There are many factors in choosing whether you want to have an external host for your PBX or bring it in-house.

Which choice is right for you?
There are many serious considerations for any organization moving away from its existing phone system, likely to be based on the regular phone network and an expensive Centrex system to a new system based around IP telephony. A key decision is the right PBX system to choose and how to integrate that into existing organization IT and business practices while still planning for the future.

For some organizations, key functionality and features are going to drive the decision and these will in turn drive many of the other potential decisions. But in a majority of cases the features and functionality on offer will exceed current planning and practices so dramatically that other more basic operational issues will come to the fore.

The most critical of these from the point of view of implementation and future growth is whether to have a PBX system physically on your organization’s premises and under your control or whether to have a PBX hosted externally by a service provider. For a few organizations this decision will stem from a fundamental philosophy of the business – outsourcing all functions that are not directly germane to the core business.

However, IP telephony and VoIP are new technologies with great potential and their benefits and future directions are not clearly understood yet by those in the field, let alone their customers. The factors that come into play are cost, future expansion, control, flexibility, range of features and options, and implementation.

We’ll take a look at the pros and cons of hosted versus on-premise solutions in each case:


In the long run this is more of a wash than you might expect. It is obvious from the outset that the initial and setup costs for a hosted solution will be lower than for an on-premises solution. But it isn’t necessarily so clear where long term operating costs end up taking the overall cost equation. The variables that come into play include the lifetime of equipment, how rapidly technological change will outdate existing equipment and the ease-of-use and flexibility of the solution in question.

  1. Hosted IP-PBX
    • Pro: Lower setup cost
    • Pro: No maintenance costs
    • Con: Potentially higher ongoing service provider costs
  2. On-premise IP-PBX
    • Pro: Potentially lower ongoing costs
    • Pro: No risk of fee increases
    • Con: Higher setup costs
    • Con: Unknown long-term maintenance costs

Future Expansion

The potential for future expansion is more a matter of control and timeframe than of locking yourself into some kind of limitation. Both on-premise and hosted IP-PBX solutions leave you room for expansion and growth. Both will incur higher costs along with growth at a rate that should reduce your overall per-seat cost but will still mean a higher total bill. Both have the potential for allowing big jumps in future expansion. The difference is that with a hosted provider you eliminate some of the risk and difficulty but at the cost of a potentially longer turn-around time and possibly losing some flexibility.

  1. Hosted IP-PBX
    • Pro: Your provider shoulders all the risk, work and complexity
    • Con: Your provider may not be able to make changes as quickly as you could yourself and may not be able to precisely match your needs.
  2. On-premise IP-PBX
    • Pro: You have complete control and flexibility – you can even switch solutions or mix-and-match.
    • Con: Every expansion increases the complexity you have to manage yourself.


Control is a tricky issue and really what is at the heart of a decision between a hosted or on-premise solution in terms of strategy. Some organizations prefer to keep control as much as possible internally, even at the cost of added cost, work and complexity. Other organizations want to outsource as much as possible to keep internal focus on core business – even if that decision ends up costing them more. While this decision would seem to be a clear win for an on-premise solution, in fact several hosted providers do supply enough flexibility in terms of services that many organizations would be satisfied that they had enough control.

  1. Hosted IP-PBX
    • Pro: Paradoxically, by giving up control you may be able to see the forest better rather than the trees.
    • Con: Let’s face reality – your service provider has the actual control – you don’t.
  2. On-premise IP-PBX
    • Pro: You really do have control over every detail. An easy-to-use solution with careful management will give you a solution that matches your needs better than anything else can.
    • Con: You have control – now you have to exercise it…


While there are differences for an organization between a hosted and on-premise solution in this regard, they are more to do with timing. Any reputable hosted solution will be prepared to work with you to add the features you need and require and will also be prepared to become more flexible as market needs arise. But there is disadvantage for someone using the hosted solution. It will always be a common solution for all the provider’s customers and it will take the service provider longer to implement it than you could do yourself with an on-premise solution.

  1. Hosted IP-PBX
    • Pro: Service provider may have more resources to implement a solution you could not afford to do just for yourself.
    • Con: Slowness to adapt and reluctance to adapt for a single customer.
  2. On-premise IP-PBX
    • Pro: You can do what you want with your equipment – the ultimate flexibility.
    • Con: You may not have enough resources to do complex, expensive or difficult things where a service provider might be able to do them for its hundreds of customers more easily.

Range of Features/Options

The same issues arise with features and options as they do with flexibility – if you own the solution you will always have the ability to add more features and options – for a price. But spreading the cost across thousands of customers makes it easier for a large provider to add features at a lower cost. While true, however, this is a smokescreen in this case. The actual individual solution matters far more in this area than specifically whether it is a hosted or on-premise solution. Your business has a required set of features, a desired set of features, a nice-to-have set of features and you don’t care about the rest. If the solution offers it, that will outweigh whether it is hosted or on-premise.

  1. Hosted IP-PBX
    • Pro: Only one thing matters – does it have the feature set you want.
    • Con: Ditto
  2. On-premise IP-PBX
    • Pro: Only one thing matters – does it have the feature set you want.
    • Con: Ditto


This is one of the areas where hosted versus on-premise makes a huge difference. There is no doubt that a hosted IP-PBX service ought to be cheaper, easier and possibly quicker to implement. You will have to weigh that against the on-premise slight advantage in control, options and flexibility. There is one other scenario where implementation will matter a lot – if you aren’t certain about what you future needs are likely to be then a hosted solution starts to look more attractive. You’ll just have to be careful about what your contract may or may not lock you into.

  1. Hosted IP-PBX
    • Pro: Cheaper, quicker and easier
    • Con: None
  2. On-premise IP-PBX
    • Pro: You will know your system’s capabilities a lot better than if you didn’t implement it yourself.
    • Con: Cost, speed and difficulty

By now you will have gathered that this discussion is mostly relevant in the small to medium business space – say up to a few hundred users. More than that and you should seriously consider if need to step up to enterprise class on-premise PBX system with high-level support and SLAs from a reputable manufacturer. But even in that space, hosted can be a good interim solution if you can arrange a short term contract while you take the time to evaluate, test and design a robust long-term on premise solution.

For the small business market, the smaller your business, the more likely that a hosted solution is right for you, but there are exceptions. An organization that is changing rapidly, has a high turnover or that can’t afford the evaluation and management overhead of picking a customer premise system is still going to find a hosted solution a good fit.

And in contrast, a business that needs tight control and flexibility and for whom an integrated telephony solution is a mission critical business application is going to want to have a solution they own and operate on their premises in order to truly deliver for its employees and customers.