Goodbye to the Box: The Rise of Hosted Call Center Infrastructure

In late 2010, a DMG Consulting report on the hosted contact center infrastructure market1 proclaimed a “significant paradigm shift” away from installing ACDs and related equipment on company premises. Instead, the report noted, companies are increasingly electing to have call routing and related functions delivered over a broadband connection.

While stopping short of writing an obituary for the on-premise giants of the industry, DMG said the momentum is clearly on the side of moving call center infrastructure into the cloud. The analyst estimated a 26% increase in hosted seats and a 50% surge in hosted deployments between 2008 and 2009, with growth rates of up to 35% forecast over the next few years.

In this regard, contact center technology is following in the footsteps of Salesforce CRM and other Software-as-a-Service (SaaS) offerings that are transforming the way that businesses acquire the various tools they need to operate.

For contact centers, as for other environments, one of the primary drivers of the hosted model is economic. The ability to have core back-end hardware and software housed, updated and monitored at the vendor’s data center – instead of sitting in servers at the call center’s facility - virtually eliminates upfront capital outlays as well as in-house maintenance, software upgrade and equipment replacement costs.

In fact, DMG traces the turning point in hosted contact center infrastructure adoption to the Great Recession of 2008, which spurred enterprises to explore more cost-effective ways of upgrading their core call distribution systems and associated technology.

But operational and flexibility advantages over premises-based systems are also fueling the transition to cloud-based platforms. These benefits range from the ability to easily scale up and down for seasonal business fluctuations, emergencies and changing company fortunes to easy connectivity for home agents and multiple sites.

Here are 11 reasons that contact centers are finally jumping on the hosted bandwagon in large numbers – a decade after the first SaaS solutions hit the market.

1 – No Capital Outlays

Customer premises equipment (CPE) requires an upfront capital investment that can easily exceed $1 million for equipment, installation and configuration, plus servers, security, backup, testing, maintenance contracts that are typically 15-25% of the purchase price, and so on. With a hosted solution, these costs disappear and are replaced by affordable monthly per-seat or per-user subscription fees. These fee payments come out of the operating budget instead of the capital budget, making it easier to foot the bill.

2 – One-Third the Cost

With the pay-as-you-go pricing of a cloud-based telephony infrastructure, contact centers not only eliminate capital expenses and other costs like in-house maintenance, but also pay only for the seats or users needed in a given month. One Yankee Group study2 2 estimated a 45% reduction in the total cost of ownership with a hosted system. Other calculations suggest a greater savings, with a typical per-seat hosted charge of $9,000 over five years, compared to $25,000 for an installed solution.

3 - Faster Deployment

Because no hardware or software installation is required, a hosted-based call center system can be up and running in as little as 45 days and sometimes even faster. Traditional premises-based deployments typically take months.

4 - Low Maintenance

Under the cloud model, all real-time monitoring, redundancy and ongoing maintenance are handled by the service provider with little or no need to pay in-house IT personnel for system management and support. In contrast, in the installed model, a portion of the required maintenance may be covered under paid service contracts, but in-house technicians are responsible for 24/7 system uptime and day-to-day maintenance.

5 – Expand/Contract Instantly

Hosted solutions make it possible to ramp up capacity in minutes without being constrained by the size of your phone switch or investing in a bigger switch than you need 90% of the time. The provider can add virtual seats whenever you need them, remove them when you don’t, and charge only for what you use each month. Premises-based call centers cannot shrink or grow on demand, resulting in inefficient hardware utilization during slow times and potentially inadequate coverage during busy periods.

6 - Easy Home Agent Setup

In the past, adding at-home agents has been a complex and expensive process with a variety of technology and management challenges. With hosted platforms, home agents can be set up quickly and inexpensively with only a standard telephone and computer, enabling staffing flexibility as well as operating cost reductions. Calls are delivered to the next available agent regardless of location, so there is no negative effect on call handling.

7 - Easy Multi-Site Support

If you have multiple sites – whether in-house facilities, outsourced call center services, at-home agents or any combination – hosted call center technology allows them to operate as one at little or no incremental cost. In contrast, premises-based call center solutions require substantial additional hardware and telecom expenditures for setup at each site and often encounter connectivity difficulties that cannot be overcome.

8 – Feature Parity or Better

As the hosted market has matured over the last decade, the platforms have become sufficiently robust to deliver functionality that is equivalent and in some cases superior to the older “box” offerings. In addition to core components like ACDs, IVRs and computer telephony integration (CTI) that connects the phone system to your databases and agent desktops, the leading vendors now offer integrated plug-and-play features such as social media support, call recording, customer survey tools, predictive and blended dialers, workforce management and eLearning.

