Hosted IVRs Bring Peace Of Mind
The numbers say it all. Next year, the premises-based inbound speech-enabled interactive voice response (IVR) sector is expected to decline by 5 percent, followed by a 10 percent drop in 2012. But the hosted sector should grow by 8 percent in both 2011 and 2012.
Those projections, provided by DMG Consulting, reflect what both analysts and vendors say is an obvious trend toward outsourcing enterprises’ IVR needs. Sales of premises-based IVR solutions slid by 8 percent between 2008 and 2009, while revenue from hosted/managed service applications grew by 6 percent and 13 percent, respectively, during the same period, the consulting firm says.
“There are many advantages to using a hosted vendor,” DMG President Donna Fluss explains, “including the fact that they don’t charge as much as their premises-based counterparts. In fact, one of the primary strategies for some hosted vendors is ‘whatever premises-based vendor X, Y, or Z charges, we’ll charge two-thirds less, sometimes even less than that.’ They can do that because they will reuse a lot of code, whereas premises-based vendors typically won’t.”
Indeed, the highly competitive nature of the hosted/managed service IVR market and the more than 95 vendors vying for customers put end users in a strong position to negotiate an outstanding deal, Fluss says. That pattern is expected to continue for at least a few years, she predicts.
Motivations Go Beyond Price
Price, however, isn’t the only reason that enterprises are turning to hosted IVR, a sector currently estimated at about $500 million a year that is expected to soar past $900 million by the end of 2015, says Daniel Hong, lead analyst for customer interaction at Ovum. Other motivations include:
• minimal up-front investment;
• leading-edge technologies;
• analytics and reporting capabilities; and
• IVR optimization services.
“Enterprises just seem to feel more comfortable outsourcing the technology and expertise needed to manage a speech application,” Hong says. That comfort level rises “when the enterprise doesn’t have the internal resources to effectively manage a speech solution; when it needs to introduce more features or functions but doesn’t have the budget; when its call campaigns are seasonal; and when the enterprise is looking to hosting providers for other elements of the contact center, namely routing and virtualization,” he notes.
In addition, enterprises are delighted that hosted vendors frequently give them more attention than their internal IT staffs do. That point takes on greater importance if the corporation has gone through layoffs and one of its two IVR specialists has left, Fluss says.
“Hosted vendors only make a living when people access the IVR,” she explains. “The premises-based vendor makes a living when you sign an agreement with them. And so the hosted vendor is much more interested in getting you up and running as quickly as possible because it doesn’t make a living until its customers do. So they have actually geared their business model toward servicing their clients quickly and efficiently.”
Different Vendors, Different Benefits
Customers who intend to turn to a hosted IVR solution have discovered that various vendors seem to bring different perspectives about the services they provide. For example, Nuance Communications acquired BeVocal in 2007 and added features as well as rearchitected the company’s IVR solution.
“Since then, we have added a third data center, optimized for 100 percent availability, added PCI [Payment Card Industry Data Security Standard] level security, added a handset-based Mobile Care application service and an outbound solution, and evolved the hosted reporting system into an analytics offering that provides business-level users with actionable insight to make critical business decisions,” says Dena Skrbina, senior director of solutions marketing at Nuance.
She continues, “In response to customer demand, Nuance also added on-demand ACD [automatic call distribution] and CTI [computer telephony integration] to the hosted solution suite. So, today, Nuance On Demand provides inbound, outbound, and mobile customer service that differentiates a company from competition by delivering the best possible customer experience while saving millions of dollars every year.”
In The Cloud
Meanwhile, Microsoft Tellme doesn’t consider its solution a “hosted” one. “It’s really a cloud-based product,” says Grant Shirk, director of industry solutions. “There are many traditional hosting providers out there who will take your boxes or theirs and put them in a data center and host your application and hook up all the piping. But we find there are a lot of inefficiencies in that model. Instead, our customers use us as a platform-as-a-service play; they keep their application, their business logic, their customer data…all of that stays on their premises just as if we were a Web application. Ours is very much a Web app model.”
Because Tellme’s solution is cloud-based, “customers aren’t waiting for the next version, and they aren’t paying upgrade fees as part of the license,” Shirk adds. “They are getting the best of the platform for every call as we roll out improvements.”
One point of consensus: Before deciding between a hosted speech-enabled IVR system and on-premises solution, it is vital to perform a detailed return on investment, a cost analysis, and a needs analysis (see “The Anatomy Of A Decision”).
When Does On-Premises Get The Nod?
While the advantages of a hosted solution are considerable, does it always make sense to take that route? Would there ever be a situation in which hosting does not make sense or in which an on-premises solution would be cheaper over the long run?
