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What Is IP PBX? A-Z Guide to VoIP Servers & IP PBX Systems

So, you’ve decided to add a shiny new VoIP phone system to your business. Or maybe you’re still on the fence about VoIP. Either way, you’ve probably heard the phrase IP PBX more than a few times.

Let’s take a look at the part VoIP and IP PBX can play in your business.

What is IP PBX?

IP = Internet Protocol
PBX = Private Branch Exchange

An IP PBX is a central system that switches and routes calls between the telephone network and VoIP users. This specialized system assesses the best way to route many calls simultaneously. Its efficiency allows business users to share limited resources, like a set number of external phone lines.

While you’re learning about IP PBX systems you may see the terms VoIP PBX, IP PBX server, or VoIP server. These things are essentially the same as IP PBX. The terms are used interchangeably.  

Let’s take a closer look at PBX

Think of a PBX as the modern version of a switchboard operator. You’ve seen the grainy old photos. A smartly dressed lady is sitting in front of a huge circuit board, transferring calls by plugging wires into different sockets.

The first switchboards popped up in the late 1800’s, shortly after the telephone itself was invented. That technology (can we even call it technology?) stayed around for a long time.

1800's PBX system

In those days, each person in an office had a phone line. When an external call came through, the operator answered and transferred the caller to your line.

Same thing with an internal call. You dialed the operator and were connected to your colleague. Both you and your colleague were using an actual phone line while on the call. Not only were you tying up two phone lines, your company was probably paying local toll charges for both lines.

Fast forward to the 1970’s. Call switching was automated. It was cheaper than the manual way of doing things and businesses became more efficient. Also, the switchboard lady in the grainy photo lost her job.

1970's PBX system

More companies began investing in business telephone systems. Technology got better and better. By the time the 1990’s rolled around, automated phone systems were standard in the business world. This is around the same time folks in the industry started using the term “PBX.”

Technically speaking

By now, PBX systems have been around for a while. We’re all used to interacting with them when we call businesses, even if we didn’t know it was happening. Ever had to press 1 to speak to a representative or press 2 for our address? Yep. That’s a PBX.

modern IP PBX

These are the basic functions at the core of what every PBX does:

  • Switching between users, connecting calls internally and externally.
  • Ensuring calls stay connected.
  • Ending calls when the users hang up, thus freeing up resources.
  • Recording and keeping track of data and metrics related to calls.

What else does a PBX do?

On top of the core technical functions of a PBX, there are also some standard features that come along with it.

  • Designate a central phone number. All calls for all departments and all personnel – One number.
  • Set up Automatic Call Distribution (ACD’s.) Make your call center run efficiently by distributing calls to your reps according to your business needs.
  • Make call answering an automated process. But do so in a way that lets callers get to the person they need to painlessly.
  • Customize the greetings your callers hear.
  • Manage the way calls are handled at the system level.
  • Customize your callers’ wait experience. Add hold music or include promotional messages, all set to your specifications.
  • Set up a robust voice messaging system. Never miss out on a message from a customer or client.
  • Transfer calls seamlessly and easily among users.

Traditional PBX vs. IP PBX

Now you know what a traditional PBX is and what it does. But what’s an IP PBX?

Here’s the short answer: An IP PBX is a souped up PBX that supports a VoIP system.

Here’s the slightly longer answer: Traditional PBX systems are made up of hardware. IP PBX systems are mostly software. IP PBX phone systems are built to work with packet-switched networks. This means they can handle voice calls, video calls, data, and can link up with applications like Outlook. All those things that make VoIP systems awesome.

Quick refresher

In case you forgot about VoIP, here’s a reminder:

VoIP (Voice over Internet Protocol) is technology that allows users to make calls using the internet instead of an old-school phone line.

how VoIP works diagram

The IP PBX acts as a sort of doorman for a VoIP phone system. It determines how to handle the call and where it needs to go. The IP PBX makes unified communications possible.

Wait, what’s unified communications?

On the surface, unified communications is simply the a business communicates across its organization. This can include voice calls, web and video conferencing, SMS and chat, data sharing, and extension mobility. This list goes on and on.

If you dig a little deeper, you’ll learn unified communications is really a network of enterprise communications within an organization or business.

At its best, unified communications allows John Doe and Joe Blow to chat via instant messenger. Then John sends a data file to Joe within the instant message. Joe has a question, so he switches from instant messaging to video chat. Now they decide to bring Jane Smith into the conversation. And so on.

unified communications venn diagram

Unified communications allows its users to seamlessly communicate and collaborate using different mediums on the same network.

So how does an IP PBX work?

Each user on a VoIP network is assigned an identifier that’s unique to them. This identifier, usually structured like an email address, is the user’s SIP address. The IP PBX keeps a list of all users and their SIP addresses.

