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Hosted vs. Installed VoIP: Which One is Right for You?

Business needs, growth plans, and in-house expertise will influence your decision

Once you’ve made the decision to replace your legacy phone system with a Voice over IP (VoIP) solution, you must decide whether a hosted service or an on-site installation is better for your small business. Both delivery methods have unique pros and cons, and, like most technologies, one type is not inherently better than the other. Some small businesses will prefer the ease and scalability of a hosted VoIP service, while others will opt for the greater control and customization of a premise-based VoIP phone system.

VoIP has become the new standard in voice communications, in part because it offers a richer set of features than analog phone systems. A range of call management, monitoring, reporting, messaging, conferencing, and security features is fairly standard among both hosted and installed solutions. Your choice between delivery methods will be determined by whether you treat your phone system as a capital expenditure (CapEx) or an operating expenditure (OpEx) as well as your company’s plans for growth and available in-house expertise.

Installation and management

The first major difference between the two types of VoIP systems is whether the solution is installed on your local network or accessed over the Internet as a hosted service. An installed VoIP system runs on your infrastructure and connects to the public switched telephone network (PSTN), so you and your IT staff, or partner, are responsible for installing not only the VoIP solution but also upgrading any routers that may be used as a voice gateway to support the phone system. With hosted voice, you usually don’t have to upgrade the router, because the voice gateway is part of the provider’s network. Also, some hosted services let you start making calls as soon as you sign up, as long as you have an IP phone connected to your network. Either type of solution may require a faster Internet connection to carry voice traffic, depending on your current bandwidth and voice traffic patterns.

Likewise, installed VoIP requires in-house resources and expertise to manage and maintain, while hosted doesn’t. Avoiding the management of a complex phone infrastructure is a primary reason why small businesses choose a hosted VoIP solution. However, larger small businesses with the in-house technical expertise may choose an installed solution because they have more control over it; you can upgrade the system when needed, instead of waiting for the provider to do it. With an installed solution, you can also exercise more granular control over the features you choose for a more customizable VoIP system. Many hosted voice solutions offer features as bundles, so you can’t pick and choose the functionality you want as easily.

Scalability

It’s smart to consider hosted if you have peak months when more users need a phone system, such as a large number of temporary employees hired for the holidays. It’s easier to add more users with a hosted solution than an installed one. Because VoIP services connect over the Internet, most providers allow you to increase the number of users with just a few clicks on your account page. Adding new VoIP phones to a premise-based solution is likely to involve installing network and phone system equipment, which makes it more difficult to scale than hosted.

Cost and pricing models

Companies often choose their VoIP delivery model based on the number of users they must support, which, of course, determines the overall cost of the phone solution. An installed solution can be more cost-effective for smaller companies with 15 to more than 100 employees. For example, the Cisco Unified Communications 500 Series for Small Business VoIP system can support 15, 64, 32, or 138 users, depending on the model, while the Cisco Unified Communications Manager Business Edition 3000 can support as many as 300 employees. In comparison, a hosted VoIP service, such as Cisco’s Hosted Unified Communications Services, can support from just one or a few employees to several hundred, depending on the options offered by the service provider.

Of course, the initial costs and ongoing fees will differ between hosted and installed VoIP systems. An installed system requires the initial purchase fee for the solution hardware and software, as well as potential consulting and installation fees for help from the vendor. Service providers charge a monthly fee for a hosted VoIP service, determined by the number of phone lines you subscribe to. That fee can vary tremendously based on the features and functionality you choose, especially if you decide to add advanced technologies such as unified communications (UC) or video conferencing.

Whether you choose to install a VoIP solution on your network or contract with a service provider for hosted VoIP, your company will enjoy many of the same benefits. Employees get greater flexibility to send and receive calls from any location and will have access to more robust features than are available in most small business analog phone systems. On top of that, you’ll be future-proofing your network so you can use advanced communication technologies when your organization needs them.

How did you decide between a hosted VoIP service and an installed VoIP phone system? Share your experience here!

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3 Comments.


  1. For a startup with a small number of employees I think the hosted solution is a lot better – lower cost and you have so many other things to worry about. Also, if you have a remote workforce like we have, the hosted solution is really great and reduces overhead costs.

       2 likes

  2. January 11, 2012 at 12:15 pm

    Great article Pat and well said Peter. Most SMBs I’ve interfaced with opted for hosted VoIP rather than on-premise solution for two key reasons:
    - Cost reduction
    - Not having to deal with operation & maintenance of a complex phone infrastructure on-premise without or with limited IT staff, not to mention the in depth technical skills necessary.
    - Ease and scalability of Hosted VoIP
    However, what continues to surprise me is the unawareness of how critical and important network readiness is in terms of faster Internet connection to carry voice traffic, along with data traffic depending on current bandwidth and voice traffic patterns. Obviously this may increase monthly recurring cost if an increase in bandwidth is required for the small business.
    Good news is, depending on their agreements, SMBs can choose a different Hosted VoIP provider with better uptimes and call quality.

       0 likes

  3. I think before choosing any of these VoIP one should look at their own situation carefully before switching to it. If you are more interested in ease and scalability go for hosted VoIP service, and if you value control and customization, you should go for installed VoIP.

       0 likes