According to McKinsey executive editor Daniel Eisenberg, “A little over a third of all software today is SaaS”. The shift towards the cloud is irreversible, but on-premise systems still have their place in the business world today.
In this article, we will unpack the merits and demerits of both cloud PBX vs on-premise systems in light of your business requirements, the space they play in, how they solve for customer expectations. Lastly, given everything we’ve been through, we will also throw light on how they can help you navigate a volatile business-customer environment.
Organisations are becoming complex and need to function in a digital-first world with the need for hybrid or remote work models. While cloud seems to be the way forward, on-premise systems have key use cases for industry-specific needs. Plus, there are systems offering a blend of web- and on-premise-based systems.
So without further ado, let’s jump into the pros and cons of these systems. We will also objectively list key business scenarios we have come across during conversations with prospects considering on-premise PBX vs cloud PBX that eventually determines the choice they go with.
The Pros of Cloud PBX systems:
1. A mature cloud telephony solution to build full-fledged customer contact centres for sales, support and operation teams.
2. Scale your telephony infrastructure in real-time, based on a surge in call volume. Don’t miss key revenue-generating opportunities.
3. Set up a call centre solution with available handset devices of your remote customer-facing agents in minutes.
4. Go live with zero infrastructure needs. Add new virtual numbers easily without waiting for operator installation time.
5. Never be unavailable to engage with your customers. Capture revenue opportunities with 99.94+% service uptime through server redundancies
6. Get all the latest customer engagement capabilities in real-time over the cloud, with zero latency. Offer seamless CX to your customers
7. Get insights into call conversations between your agents and customers for better data-driven customer experiences.
8. ISO-certified security standards to protect customer data at rest and in transit, ensure server encryption and automated random tests to identify loopholes.
Product Manager, Rupeek
The Cons of Cloud PBX systems:
1. Might not function well in areas with less reliable internet services. In such cases, using internet boosters can solve this challenge.
2. Limited control over network choice or cloud infrastructure as these are usually predetermined by the provider. However, providers offer exceptions for certain enterprise requirements.
3. Stability and reliability of providers must be determined in advance, especially based on how large enterprises rate them on consistent service & uptime.
4. Customisation is possible to an extent (& more through integrations) versus broader customisations through on-premise systems.
The Pros of on-Premise PBX systems:
1. Limit downtime through complete control of servers. Interact with customers and keep revenue opportunities flowing. Prone to telephone line breakage.
2. A good array of features to create a fully-functional contact or support solution. However, adding new capabilities requires technical know-how and takes time.
3. Reduced costs with SIP trunking helps stakeholders manage support or outbound centre expenses. Eg. less number of lines per agents
4. Can be integrated with Voice over Internet Protocol (VoIP) to create a backup channel in case of internet outages disrupting cloud PBX functionality.
The Cons of on-Premise PBX systems:
1. Huge set-up and maintenance costs to deploy telephony equipment on-premise and having to factor depreciating value of assets.
2. Having to sign extended lock-in contracts with vendors limits freedom to explore better telephony providers.
3. Although customisable to an extent, businesses must spend a small fortune to hire a team of specialists who can fully customise and deploy new telephony capabilities.
4. Limited to no ability to generate call insights. Systems can often delay push of call data to the enterprise stack, limiting offering real-time customer context to agents.
Business Analyst, Zerodha
Time to Decide – Cloud or On-Premise PBX? Consider These Factors
Nature of your Business Model – Does your business have seasonal spikes that bring in revenue windfall or is business demand subject to unpredictable patterns? Does the latter mean being ready for any sudden customer interest? In your quest to go with either a cloud-based PBX vs on-premise system, choose the former to flex your telephony capacity according to business demand. Or is your business part of a sector subject to stringent industry and government regulations that requires your customer data to reside in a private database or cloud infrastructure? If so, choose the latter.
And if you are required to maintain recordings of calls to furnish proof during any potential customer litigation cases or need to whitelist potential spam-marked business numbers, both cloud and on-premise PBX offer recording capabilities, while the former can now apply speech analytics to the recordings as well. In addition, cloud telephony can integrate caller ID verification capabilities from vendors like Truecaller or Google to limit spam tagged numbers and build brand trust with customers.
Size of Business and Resource Availability: For small businesses that operate in relatively low-regulated sectors, a cloud solution is a no-brainer when it comes to choosing between cloud PBX vs on-premise PBX systems. The effort to set up an on-premise solution is prohibitive and can financially impact the business if no clear returns can be gained in the near term. And while you have to assign your IT personnel to work on the on-premise solution, you would also have to hire trained personnel from the provider to assist in setting up the solution at your enterprise. For mid- and large-size enterprises that have clear business lines and need customised communication solutions, either an on-premise solution (factoring the entire total cost of ownership (TCO)) or a customised cloud solution that integrates with the enterprise system are viable options.