When you make a call on your VoIP phone, the IP PBX determines if it’s an internal or external call.

If it’s an internal call, the PBX sends your call to the SIP address of the person you dialed. Since both of you are using VoIP, your call stays on the network and there’s no reason to access an outside phone line.

If it’s an external call, the PBX sends your call to the VoIP gateway or VoIP service provider where it’s then sent on to the external phone line.

But it doesn’t stop there. While it’s playing air traffic controller for your business’s phone calls, the PBX is doing some other cool things. It’s shooting instant messages back and forth between users on the network. It’s allowing users to collaborate on conference calls.

And it’s sending voicemails to your email (which makes it hard to lie about missing that important message.)

What’s so great about it?

There are a ton of great things about using an IP PBX. I won’t bore you with all of them, but here are a few of my favorites.

  • Installation is a no-brainer. It’s software. It’s installed like any other software.
  • Management is a breeze. IP PBX’s have a web-based interface that makes adding users or changing set-up really simple.
  • Reporting is robust. A PBX maintains all the little details you need. You know you want to look at phone reports this weekend.
  • Maintenance is simple. No need to call the guy from the phone company. Moving desks? Pick up your VoIP phone and plug it in somewhere else.
  • Scaling is easy. A VoIP PBX let’s you scale your business fast and painlessly.
  • Save money. The cost savings are everywhere, including reducing or completely eliminating long distance bills.

Types of IP PBX

Your IP PBX can be on-premise (tech guys call this “on-prem”) or hosted. The two work in similar ways. Both have awesome advantages, but in the majority of cases hosted is the better option.

On-Premise IP PBX

Aptly named, an on-premise IP PBX is an in-house system. It’s there, at your site. In your building.

You may have seen the set up before. It’s in a locked closet or small room, with servers and lots of wires. Sometimes, there are jittery IT guys hovering around.

on-premise IP PBX

How is it deployed?

Before deploying any on-premise solution, you’ll buy all the necessary hardware. This normally includes servers, appliances, and interface equipment. The entire system is built out at your physical location.

Your company’s IT team will have 100% control of the system, but they’ll also shoulder all the responsibility for updates, maintenance, and troubleshooting.

What are the costs?

There are big upfront and lower long-term costs with an on-premise system.

Upfront, you’re purchasing hardware and equipment. You’re also spending IT manpower during deployment.

Long-term, you’re paying the cost of labor for your IT team to maintain the system.

And there’s one other cost you might not have considered – Real estate. On-premise systems take up space. In some cases, lots of space. Those servers, server cabinets, and wires needs somewhere to live. If you have plenty of space, this might not be a concern. But if you’re renting office space in downtown Chicago to the tune of $40 per square foot, this might be something to worry about.  

Bottom line

When it comes to on-premise PBX, there are a few things you can count on.

First and foremost, a VoIP PBX system provides many more features than a traditional analog system. Scalability is greatly improved. Some businesses even reported a 49% increase in productivity when using a unified communications system.

It’s no secret though, the start-up cost for an on-premise system can be daunting. For many businesses, it takes years to break even on the investment.

There are minimal recurring costs, like a monthly subscription fee. However, maintenance costs can be high in terms of manpower. When it’s time for updates or troubleshooting, your on-site system is going to require on-site IT professionals.

Hosted PBX

hosted IP PBX

A hosted PBX, sometimes called a cloud PBX, is largely handled by an off-site service provider. You won’t have to worry about a lot of physical equipment, other than some phones and routers.

You won’t have quite as much control over your system because it’s being maintained somewhere else. But this isn’t necessarily a bad thing. You and your employees can spend time growing your business while someone else runs your phone system.

How is it deployed?

You could say it’s as easy as flipping a switch.

The service provider works with you to understand your needs and the best way to set up your system. They get SIP addresses for all your users registered in the system. They ensure VoIP phones you might have are configured properly. Then deployment happens at the service provider’s data center. They really handle all the grunt work.

Believe it or not, a hosted VoIP server can be deployed in as little as one day with minimal disruption to your business.

If they can deploy that fast, imagine how quickly than can scale your service at the last minute.

What are the costs?

Upfront costs associated with a cloud-based PBX are small. You’ll need to buy VoIP devices for your staff if you want them to have physical phones. If not, they’ll need headsets to use with their softphones. That’s about it.

hosted vs on-premise IP PBX costs

Long-term, you’re looking at a low recurring subscription fee for the service.

Ongoing maintenance, upgrades, and troubleshooting is handled by the service provider. You don’t need to spend your IT manpower.

Bottom line

As businesses grow and need more flexibility, there are things a cloud PBX can do to help.