“Absolutely,” Hong says. He cites a scenario in which a company plans to have the IVR for more than six years and “if the enterprise takes millions of calls each day and has the requisite skills set in house to manage a speech application and other functions, such as proactive communications, to really extend the value of the IVR platform.”
Enterprises are moving toward IVR consolidation, he says, because of platforms that have been inherited from various vendors, he says. Hong points out that managing multiple platforms at the same time isn’t economically efficient.
“Instead of having various management tools, instead of having different people who need to specialize in each, their inclination is to centralize it all,” Hong says. “And once they do that, the forward-looking ones who are paying attention to what they can squeeze out of the one IVR platform that will extend across different departments…are the ones who can exploit the advantages of having a premises-based IVR solution. If that’s the case, if they have a utilization rate higher than 95 percent, if they have the internal expertise, then by all means premises-based may be economically better than going hosted.”
Fluss agrees that, under certain circumstances, a premises-based solution is appropriate, “especially if you’re not concerned about receiving continuous technology enhancements, since too many companies believe that IVR is one of those technologies that you can put in and forget about. Some companies will keep their IVR for 10 years or even longer without upgrading it. There’s some very old stuff out there.”
In that case, she says, installing a premises-based solution might be more cost-effective because, after a number of years, you won’t have costs associated with a host.
“Just remember when you do the analysis that you’re not just figuring in the cost of the equipment—and there is certainly a large up-front investment—but you also need to figure in your own internal costs of maintaining the solution on an ongoing basis,” she says. “If you’re putting in a hosted solution, your annual run rate will generally be more than what your annual maintenance cost would be.”
A Nuanced ROI
At Nuance, the company takes a consultative approach and offers companies weighing their decision a detailed ROI and cost analysis.
“Hosting certainly doesn’t make economic sense for all companies,” Skrbina admits, “especially not for those that have recently made large investments in speech IVR infrastructure, as well as the expertise to build and continuously maintain the end-to-end solution.”
Nuance’s ROI calculator factors in capital expenditures, maintenance fees for hardware and software, and a customer-derived labor model. A critical factor often overlooked in traditional analysis is the impact from leveraging business analysts and speech experts that maximize the business benefits of an automated self-service solution, whether it’s higher automation, shorter call duration, or a customer proprietary business metric, Skrbina adds.
“Nuance’s application developers and business consultants partner with our customers to design solutions that maximize ROI, enable fast and efficient deployments, and cater to the highest customer satisfaction scores,” Skrbina comments.
For example, she points out, Nuance has a long-standing customer that enhanced its application with one of the host’s technologies, SmartListener, and then was able to achieve a 2 percent increase in call automation.
“The enhancement led to a cost savings of more than $2 million per year,” Skrbina says. “Nuance’s ROI projections accurately predicted those savings from deploying our enhancements.”
Outbound Growth To Soar
Another exploding trend that is sometimes overlooked is outbound—the fastest-growing sector of the hosted IVR market on a percentage basis. In 2011, DMG’s Fluss expects hosted outbound to grow by 13 percent and then by another 13 percent in 2012.
“People have realized that while a cheap inbound call could cost maybe $5, for argument’s sake, an outbound call can cost perhaps 10 or 20 cents,” she explains. “So why in the world would you want to wait for the calls to come in when there are so many great uses of outbound IVR—from pharmacy refills to travel company notifications to reminders about your doctor appointments to political calls?”
Indeed, Tellme views outbound IVR service as a proactive way to advance conversations with customers. One Tellme outbound IVR service customer, Orbitz, delivers tens of millions of outbound communications every year, Shirk points out.
“One thing that many people miss regarding outbound applications is that they can be extremely targeted, and the scripting can be very intelligent because you know the conversation you are about to have,” he explains. “On inbound communications, you can publish an 800 number and 10 million people can call you for one thing but another million can call you for another 150 things. You need to design for that, which can be challenging and complex. But with outbound, you’re very focused. You’re having a single conversation, a single task.”
A Compelling Case
Ovum’s Hong believes that “all companies should be considering going to the hosted model. When you look at the evolution of services being placed on top of the core platform and what you can do with them…when you look at the reliability and scalability of the platform plus the other cost advantages, hosted should definitely be an option.”
The bottom line, according to Fluss, is that enterprises must not take their IVR solution for granted. “IVR is a mission-critical solution these days,” she says. “It’s a really very good technology that, when it doesn’t work, it’s usually due to human error.
“Pretty much anyone who hasn’t taken a look at their IVR environment in the past couple of years really ought to take a fresh look. There has been tremendous innovation over the past five to 10 years, and not just in the technology but also in the best practices,” Fluss says. “Organizations need to realize that if all they can do is get a 1 percent increment in customer usage or adoption of their IVR, depending on the call volume, these types of investments pay for themselves very, very quickly.”
Paul Hyman is a freelance writer based in New York. He can be reached at email@example.com.