Hosted IVR Vendors Are Here to Serve
by Donna Fluss, DMG Consulting
Interactive voice response systems (IVRs) are powerful solutions that reduce operating expenses and improve service quality, when used properly. Growing pressure to increase use of self-service automation in all types of public and private institutions has kept investments in IVR strong, even during the worst of the recession. The IVR market is in transition and the beneficiaries are system users who now have more than 90 vendor choices and many system options.
End users are showing a strong preference for hosted and managed service IVR solutions, as reflected in the increasing percentage of the market being captured by these vendors. This is a trend that DMG Consulting expects to continue long after the economy recovers. End users have found the hosted/managed service acquisition model compelling and convenient, as it enables them to purchase leading technology and applications without a large up-front investment or the need for in-house expertise. As enterprises migrate to hosted/managed service offerings, they are increasingly adding speech recognition, which is a standard part of most of these offerings.
The Hosted/Managed Service IVR Market is Highly Competitive
The IVR market is highly competitive. There are close to 90 competitors that DMG Consulting tracks, and very likely more that operate under the radar. These vendors fall into six main categories: automatic call distributor (ACD) vendors, business process optimization firms (BPOs), carriers/network service providers (NSPs), dedicated IVR vendors, hosted ACD vendors and speech technology specialists. (See Figure 1 for a detailed list of vendors.) Because this IT sector is so competitive, pricing is highly aggressive, giving end users a great opportunity to negotiate outstanding deals. Any organization that has not negotiated a hosted or managed service deal in the last three years should seriously consider putting one out to bid, as they will likely be able to significantly reduce the cost per minute.
Figure 1: 2010 IVR Vendor Landscape
Source: DMG Consulting LLC, August 2010
Market Performance in 2009
2009 was not a record-setting year for the IVR market in general, as sales of infrastructure solutions generally fall in a recession. DMG Consulting estimates that 2009 IVR revenue was $2,164.9 million, up very slightly from $2,164.6 million in 2008. While the market did not grow between 2008 and 2009, it also did not shrink. However, revenue has continued to shift from premise-based solutions to hosted and managed service offerings. DMG Consulting estimates that sales of premise-based solutions decreased by 8% between 2008 and 2009, while revenue from hosted inbound and outbound applications grew by 6% and 13%, respectively, in that 2-year period.
The IVR sector has been one of the best performers in the contact center market for many years. Sales of these solutions have gone through slow periods where growth was very small, but this sector generally maintained its relative size. The IVR market is not expected to realize significant growth due to its already high penetration rate, but it is expected to hold its own and to grow slowly over the next few years. However, while the overall IVR IT sector is not expected to be very strong, the hosted and managed service components are likely to realize excellent results. IVR is currently the contact center application that is most frequently acquired using one of the alternative financing methods, hosting (also known as SaaS or cloud computing), or managed service. This has been the case for the past 6 years and is expected to continue for the foreseeable future, because this acquisition model is so convenient. DMG Consulting expects the revenue for the inbound hosted/managed service IVR sector to grow by 8% in each of the next three years, 2010 through 2012. We also believe that the outbound hosted/managed IVR sector will grow by 14%, 13% and 13%, respectively in years 2010 – 2012. Of course, the success of the market depends upon the performance of the vendors.
Pros and Cons of Hosted/Managed Service IVR Offerings
The common benefits of hosted/managed service technology offerings – no large up-front capital investments, smaller or minimal start-up fees, ease of scaling up and down, ongoing technology updates, etc. – are known to most CIOs, IT managers and chief financial officers (CFOs) It is well appreciated that users can now avail themselves of all types of technology and applications using this alternative acquisition model. In a growing number of situations, vendors are selling the same solutions for premise-based and hosted implementations, and giving end users a choice of financing methods.
Until very recently, contact center leaders have been slow to adopt hosted solutions, with the exception of IVRs. This is because IT is predominantly responsible for the IVR decision, whereas contact center business leaders have made the decision on the majority of their other applications. The recession forced a change in mindset for contact center leaders, who, when faced with a choice of waiting to acquire a new ACD or hosting it, took the necessary actions to keep their departments running.
In the last two years, DMG Consulting has calculated many purchase vs. host financial analyses for clients, and with a few exceptions, hosting is the clear winner for infrastructure investments such as ACDs and IVRs, when operating expenses and ongoing technology enhancements are included in the mix. If, however, a department plans to put in an IVR and they do not want to optimize it or upgrade it for a five-year period, then a premise-based solution will likely be more cost effective.
Hosted/Managed Service Value Proposition
Figure 2 shows a list of reasons why end-user organizations invest in hosted/managed service IVR offerings instead of premise-based applications. When trying to decide if hosting/managed service is a viable option, identify the items from this list that pertain to the organization. If more than 60% apply, then it’s worth the effort to look into a hosted offering. Also, keep in mind that in today’s competitive environment, excluding the hosted/managed service providers significantly reduces the number of viable contenders in the product selection process.
Figure 2: Hosted/Managed Service IVR Pros
Source: DMG Consulting LLC, August 2010
During the last 18 months, the hosted/managed service IVR vendors have been the leading providers of innovation, particularly in the area of reporting, analytics and self-service tools. Additionally, a growing number of hosted/managed service IVR providers now offer a variety of optimization services that are not available from the premise-based IVR vendors.Hosted/Managed Service IVR Cons
While there are many well-known and proven benefits in using a hosted/managed service IVR solution, there are still some negatives that end users need to take into consideration when deciding how to finance a new initiative. Figure 3 shows the potential risks involved in using a hosted/managed service IVR solution.
Figure 3: Hosted/Managed Service IVR Cons
Source: DMG Consulting LLC, August 2010
As is the case with all IVR implementations, there are good vendors that stand behind their products and services, as well as vendors who are not as well respected. To mitigate risks, DMG Consulting recommends that all prospects ask for references and contact them. Often, references are happy to share their “war stories” and provide tips to help avoid pitfalls.
Given the competitiveness of the IVR market, users who want to purchase or upgrade their IVR are well positioned to negotiate a very favorable deal for their organization. While the vendors are complaining loudly about the aggressively low pricing required to win a deal, many are still highly profitable. However, there are also quite a few hosted/managed service vendors who are not profitable and are likely to either merge or disappear in the next 2 to 3 years. Additionally, with more than 90 vendors, the market is too crowded and some competitors will go out of business. While this is less of an issue for users of hosted/managed service offerings, it is disruptive if an enterprise has to quickly find a new IVR partner. Therefore, end users should carefully examine the financials of their preferred IVR vendors when making a choice, so that they know the risks. They should also have a contingency plan ready so that they will be prepared if they need to move quickly to a new vendor.
DMG Consulting LLC (www.dmgconsult.com) specializes in customer-focused business strategy, operations, and technology for contact centers. DMG helps end users build differentiated contact centers by increasing operational efficiency, providing outstanding customer experiences, enhancing loyalty, and increasing sales and profits.