Most importantly, a hosted PBX offers all the sweet perks of a voice over internet protocol phone system. If you can’t recall why VoIP is so amazing, let me jog your memory with a quick list.

  • Big money savings
  • Increased portability and accessibility
  • Excellent call quality
  • Easy scalability
  • Video calls, conferencing, and data collaboration

There’s something to be said about a hosted solution for any of your technology needs. When your call center is having problems in the middle of the night, guess who they’re calling? Not you. The service provider will troubleshoot and fix what’s broken.

Getting started with a cloud-based IP PBX server is cheap. You might be on the hook for some phones but not much else.

One of the best parts of a hosted PBX is your access to new and improved features. Your VoIP service provider has more resources than a single business, so they know about the next best thing to hit the market. And they take care of installing those fancy new bells and whistles.

On-Premise PBX vs. Hosted PBX

If all the acronyms, geek-speak, and lists of features are making you dizzy, here’s a neat little chart that might make things simpler.

On-Premise PBX

Hosted/Cloud PBX

High set up costsLow set up costs
Minimal recurring costLow recurring subscription costs
Maintenance is done at your site by an IT professionalMaintenance is handled by the service provider at their data center
Potential for day-to-day involvement with your IT teamLittle to no involvement with your IT team
Power outage can cause complete loss of phone serviceOn-site power outage does not affect operations – calls can be re-routed by the service provider

Where do we go from here?

It’s pretty clear, a VoIP PBX phone system is the way to go. Most people in business nowadays will agree with me. The decision you’re left with now is, on-premise or cloud based?

Let’s revisit our handy chart. One of these solutions looks a little better than the other, am I right?

Okay, to be totally fair, here’s another chart. This one’s a little more specific about the type of business that might choose either option.

On-Premise PBX

Hosted/Cloud PBX

One location – no remote workersMultiple locations or remote workers
Requires upfront capital to get startedRequires little to no capital to get started
Businesses with physical space for equipmentEquipment is not stored on site
Requires on-site (or on-call) IT staffDoes not require IT staff

There are organizations who may benefit more from an on-premise system rather than a cloud solution. But given the initial and ongoing requirements, these are going to be larger, IT-centric companies with the time, space, money, and manpower to dedicate to their phone system.

For everyone else, there’s hosted PBX.

This is a lot to figure out

Yes, it is. Nextiva wants to help. Our favorite thing is answering your questions. We can explain your options and how your choices will affect your business.

Then we’ll tailor a solution that’s just right for you.

We love solving problems and helping businesses grow. Reach out and learn how you can take your business communications to the next level.

Wait, you’re not sold on VoIP yet?

Sorry, I got ahead of myself. Okay, you’re not sure about VoIP, in general. Well there’s another significant advantage we haven’t talked much about.

Consider this: In 2016, 43% of employed Americans said they work remotely at least some of the time. You can bet that percentage is even higher today.

Do you think those people could work remotely without VoIP technology? No way.

Get rid of your old ideas about working remotely. I know what you’re thinking – Housewives doing telemarketing on their landline while the kids are napping. Forget that.

“But I already know my workers can use their VoIP phone from home.” Yeah, they can. And did you know 91% of people who work from home feel they’re more productive than when they’re in the office? But I digress.

Have you considered how the power of VoIP can change the way you recruit and hire?

In the past your talent pool was the 50-mile radius around your building. But now, with the power of VoIP collaboration, your talent pool is basically… everywhere.

Leverage the tools available with a VoIP system to build the best possible team. And keep in touch with them through voice and video calls, instant messaging, and white board collaboration.

VoIP is here to stay. It’s estimated there will be nearly 205 billion corporate VoIP users by the year 2020. 205 billion people can’t be wrong about the advantages of VoIP PBX services.

VoIP market growth projections

Okay, you’re convinced VoIP is the best choice

And you’re almost convinced a cloud-based VoIP PBX is what you need. Great! Now, call Nextiva.

We want to tell you about the flexibility and options available with an IP PBX system. We’re confident we can meet the needs of any business, from a tiny start up to a big corporation.

Nextiva provides amazing service. We’re not just bragging; our clients tell us we’re doing a great job. Positive reviews from our customers motivate us to work even harder. We’re dedicated helping businesses increase their efficiency and profit. Let us help you.

VoIP is here to stay. It’s estimated there will be nearly 205 billion corporate VoIP users by the year 2020. 205 billion people can’t be wrong about the advantages of VoIP PBX services.

About the author

Cameron Johnson is a market segment leader at Nextiva. Along with his articles on Nextiva's blog, Cameron has written for a variety of publications including Inc. and Cameron was recently recognized as Utah's Marketer of the Year.