Winner of Round 3:  Give the edge here to Hosted.  Like all "cost" analysis, one must look carefully at the details.  Apples for apples, hosted wins for two reasons:  1) the TCO (Total cost of ownership) is lower when you do the full analysis and 2) the costs are variable and can expand / contract with the changing needs of customer. 

There are other factors to consider:  quality of service/support, individual feature offerings, the tax implications of moving from capex to opex--but on the whole, the hosted model is winning the battle.  Perhaps this is why most premise-based manufacturers are quickly changing their business model to become cloud-based.

Careful analysis is always required before making any decision.  This should include a TCO analysis, a feature match up, an examination of future considerations and of course the philosophy of the customer should be taken into account.  Do they value owning hardware?  Do they prefer to have a "service provider" they can migrate away from if the solution isn't keeping pace with their need? 

The above is an informed opinion on the part of Stellis Technology Advisors.  We welcome your opinions and feedback.