In-Depth

Is Microsoft's Cloud PBX Ready for Business?

Nearly a year after the release of the Cloud PBX Skype for Business option to Office 365, both Microsoft partners and telecom providers are eyeing what they see as a potentially huge growing market. 

• By Jeffrey Schwartz
• October 24, 2016

When Pete Zarras joined Microsoft as an enterprise partner account manager nearly a decade ago, he was invited to use a PC-based softphone instead of having a traditional phone on his desk. It was part of a pilot using the company's Office Communications Server, the technology later known as Lync Server and now as Skype for Business Server. During his stint at Microsoft, Zarras was reporting to a group responsible for the company's universal communications go-to-market organization and was among the early users as it began to roll the universal communications interface out internally.

"I got involved with some of the first internal dogfooding," Zarras recalls. "I never had a conventional phone line." And he hasn't had one since.

Zarras would continue using the Lync client and now Skype for Business with the company he later ran, New York-based Cloud Strategies Inc., a Microsoft partner and solution provider specializing in SharePoint, Office and related technology. But it wasn't until a few years ago that Zarras felt comfortable selling the Lync technology when an updated version released in 2013 was finally "multitenant-aware" and better integrated.

"We ran on it internally but we didn't feel like we could sell it because the stuff that should have worked didn't work," Zarras says. "We couldn't schedule meetings in Outlook, it needed a Web-based portal, and if we wanted a voice meeting it was like stitching Band-Aids together." That's no longer a problem, Zarras says. The latest version, Skype for Business Server 2015, has become a more viable platform for enterprises seeking a new phone system that can be integrated with their e-mail systems and related collaboration tools.

Yet arguably Microsoft's most ambitious step forward in its goal to broaden the use of Skype for Business arrived at the beginning of this year when the company added its Cloud PBX option to its highest-level SKU of Office 365, E5. Nearly a year after Microsoft released the Cloud PBX option and brought the Skype brand to Lync, Zarras is among a growing number of partners who believe the service is poised to ride the coattails of the growth of Office 365. While larger enterprises still prefer the on-premises Skype for Business Server, nearly all are looking at its ability to integrate with Office 365 in branch and remote offices. Likewise, small and midsize enterprises increasingly are deploying the Cloud PBX option to either replace or augment their existing telephony infrastructure.

Exceeding Expectations
Since rolling out the Office 365-based Cloud PBX option back in December, interest in it has surpassed the expectations of John Lamb, president of Kirkland, Wash.-based Modality Systems Inc., which was the 2016 Microsoft Partner of the Year in the Communications category. Modality has specialized in deploying Microsoft's communications platform for nine years. Lamb says since the release of Cloud PBX, 100 percent of his prospects and clients have expressed an interest in it, at least for a portion of their deployments, much to his surprise, though he admits to heavily promoting it.

"We expected to see a lot more customers stay on-premises or have plans to stay on-premises because of the workload and the need to have voice close to your users, and the infrastructure for your users from just a latency roundtrip time perspective," Lamb contends. "I think we've hit the double-bubble in a way in that there's a bunch of pent-up demand for Cloud PBX, and there's also a bunch of pent-up demand moving from on-premises to the cloud in general as a macro IT shift."

Indeed, just as many organizations are moving to Office 365 to get out of running and managing their own Exchange Servers on-premises, a growing number see the same potential benefits of doing so with their PBXes. But while e-mail has become a mission-critical component of business communications today, many see much more risk in ceding control of their telephone systems. Moreover, moving Exchange to Exchange Online is a simpler process than moving what are typically several phone systems provided by other suppliers, such as Cisco Systems Inc., Avaya Inc., ShoreTel, Mitel, NEC and a slew of others. And that's not to mention the alternative Cloud PBX hosting options offered by the likes of Ring Central Inc., 3CX, Vonage, Ooma Inc. and Grasshopper, among numerous others.

"I think we've hit the double-bubble in a way in that there's a bunch of pent-up demand for Cloud PBX, and there's also a bunch of pent-up demand moving from on-premises to the cloud."

John Lamb, President, Modality Systems Inc.

These alternative providers, some of whom argue their solutions are much richer than Office, offer various solutions and price points that will give many organizations the opportunity to consider other options before jumping on the Cloud PBX bandwagon. "We never see them," argues Kyle Asbury, sales manager for North America at 3CX.

