A virtual phone system eliminates the need for on-site hardware. Your virtual phone system is hosted by the provider.
Virtual phone systems use your Internet connection and are especially useful for small businesses. Newer companies like RingCentral and Jive use virtualized phone systems instead of PBX (private branch exchange). PBX manages calls internally and connects an organization to the public switched telephone network (the traditional phone network). PBX gives extensions to employees and fax machines. PBX also has a lot of additional features.
Today, many small businesses use a virtualized phone system, known as hosted PBX, that requires much less hardware and installation than hardline systems. Hosted PBX keeps everything with the provider and all functions are digital. Virtual phone systems are thus cost-effective and convenient. How cost-effective? Traditional PBX systems are thousands of dollars just for the equipment. Hosted PBX costs nothing for equipment...because there is none!