The irony at the heart of B2B telecoms
Here’s the irony. Digital is no longer a silo: it is the business. Pretty soon all businesses will need the core service that B2B service providers supply – ie connectivity.
“Without connectivity pretty much all business life as we know it will cease. Connectivity isn’t the new oil, it’s the new oxygen.”
Teresa Cottam, Chief Strategist, Omnisperience
Given the critical important of connectivity, why is life so hard for B2B service providers? Why isn’t business booming? Why is service provider after service provider revealing static or falling revenues
B2B revenues are under incredible and sustained pressure as a variety of factors bite into their revenues. Not least, competition no longer nibbles at their profits, it’s biting their leg off.
B2B or Not B2B? That is the question
It’s easy for journalists to dismissively describe the market as B2B. It’s easy for analysts to say that service providers are looking to the business sector for revenue growth.
But the business sector isn’t just one thing. It comprises a rag tag mix of large enterprises, small businesses, homeworkers, entrepreneurs, public sector, and other service providers (otherwise known as ‘wholesale’). It covers a range of vertical markets. It embraces different business types – some of which use large amounts of connectivity and are highly demanding of the quality and security delivered, and others that use little more than consumers.
No B2B service provider effectively sells to all types of business customer. No B2B service provider has a truly global offering – though some have a pretty comprehensive offering.
Size is not everything. The consumerisation of IT is being seen acutely in the B2B market. Bring-your-own-device (BYOD) is the first step in a whole raft of changes that includes bring-your-own-network (BYON) and bring-your-own-application (BYOA). This might seem ‘so three years ago’, but the challenges it presents continues to afflict large enterprise customers and the service providers that sell to them. IT and communications spending is fragmenting in the large enterprise sector, with IT Directors and CIOs relinquishing considerable control to employees about individual communication and connectivity decisions. This fragmentation makes selling to them harder, because B2B sales teams are often not geared up to identifying and selling to individual business users.
Neither can the enterprise afford to sign up to long-term contracts for bandwidth they might never use. The days of sign and bill (for the next five years) have gone. Nowadays enterprises want to pay for usage, creating more variation in revenues than B2B service providers are used to and making B2B work harder for every penny. Not only that, but businesses want more visibility of what the service provider is actually delivering – the days of the network as a black box are quickly disappearing. And so they should, because now network performance can define the success or failure of increasing numbers of enterprises.
At the other end of the market, SMEs are still badly served. Roughly speaking, the smaller the business the worse served they are. Most microbusiness users are on consumer packages, because business packages simply aren’t designed for them. This means B2B service providers have a real problem in terms of targeting and upselling to them, because they don’t even know these customers are business customers in consumer disguise.
As if all this were not bad enough, B2B service providers have felt the impact of regulation such as EU roaming regulation, and have seen the bottom slowly fall out of their bandwidth market as enterprises expect an ever lower price for connectivity. As we explained in PWC sounds the death knell of the fixed line phone business the traditional fixed line voice market is dying as voice moves to mobile or become another data service (VoIP).
I’m an optimist. The future still looks pretty good to me. There’s plenty of money out there that B2B service providers can play for. The challenge is, can they find a bundle of services that are lucrative for them and which business customers want to buy from them?
Here’s just a few thoughts that show the promise locked up in this complex market:
- Service providers have huge scope to improve the way they sell in B2B. They can make large gains by having a more consultancy-based approach and understanding their customers better – most are not very good at this currently.
- The average numbers of sales per business customer is slightly over 1 for the average B2B service provider. Upselling and cross-selling can instantly add volume and margin.
- B2B providers can consolidate more business from within their customers – taking more global spend and consolidating mobile and fixed spend. Helping them is the fact that multinationals and large enterprises want to reduce the number of service providers they work with globally.
- Enterprises and SME want service providers to sell more to them, particularly in areas that are closely network-related (eg security and cloud).
- M&A is needed to fuel economy of scale and global coverage at the network level; but at the service level, there is scope for a healthy range of resellers to build value on top of connectivity. This includes business units of service providers. However, all channel success will return some revenue back to B2B service providers.
- New service areas that are opening up are connectivity-based (eg IoT). The challenge will be to build value on top of the connectivity requirements.
- The market for connectivity will continue to grow with no sign of any slowing down.
- Vendors want to use B2B service providers as a channel – the challenge being that the average B2B telco is bad at partnering (but that gives a lot of room for improvement).
- The lines are blurring between consumer and B2B due to consumerisation of IT, more homeworking and more microbusinesses. In a sense, in the future most customers will be business customers, as self-employment continues to increase.
The future of B2B is there to play for. FANGS are sniffing at the door. Which is why it’s time for B2B service providers to start biting back.