IP's Killer Apps Are Coming

As businesses jump on the Internet-based communications bandwagon, software players like IPcelerate are poised to benefit

Finally, the business world is catching up with Kevin Brown. For years, the CEO of IPcelerate, a software-systems provider in Carrollton, Tex., near Dallas, has been asserting -- guaranteeing, even -- that Internet-based communications would revolutionize the workplace. In Brown's mind, the phone could be even more powerful than the PC in helping employees get their jobs done.

In 2004, while a marketing exec at telecom-equipment colossus Cisco Systems (CSCO), Brown penned the book IP Telephony Unveiled. His textbook-like paperback explained how everything from phone conversations to video to spreadsheets could travel cheaply and efficiently using Net technology. "There is a kind of revolution going on, on the corporate desktop," Brown says.


  Roughly one out of four phone lines to the desktop is IP-based rather than the basic digital lines that have long connected most offices, says Steve Raab, director of IP Telephony Research at Dell'Oro Group. He says 11.5 million IP lines were shipped to businesses in 2005, a 46% increase from 7.9 million lines in 2004. The lines connect to 10 million IP phones, up 67% from 6 million in 2004.

"Any way you look at it, IP is becoming very big in the enterprise space," adds Mark Seery, vice-president of IP service infrastructure at researcher Ovum-RHK. "It's certainly for real."

It's been a long time coming. Internet phone gear has been sold since the late 1990s, when Cisco and 3Com (COMS) introduced IP-based phone servers, called PBXs. Early on, the phones looked odd and were marked by poor sound. The earliest IP phones didn't even have a dial tone. So manufacturers had to create one to make users more comfortable with the technology, according to Seery.


  Businesses once reluctant to upgrade their digital systems to IP are suddenly eager to adopt the technology. Why now? Many systems installed several years ago are ready for replacement. And companies can install IP gear at a fraction of the cost of legacy systems.

What's more, the technology helps companies control costs by packing in features such as video conferencing and voice mail translated to e-mail in-boxes. It's no coincidence that business interest is picking up around the same time that IP telephony is also taking off in homes, where the rank and file are getting to use the technology firsthand.

With business interest climbing, manufacturers such as Cisco and Avaya (AV) are learning what helps sell the product. The key now: embedding the gear with killer applications. Such features as video and Web conferencing are becoming more prominent. Businesses clamor for applications that move e-mail from the desktop to a mobile phone or a personal digital assistant. Voice mail can now be read on a PC and e-mail heard on a phone, a concept called unified messaging.


  That's where the software comes in. Gear makers like Cisco are turning to software-application experts such as IPcelerate to ensure IP equipment has the features customers want most. The next generation of IP is being powered by what Rick McConnell, Cisco's general manager for unified communications, calls third parties that make IP communications simple for users. "Now, it's all about the productivity and interaction for the end user," McConnell says. "The end user rules."

IPcelerate, for example, has produced a simple user interface that makes the phone, or a PC used as a phone, a snap to understand. Users can make a basic call, hold a video conference, or carry out a number of other communications functions -- all from the desktop. An IP server, housed at the business or at a remote location that IPcelerate manages, acts as the nerve center for the communication. "We're looking to create the 'Windows' for IP phones," says IPcelerate's Brown, referring to Microsoft's widely used computer-operating system. "The phone has finally begun that metamorphosis."

Smarts like that make companies such as IPcelerate a hot target for manufacturers. Cisco and Avaya have realized that their equipment sells better if it's laced with easy-to-use applications. And the software companies sometimes have closer ties to coveted customers. They also understand that revenue from software is growing, while hardware sales growth is starting to slow.


  Avaya, for example, bought Nimcat Networks last September. IPcelerate has sales partnerships with Avaya, Cisco, IBM (IBM), and others. Brown says he has received and declined takeover offers, and that he expects more down the road. His goal instead is to take IPcelerate public, perhaps within the next 12 months. "Our vision of becoming the dominant software provider in the VoIP enterprise space has not changed," he says.

Having the right software can help clinch deals with key businesses. Take Lowe's Companies (LOW), which this year is installing a system that automatically calls a customer once a product has arrived at the store. Ordinarily, a staffer would receive it, store it, and then have to remember to call the customer to pick it up. Now, once the product is logged, the new IP system dials the customer, and if no one answers the system knows to call back later. "That has taken a tremendous amount of labor cost out of the store," says Lowe's Chief Information Officer Steve Stone.

Cisco has made IPcelerate one of its premier channel partners. Using IPcelerate's technology has helped Cisco win new customers such as Subway Restaurants. The Subways in southern Arizona, for example, upgraded 25 restaurants with Cisco Web phones, high-speed broadband lines, video cameras, and networking gear so that inventory, sales, and staff logs can be tracked more efficiently using IPcelerates software.


  IPcelerate is also sparking interest because it has tapped into college and universities, where highly coveted young users reside. That's why America Online (TWX) has partnered with IPcelerate to put its instant-message buddy icon on the IPcelebrate dashboard used by scores of colleges. "We think of this as a first step in our relationship with IPcelerate," says Kevin Conroy, executive vice-president of AOL media networks. "Beyond messaging, we are actively discussing other content," such as music and video, he says.

The folks at Best Buy (BBY) want to go even further, by putting IP technology right in customers' hands. Best Buy CIO Robert Willett aims to mesh a variety of technologies, from radio frequency identification (RFID), which helps track shipped goods, to global positioning system (GPS), with mobile and Internet-based communications to improve customer service.

Willett envisions a Best Buy-branded communications device in about a year. Best Buy would use the technology, for instance, to determine when a given piece of stereo equipment is due for a warranty upgrade. It would then automatically place a call to a customer's Best Buy device asking if the customer wants the upgrade. Best Buy could also alert the customer to stereo add-ons, offering a free trial. And the company could use satellite tracking to make the call when the customer is near the store. "It's about taking the chore away from customers and making their life easier," Willett says.


  The cutting-edge capabilities sound interesting, but will they work? Plain, old IP phones such as those from Vonage or cable companies are still prone to outages far more often than standard phones (see BW Online, 11/28/05, "VoIP Providers: Heeding the Call?"). Willett and others admit that the systems have to be near-flawless to satisfy customers who will bail in a minute if they experience problems. "Execution is a big issue," Willett says. "But there are things developing that will make this easier. It's astonishing the development going on."

Ipcelerate isn't the only IP software player doing well. Others, such as Cistera Networks, Metreos, and Aptigen are also developing handy software for server-based systems. Next to giant telecom companies, IPcelerate and its peers are lilliputian. Brown, for example, expects to do $21 million in sales this year, but that's twice what the company pulled last year.

And while he won't give profit numbers for his private company, growth is humming along. Last year, IPcelerate had between six and eight sales partners -- now it has more than 50. The plan is to have enough to cover 70-80% of the IP market. The company has leapt from five software developers to nearly 30 today.

Kevin Brown might have a long way to go yet, but it looks like he was right all along. The IP revolution is here.

Before it's here, it's on the Bloomberg Terminal.