Fragmented Telephony Market
And for their part, the established market leaders aren't about to cede their businesses to Microsoft as they, too, offer softphone and Cloud PBX options. If anything, the telephony market is the most fragmented business Microsoft has ever attempted to penetrate. Even Cisco, whose IP-based PBXes are the most widely used by enterprises, only accounts for 29 percent of the market, while No. 2 Avaya holds 16 percent, according to a recent survey of large enterprises by Chicago-based Nemertes Research, whose analysts specialize in telecommunications and networking technology.

Despite a small share of overall lines, the survey, which Nemertes emphasizes was not sponsored by any company and is based on in-depth interviews with IT leaders among those participants, suggests the market is largely becoming a two-horse race between Cisco and Microsoft.

"From a research perspective, we see a lot of companies weighing Cisco versus Microsoft, particularly among larger companies," says Robin Gareiss, Nemertes' president. "A lot of them are running trials with Microsoft voice. Most of them are using Microsoft for the more unified communications (UC) functions like presence and instant messaging and some of the conferencing features, as well."

While Skype for Business is always in the mix, Microsoft still has challenges to overcome, Gareiss and others point out. "We are definitely still hearing from companies that there are issues with voice quality and integration, that is a big challenge. But that said, we have a lot of large clients that are using Skype for Business for voice and doing fine with it," she says. "It's a slow transition. Most of them are going from Cisco to Microsoft and just trying to standardize on Microsoft for everything."

The reporting technology Microsoft acquired from Event Zero that it plans to integrate into the Office 365 Administration Center will address a key gap in Cloud PBX today. "The biggest challenge for them is getting the right management tools in place," Gareiss says.

Diane Myers, senior director of research for the IHS Inc. VoIP and UC practice, agrees that Skype for Business is showing gains, but from a relatively small base of lines installed. Overall that small base accounts for less than 5 percent today compared with market leader Cisco at 30 percent. However, Microsoft's UC apps are a strong draw for those considering Skype for Business as an alternative to an existing PBX, according to Myers.

"Microsoft definitely leads on the UC front, they are by far the No. 1 vendor. But on the telephony portion, they are very small, relatively speaking, when we speak about other providers like Cisco, Avaya, Mitel, NEC and others," Myers says. "They have made inroads and there are absolutely businesses using them for the telephony piece, but it is not as widespread as Microsoft would probably hope."

Aiming for Feature Parity
Besides the management console, perhaps the biggest dealbreaker for many potential organizations considering Cloud PBX is that it doesn't yet have some key features offered on the Skype for Business Server and a staple of all traditional phone systems: auto-attendant (the ability to automatically route calls to different extensions) and support for hunt groups, which enable the distribution of calls from a single line to multiple extensions. Both are on the Office 365 roadmap for release by year's end.

Partners say implementations of Cloud PBX without any hardware on-premises may be suitable for small and midsize organizations, but larger organizations are largely phasing it in and integrating it either with their existing third-party PBX and the Skype for Business Cloud Connector or for hybrid Cloud PBX accounts connected to the Skype for Business Server.

Sonu Aggarwal, founder and CEO of Unify Square, a provider of management services for Skype for Business, believes about 30 percent of the Fortune 500 have plans over the next several years to incrementally replace their PBXes with the Skype for Business PBX platform and most will have on-premises implementations in key locations. Aggarwal claims his company works with 10 percent of those large companies, and said at least 10 percent have already moved significant portions of their employees over to Skype for Business.

"A majority of large enterprises seem to have intent to move to Skype for Business as their telephony and communications replacement solution but they are at varying stages and more typically at earlier stages in that transition," says Aggarwal. "Some notable enterprises have done the whole nine yards, and reached nirvana, but most enterprises are on their way there and are figuring out how to get there."

Aggarwal believes the call quality of Skype for Business with PSTN connectivity now rivals traditional PBXes, and he believes Microsoft's claims that the number of Skype for Business lines installed exceeds the new lines installed by rivals Cisco, Avaya and Mitel. At the same time, the overall total number of lines still represents a small portion of the pie.

"The Microsoft Skype for Business solution is pretty mature today in terms of meeting the needs of enterprise users," Aggarwal says. "Microsoft and its software engineers and the industry have gotten the physics of voice-over-IP, which presented significant technical challenges in itself. But I think the physics are in a good spot now."

Implementation Challenges
Partners say where organizations still struggle is in creating new strategies to take advantage of the new technology, as well as governance. Those moving users to the Skype for Business interface on their PCs and mobile devices will find -- like all new technology -- some who embrace it and others who prefer not to give up their traditional phones. Common problems also consist of basic issues concerning setting up conference calls.

