For small businesses just starting out, traditional phone service or BYOD (bring your own device) might do the trick. But as your business grows, so do your communication needs.
You need a way to give employees their own phones, without purchasing dedicated phone lines for everyone in the building. You need an affordable way for team members to talk to each other, answer work calls on their mobile devices, and perhaps work remotely. In other words, you need a business phone system.
Today, several options are available, but a PBX phone system was the first to free businesses from the plain old telephone service (POTS). Since then, new cloud-based telecommunications options have emerged, but many businesses still rely on these older PBX systems or their newer, more sophisticated counterparts: IP PBX and hosted PBX.
So, what is PBX? What are your other business phone options? And which solution is right for your team and customers?
What Does PBX Mean?
PBX stands for private branch exchange. The technology first emerged in the mid-20th century, giving businesses their own mini switchboards and the ability to make free internal calls. Modern PBX systems look more like computer servers and automatically direct callers to the correct extension.
With a PBX phone system, everyone in your company can have their own desk phones but still share physical phone lines. Some modern PBX systems also let you manage voicemail, transfer calls, use IVR menus, and queue callers when phone lines are busy.
Types of PBX Phone Systems
With traditional PBX, all phone calls go through the phone company’s analog network, but modern PBX phone service leverages internet calling and cloud computing.
There are three main types of PBX systems:
1. Traditional PBX
With traditional PBX, your phone service comes from the telephone company, but your PBX hardware manages those phone lines. It accepts incoming calls and routes them to individual extensions, assigns lines to team members making outgoing calls, and supports internal calls between desk phones.
Traditional PBX requires physical office space and significant IT resources to manage and maintain, so it’s not a great option for small businesses, but some larger businesses that invested in PBX years ago still rely on this legacy technology.
2. IP PBX
Internet protocol private branch exchange (IP PBX) lets you use the internet to make and receive phone calls. You still have PBX hardware, but instead of telephone service, you have VoIP (Voice over Internet Protocol) service.
VoIP has become a popular alternative to PBX because it costs less than large bundles of telephone lines and frees users from their desk phones. VoIP works from any internet-connected device and lets you add other communication channels, such as SMS, videoconferencing, and instant messaging. It also offers increasingly advanced features, such as call recording, call center analytics, and CRM integrations.
If you already have a PBX system but also want the benefits of VoIP, IP PBX lets you combine the two using a process called SIP (session initiation protocol) trunking. SIP trunks replace traditional phone lines so you can connect your business phone system to the internet.
3. Hosted PBX
Hosted PBX (also known as cloud PBX) is the latest iteration of PBX phone systems. Like traditional PBX systems, hosted PBX still requires hardware, but it’s not your problem. Your service provider builds and maintains the hardware, so you don’t have to dedicate a closet or IT resources to telephony. Instead, you manage your private cloud-based phone network from a web portal.
As with other cloud services, your team can access hosted PBX from anywhere using any internet-connected device, including an internet browser, mobile app, or desk “softphone.”
On-Prem vs. Hosted PBX: Pros and Cons
How do on-premises PBX solutions (traditional PBX and IP PBX) compare to a PBX phone system that’s hosted in the cloud?
On-prem PBX pros
Lower monthly costs: Because you’re only paying for PBX service and maintaining the hardware on your own, it typically costs less per seat than hosted solutions.
No internet required: If your internet service isn’t reliable, this is a definite advantage.
On-prem PBX cons
Limited calling features: This legacy technology doesn’t support new and emerging calling features.
Hardware maintenance burden: You own the technology, so you pay to maintain the hardware and fix it when it breaks.
Potential for downtime: If there’s a problem with your PBX, or if IT needs to perform updates or move servers, your phone system goes down.
Physical server space: You’ll need a server room, or at least an empty closet, to house the hardware.
Vendor lock-in: Switching from one PBX vendor to another means buying new hardware and new phones, which can be cost-prohibitive for many businesses.
Hosted PBX pros
No up-front costs: You don’t need to purchase and maintain hardware. You’ll just have a relatively low monthly service fee.
No physical space required: You don’t need servers, so you won’t need a server room or closet.
Business continuity and disaster recovery: Cloud PBX vendors typically have redundant data centers in multiple locations to protect service against natural disasters and human errors that could take the system offline.
More robust features: You get access to the vendor’s latest features as soon as they’re rolled out, without needing to install updates.
Mobility: Your team members can use their business phone numbers to make and receive calls from anywhere.
Hosted PBX cons
Reliable internet required: As with any cloud-hosted solution, the service is only as good as your network bandwidth.
User training: Your team knows how to use a desk phone but might need some guidance to learn hosted PBX.
There’s much to consider when choosing a PBX phone system, but those aren’t your only options.
The same cloud computing innovations that enable hosted PBX also make it possible to bypass PBX altogether and instead use VoIP service or a unified communications platform.
Like hosted PBX, modern VoIP systems are cloud-based and hosted by an outside provider, and they function like an application. Unlike hosted PBX, you don’t have a private network with complete control, but you do have privacy with a good VoIP vendor. And because you’re sharing the network with other organizations, you’re also sharing the costs.
With VoIP, your company doesn’t need to invest in expensive hardware and may not need to buy software licenses for each user. You can easily add or remove users, and you only pay for what you use, making it easy to scale. And because VoIP is cloud-based, employees can work from anywhere using any internet-connected device.
VoIP offers the most advanced features of any business phone system, and you can integrate multiple communication channels. Or, you can buy them bundled with VoIP with a unified communications as a service (UCaaS) solution.
VoIP can also be integrated with other key business applications, such as CRMs, file-sharing solutions, and other productivity apps. For instance, by integrating VoIP with your CRM, your salespeople can automatically log calls into the CRM and view customer data for incoming callers. Or, by integrating with your ticketing system, you can automate customer service workflows.
In a nutshell, modern VoIP could save you precious time and money. It also lets you future-proof your business with predictive analytics, artificial intelligence-enhanced features such as voice recognition and chatbots, and other new and emerging communication features.
Is a PBX Phone System Right for Your Business?
Which phone system is best? That depends on your business. While most companies are migrating communications to the cloud, both VoIP and hosted PBX solutions are in high demand.
As of 2021, 31% of businesses used a VoIP solution, and telecom experts predict that market to grow from $85.2 billion in 2021 to $102.5 billion by 2026. Meanwhile, the global hosted IP PBX market is expected to grow by 20% between 2020 and 2027.
Both systems have their benefits and drawbacks, which make them better suited for certain businesses. The best option for your business depends on:
Your internet access
How much you plan to grow your business
How often your employees work remotely
Your current setup
What features you need to support your team across departments
If you still don’t have enough information to decide which business phone system is the best fit for your company, contact an Aircall representative for more information.
This article was published on October 14, 2016, and was updated on May 18, 2022.
Published on February 22, 2023.