9 – New Functionality Faster

The just-mentioned new feature delivery is accelerated by the nature of hosted technology. Feature upgrades are delivered continuously and transparently over the user’s Internet connection with no software installation on company servers or desktops. In the traditional upgrade scenario, new features are introduced en masse under expensive maintenance contracts that keep users waiting for important new functionality as well as requiring in-house installation and in some cases new software licenses.

10 – Backup/Disaster Recovery

Cloud-based solutions also make it possible to protect yourself against power outages, fires, natural disasters and other service interruptions without duplicating your own infrastructure at two different sites. Hosting service providers typically have multiple data centers where they mirror their own infrastructure in order to guarantee service continuity to their customers. It’s an extra assurance that most call centers cannot afford with premises-based equipment.

11- No Equipment Replacement

Since you don’t own the equipment involved in a hosted infrastructure scenario, you don’t have to replace it every five or seven years. That means there is no disruption to your operation and no big-ticket item to finance periodically from your capital budget as older systems become obsolete. Upgrades are exclusively the responsibility of the hosting provider, and they happen behind the scenes.

For these reasons and more, the hosted call center infrastructure market is booming. In Part 2 of this series, we will discuss how four different contact centers are using the power of cloud-based technology to achieve efficiencies and capabilities that are not possible with conventional premises-based systems.

1Hosted Contact Center Infrastructure Market Report 2010-2011, DMG Consulting

2VOIP and Lower TCO Will Drive Adoption of Hosted On-Demand Contact Centers, Yankee Group

Mariann McDonagh is Chief Marketing Officer for inContact.

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Valer Nur — 8:13AM on Mar 30, 2011

How about audio quality ? Wouldn't a hosted solution increase latency in the calls and therefore introduce problems like echo ?

— 12:02PM on May 27, 2011

Hi Valer,

Using hosted services does not mean that audio quality needs to suffer. Latency certainly affects echo, but when the phone network is designed properly, echo is not a problem, regardless of how much latency is present. Without getting too geeky, echo is caused by a reflection of audio energy from the phone at the far end of the call. This reflected energy or echo actually is present on all your calls, local and long distance. On local calls, the reflected audio returns to the callers so quickly they are not able to notice or detect it. When the distance between two phones becomes great enough, the time it takes for that reflected audio to return to the callers begins to be sufficient for the callers to detect the delay and thus hears the echo. Therefore, in all telecom networks, echo cancellation is deployed at the edge of the network. The job of the echo canceller is to detect and remove echo as it occurs. When working properly, echo cancellation will correct echo regardless what distance or latency exists between the two calling parties.

Thus, using a hosted service will not cause echo. Echo exists in the public telephone network by virtue of its design, and a properly configured telecom network will detect and correct echo regardless of whether hosted services are used or not. When echo occurs it is because of problems in the design of the echo cancellation for that telecom network, even in traditional long distance networks it is an issue that must be addressed. More on echo cancellation can be found at - .

The next question is whether hosted services create latency that is noticeable to the callers. Most people do not notice latency until the round trip time begins to approach 300 ms. Thinking about how phone calls get from point A to point B, it is reasonable to understand that the phone cables do not run in straight lines, and that on any given phone call you would not be surprised to find that your call traveled many additional hundreds of miles further than the straight line distance between the two phones. So the question is, would a hosted service add enough miles to create enough additional latency that it would be noticeable to the callers.

Let’s do a little math.

Light travels through fiber optic cables at a speed of about 1 ms per 100 miles. Let’s say you made a traditional call from Los Angeles to New York using a traditional long distance carrier. Let’s say the total route miles for the fiber optic cable used was 7000 miles round trip.

7000 miles
---------------- = 70 x 1 ms = 70 ms of round trip delay. Well under the 300 ms needed to create noticeable delay.
100 miles

Now let’s add a hosted provider and let’s say they add 2000 additional round trip miles to the distance the call has to travel. Using our little math formula, that would mean that the extra mileage incurred by routing the call to a hosted provider would only add 20 ms to the call. So your call with 70 ms of delay now becomes a call with 90 ms of delay, which is still far below the 300 ms of delay needed for latency to become a problem. Thus we can see that the impact of hosted services on the latency of a phone call is small and generally inconsequential.