As CSPs see flat-lining revenues in many areas, and fret about the effect of OTT services and rising data traffic on their revenues and profitability, there is one area of the market that is highly underserved – offering considerable growth potential. This is the small and medium-sized enterprise sector. Telesperience Chief Analyst Teresa Cottam reveals some of the results of our latest research programme in this area.
If you read the telco press and examine many of the offers out there, you’d be forgiven for thinking that all customers were consumers (and arguably a very small number of consumer archetypes). Ah but then some CSPs have services that are specifically designed for business customers. Upon closer examination, however, you will discover that these offers are intended for large enterprise customers, which have enormously complex accounts, buy substantial numbers of services, handsets, lines and so on, and have specific requirements that necessitate tailoring of the offer.
Both of these sectors are enormously important, of course. But as CSPs struggle to compete with one another to maintain the lion’s share of each of these sectors, according to their business strategy, a third sector has largely been overlooked. This is the SME (small and medium-sized enterprises) sector, also called the SMB (small and medium-sized business) sector and the MSME (micro, small and medium-sized enterprise) sector. This set of customers is still enormously underserved in terms of products and tariffs, often falling between the consumer sector on the one hand and the enterprise sector on the other. When we spoke to CSPs in our latest research programme, they readily admitted this was the case. We interviewed 50 operators worldwide about their views on SMEs and every single one said this sector was a growth opportunity – 72% said it represented a significant growth opportunity. This is unprecedented in the modern telecoms market.
So why is the SME sector the “undiscovered country” of telecoms? Partly this is due to old-fashioned thinking that lumps all enterprises together as “business customers”. As such, individual SMEs were seen as insignificant opportunities compared to huge corporate accounts. CSPs simply didn’t understand or know how to address the opportunity the SME sector held. This 1990s mindset has no place in the modern world, and yet a surprising number of people still can’t seem to get their heads around the difference between an SME and an enterprise in terms of their needs, telco opportunities and strategies for supporting.
Profitably exploiting the huge potential of the SME market requires a different mindset and approach. This is a classic “long-tail” opportunity. It is a volume market like consumer, but SMEs want and need different different things to consumers in terms of products, tariffs and so on. This market has a high level of heterogeneity and requires offers to be tailored to different types of SME. However, this cannot be done in the laborious way in which we meet the needs of enterprises, because it simply isn’t sustainable and there isn’t sufficient margin. The key to unlocking the potential of SMEs is verticalisation – that is, packaging offers and products to meet the needs of specific vertical markets – and self-configuration. SMEs often don’t have IT departments or specialist IT personnel, so they are open to buying many IT services on a SaaS or managed service basis. This is a classic value-adding opportunity that CSPs are well positioned to exploit.
Frankly, you’re either a “cup half full” person or a “cup half empty” one, and in telco-land we have far too many of the latter variety. I’m getting rather weary of all the complaining. We may not be able to “party like it’s 1999″ but, to be honest, in 2012 that looks like “embarrasing dad dancing” anyway.
It’s time to stop bemoaning the loss of the old telco country and go west to find a new land of opportunities. To prosper in the new telco economy, you first need to get your head out of the 90s. Then you need to learn about the size of this opportunity, how SMB opportunities vary by vertical market, size and by region, and how you can start making revenues out of them today.
Infographic on North American SMB market and Microsperience article: US leads the telco charge to verticalize.
Datasheet: Developing a Profitable SME Business in Europe (PDF to download)
Datasheet: Developing a Profitable SMB Business in North America (PDF to download)
Issues paper: Six Strategies for Developing a Profitable SME business (PDF to download)