M5 Networks: Hot Time For Hosted VoIP

Dan Hoffman, CEO of M5 Networks, sees his company as a particularly special breed of hosted VoIP provider. It is one that is in the best position to partner with the channel as the landscape of networking vendors continues to consolidate, solution providers evolve their business models for the new era of cloud computing, and service assurance becomes the difference between being a trusted advisor and merely reselling faceless software platforms or phone equipment.

"The channel business model is headed to a higher-level strategic integrator of cloud services," Hoffman said in a recent interview with CRN at M5's midtown Manhattan offices. "People don't realize this yet, but it's so much easier to put puzzle pieces together in the cloud and then free up the cycles to configure properly, train people properly and get all the juice out of the software you bought."

M5's growth is a case study of being ahead of the curve and anticipating those changes. Founded in May 2000 in a New York City apartment, M5 was a pioneer: one of the first companies to rise to prominence as a dedicated hosted VoIP vendor. It now has more than 150 employees, does more than $40 million in annual revenues and boasts about 1,800 customers and thousands of users nationwide.

Its products, all on the hosted delivery model, run the gamut from hosted call recording and conferencing to fax and transcription and business intelligence. At the center of its managed hosted VoIP solution is M5 Call Conductor, a core technology that, unlike other hosted VoIP services that use third-party technologies developed and maintained by those same third parties, was created by M5 in-house.

Before, M5 used Broadsoft's platform to deliver service, but after several years, realized there was a greater service assurance opportunity by owning the entire platform. Hence, M5's Smart Business Phone System, whose rollout was completed in May 2010 after five years of development. Deployments usually run about $500 a month, per customer location, with up to about $60 a month per handset, plus add-ons for integration with certain business applications.

Hoffman said the acceptance of hosted VoIP for business has grown apace with as-a-service solutions: it's a matter of efficiency, cost-cutting and flexibility. Hosted VoIP gained even more traction during the shaky economic climate of the past few years, he said, and received more attention thanks to public events like Broadsoft's June 2010 initial public offering.

"What happened in 2008 and 2009 was: people froze. They didn't do a lot. They knew the costs were low but IT departments had nobody and they couldn't take on projects," Hoffman said. "Hosted VoIP just became an obvious answer."

M5's channel partners include VARs, carrier agents and software specialists, and also strategically aligned, cloud-focused vendors like Salesforce.com. In early May, M5 also announced VoIP integration with NetSuite's SuiteCloud platform for business.

M5 has also been a particularly active acquirer of late, pulling the trigger on contact center software specialist Callfinity in April, and buying a fellow hosted VoIP provider and competitor, Geckotech, last fall. The Geckotech move made M5 the largest dedicated hosted VoIP provider in the country.

"We're in a position to continue to acquire, and we're on a mission to be a great service brand," Hoffman said. "As we meet companies where that synergy makes sense, we will acquire."

Next: M5's Focus On Service Reliability

M5 stakes its reputation on service reliability, Hoffman said, and because its phone system is a proprietary solution, it markets itself as completely transparent about that solution. For example, there's a Web site, trust.m5net.com, where customers and partners can monitor the health of M5 services, as well as see scheduled maintenance and other potential changes, around the clock.

"Any competitor can go on this thing and say 'Look, M5 has a problem,'" he said. "But we see it as setting a standard to know where and what we're doing. We're not going to [B.S.] you."

Major outages of cloud-based services, such as what befell Amazon earlier this year, aren't always deal-breakers for customers, Hoffman said, but also don't do a lot to reassure them about the stability of the cloud model.

At the same time, he argued, the industry is heading undeniably toward the cloud -- the economics and flexibility are too attractive to ignore -- so the companies that gain respect are the ones who put their reputation behind service assurance, and own mistakes when they're made.

"When we have an outage, the good news for our VARs is that they don't have to do anything," Hoffman said.

He made an analogy between cloud computing and airplane travel: there will be crashes and difficulties, but the model itself is here to stay -- the cloud provides easier access to computing resources, just as air travel is the fastest way to cover large travel distances.

"IT departments have crashes every day that don't make two articles in The New York Times," Hoffman said, referencing the Amazon debacle. "We need to fly. Let's be real about that. We have our FAA and we have our understanding, educated consumers. This is the way it's going and we have to be prepared for it. You can't compete if you don't."'

Eric Berridge, co-founder of New York-based cloud computing consultancy Bluewolf, first encountered M5 as a customer, with Bluewolf using M5's platform for a handful of people back in 2002. Bluewolf now has about 250 employees globally and they all use the M5 system, he said.

As a solution provider, Bluewolf doesn't resell M5's hosted VoIP platform but directs M5 solutions toward customer projects on which Bluewolf consults.

"We don't get involved in tinkering around with the phone system. We come in and define what the user experience and business process is going to be, and M5 takes it from there," Berridge explained. "But one of the great things around a solution like that is it's all managed centrally. It's a very simple process and you don't have to maintain internal resources to handle it. In the M5 world, because it's all hosted, you can make changes incrementally to an entire customer base if you want."

The hosted VoIP opportunity is growing steadily thanks to greater customer acceptance of the model, Berridge said.

"As the economy has picked up, I'm seeing more and more organizations create a call center from scratch," he said "They're realizing that by going with a hosted VoIP solution, they don't have to maintain that infrastructure and don't have to work with traditional phone vendors. You are absolutely seeing it grow."

"The cloud brings a certain amount of disintermediation. You don't need to install things or ship things," Berridge added. "So that means the role of the traditional reseller has to change dramatically. The ones that are thriving in this world are the ones that are actually adding value and coming up with very individual solutions."