"It's not about the physics so much as human behavior," Aggarwal adds, noting many struggle because they're not using certified Skype for Business external phones and peripherals such as headsets. Among the key providers that have lately been refreshing their hardware for the latest Skype for Business Server are Jabra, Logitech, Plantronics, Polycom and Sennheiser. Microsoft also points to a number of IP-based devices offered by AudioCodes, HP (notably the EliteBook 1030 G1), Mitel, Spectralink and Yealink and network infrastructure hardware providers that supply PSTN gateways such as Aruba, Dell, Extreme, HP, Juniper and Kemp, among others. Devices certified for the Cloud PBX Office 365 option are just starting to roll out -- predominantly phone sets from Polycom -- though HP, Mitel, Jabra and Logitech also offer devices.

Laura Marx, senior director of alliances at Polycom, points out the company has worked closely with Microsoft for 12 years since it launched the original Office Communications Server and that more than 40 of its phones and conferencing systems are designed to work with Lync and the new Skype for Business Server. Though not all of its units will work with the new Cloud PBX offering, the company has also delivered some firmware upgrades enabling the systems to work with the service, Marx says. The Polycom CX and VVX lines are certified for Office 365, Marx notes, along with its flagship RealPresence Trio, a solution the company describes as a smart hub for conferencing.

Connectivity and Hosting Options
Despite the growth of Office 365, many organizations are also opting to outsource their Exchange Server to hosting and managed services providers (MSPs). Many of those MSPs are prime candidates to use the new Skype for Business Server 2015 and offer it as a hosted service. Bandwidth Inc., which offers its own carrier-grade network, announced in July that its aggregated SIP-based lines and APIs are certified to work with the Skype for Business Server. That means Bandwidth's SIP-based trunking lines will let enterprises connect their Skype for Business servers to the PSTN, while allowing MSPs to deliver their own communication services based on Skype for Business. Todd Hagstrom, Bandwidth's senior director of product management, says the latest server release is the first that can go head-to-head with existing enterprise, IP-based PBXes.

"The new server version is definitely fit for purpose now. That's one of the reasons why we wanted to go and get certified," says Hagstrom, who believes there's a strong opportunity for MSPs to manage the on-premises Skype for Business Server. "The Skype for Business Server is going to be online for some time," he adds. "People are going to want that capability. Let's say you're a company and 50 percent of your business is a call center. Companies don't want to put it up in the cloud, they want to retain control, use their Microsoft partner locally to help them [with] integrations into a full solution. That's why we are excited about the whole Skype brand coming from consumers moving into business. With the power of Microsoft in the industry, we really think we're on the cusp."

Not for the Faint of Heart
Even for partners, though, jumping into Skype for Business, either by offering services or large-scale Cloud PBX deployments to replace existing phone systems, is not for the faint of heart. It requires an understanding of how to handle moves, adds and changes with telecommunications carriers reluctant to make it easy to turn over business.

Doing so was second nature to BCM One with its roots as a competitive local exchange carrier (CLEC) and a master agent for broadband, VoIP and traditional telecommunications providers. Seeing Microsoft's Cloud PBX offering as an opportunity, as well, BCM One decided to become a Skype for Business partner. Yet BCM One lacked much of the Office 365, Exchange and SharePoint integration skills firms such as Zarras' Cloud Strategies was able to deliver.

The Microsoft account manager for both partners introduced BCM One to Cloud Strategies last year. This summer, BCM One acquired Cloud Strategies. "There was a complementary set of skills. We brought 20 years of telecommunications experience and knowledge. Cloud Strategies had a resident set of skills around Office 365 and the non-telephony component of Skype. We realized that bringing those two together would be a powerful message to take out to our joint client bases," Geoff Bloss, BCM One's CIO, explains. "Now we are a single entity capable of managing large-scale deployments of Skype for Business with PSTN services associated with it."

In the few short months since the companies merged, the combined provider has closed a few key Skype for Business deals that both Bloss and Zarras admit they couldn't have pulled off on their own.

"We've had migrations where there have been tremendous complexities and issues around the porting process and a traditional Microsoft partner like Cloud Strategies would have been unable to navigate through all of those complexities around porting from one service provider to Skype for Business," Bloss says. "And on the other side, there have been instances where there were issues and problems setting up and configuring the Office 365 tenant, had it just been our existing team from BCM One. Marrying those two different diverse talent pools together, we feel, now uniquely positions us, particularly with Skype for Business with PSTN services, as somebody that understands not only the Microsoft productivity side of the house, but also has an understanding of all of the behind-the-scenes work that needs to be accomplished in order to have an effective voice transition and hosted telephony support in the cloud.