Team Construct – Unless your business is an essential service like healthcare or FMCG, most customer-facing teams today work remotely, with IT teams either adapting existing on-premise systems using VPNs to employees’ devices. Or if the effort to adapt the solution for a remote work environment is not worth it versus deploying a cloud solution that can go live in a couple of days, if not a couple of hours, the latter is the best option.
Setting up a cloud solution is easier than ever: activate an online account, and configure your team in minutes using user-friendly dashboards that don’t require expert assistance. Setting up call flows, automated call or SMS campaigns are now do-it-yourself (DIY) tasks. Cumulatively these add extra brownie points to a cloud PBX offering.
Finally, it is key to note is how remote teams based in multiple locations can be connected through on-premise systems present in those locations.
Sales vs Product-led Revenue Model: With intensifying competition came the boon of data-driven conversations, be it through email or social media analytics. But voice-based conversations are a far cry from offering even essential insights to improve the quality of conversations to help your agents improve CX metrics and conversion rates.
If yours is a sales-driven business, don’t second guess cloud when it comes to the cloud PBX vs on-premise PBX dilemma. You can generate a goldmine of conversation insights, identify best practices of your top-performing agents and apply them across other teams and even cross-pollinate them across functions. And if yours is a product-led business, using an on-premise PBX system gives you essential call analytics to help improve engagement practices. But since you already have great product-market fit, having access to comprehensive insights might be optional. Nowadays, you can gauge customer concerns through speech analytics which extracts recurring phrases from conversations and automatically puts them into a report.
LTV & Retention vs Burn Rate: This continues from the preceding factor, where great CX scores automatically boost customer lifetime values and retention rates. By using call analytics from the cloud telephony or on-premise PBX solution (although the data cannot be generated in real time), you can identify pain points for customer-facing teams to process and solve. But beyond just call data, enterprises are building a single source of truth or a unified CX stack that include elements like a customer relationship management app, a customer data platform, conversational intelligence and a communication framework to orchestrate different channels.
In the on-premise PBX vs cloud PBX battle, the latter wins hands-down as there is a higher level of flexibility for the solution to integrate itself with enterprise stacks that are of varying architecture. REST APIs are powerful and flexible to enable strong connections with your enterprise stack.
Employee Experience: If you have unhappy employees, the outcome is simple: you cannot expect to have happy customers. Multiple high-growth firms have a satisfied and motivated workforce, and one of the founding pillars they have taken on the road to ensuring great employee experience (EX) is being data-driven. By consciously identifying areas of improvement or celebrating successful practices used to improve revenue-influencing goals, team members know where to focus and are not vexed at repeating the same practices to no effect.
In addition, when functional leaders focus on boosting productivity levels, teams are able to finish their work faster, be more efficient and hit their goals sooner than later. For instance, while you contemplate cloud-based PBX vs on-premise PBX solutions, wouldn’t your agents prefer dialing a customer through their CRM or helpdesk app rather than switching from it to a separate browser window to place the call? A cloud PBX solution offers a far easier path to enable the former as opposed to the on-premise PBX solution.
Business Environment: The times we live in demand business agility, prompting you to explore adjacent business lines if your core business line begins to bring in lesser revenue. Customer expectations and business operating models are changing, while new digital entrants and players from other sectors want to take away market share from you. In this environment, you need an equally agile communication solution to adapt as your business evolves.
Hybrid models of on-premise PBX systems having IP (internet protocol) or cloud capabilities are emerging, as the market gradually moves away from an on-premise only model. In Exotel’s case, we see large enterprises going all-in on the cloud but choosing vendors that are able to comprehensively integrate their solution with their customer-facing tech stack.
A Sneak Peek into the future of PBX
Through this piece, we have drawn clear lines of differentiation between the merits and demerits of cloud PBX vs on-premise PBX solutions. We’ve even established common areas of strength, giving you everything you need to make an informed decision. While Exotel is a cloud communication leader in Asia and is evolving to become a full-stack customer engagement platform through recent mergers and acquisitions to amplify our offering, we have laid out the strengths of on-premise PBX solutions, from our experience with businesses choosing on-premise or hybrid PBX solutions. The vendor market is vast enough for you to find options to exactly fit your customer communication needs.
Here’s a guide for your sales and support teams to get the most out of their communication efforts from the confines of their homes.