SMB markets: An elusive opportunity for telcos
SMBs (small-to-medium-sized businesses) have been a challenging market for telcos historically. Despite this, it remains an attractive opportunity thanks to its sheer size and (potential) margins. Our interview programme, across 10 telcos globally and 100 SMBs in Europe and North America, revealed a feeling that telcos could see real rewards by focusing on this previously underserved market.
“SMB is now a high priority as a large part of our B2B strategy. We see it as a very big and growing opportunity,” noted a Western European Operator. A North American operator commented, “medium enterprises are now an area of great focus for us, there’s lots of potential there. We didn’t use to but are now investing lots of resources.” There are several key factors why telcos are looking to pursue this opportunity now:
- As consumer average revenue per user (ARPUs) continue to decline, there remains a promise of stability and growth with business customers.
- SMBs are becoming more technologically mature and are increasingly embracing trends such as remote working and bring your own device, which can reduce their costs of operation. They have increased need and desire for digital and cloud services, which enable employees to access documents from any device, anywhere – they are often looking to their broadband providers to provide this.
- Security and compliance are a high priority for SMBs. Previously they may have relied upon the belief that small businesses will not be targeted by cyberattacks, but increasingly SMBs will struggle to do business without being able to prove they are compliant. As this report will go on to highlight, security is an area of key potential telcos should be looking to pursue.
- Technology such as artificial intelligence (AI) and SD-WAN can enable telcos to provide new services to SMBs while keeping cost of acquisition low.
SMB markets are attractive due to sheer size and (potential) margins
For SMBs, the potential untapped revenues, though relatively small per business, are sizeable when aggregated across SMBs. For example, companies with fewer than 250 employees made up 99% of all enterprises in the EU. But why do telcos often struggle in this space, and what should they do to succeed in this market?
First, it’s important to define what we mean by SMBs and how we should segment them. There is no one clear definition, and segmentation often differs across markets. For example, one operator we spoke to in Mexico pointed out that what they classify as relatively large enterprises would be considered SMBs by telcos in the United States. The definition varies, often dependent on the difference in average company size for each region.
For the purposes of this report, we define SMBs as enterprises with fewer than 100 employees. We also include the category of firms with 2-7 employees – often called SOHO (single office / home office) or VSE (very small enterprise) – in our definition. However, given their size and needs, telcos sometimes group SOHOs with consumers in their “mass-market” lines of business.
The number of potential SMB customers provides the telco with scale of service and large revenue opportunities. These opportunities come from both the acquisition of new customers, for whom operators provide connectivity and communications services (voice, conferencing, UC), and from upselling additional adjacent services to existing customers. These new services might include:
- Enterprise mobility: management and security of mobile devices, including scenarios like bringyour-own-device (BYOD) and virtual desktops
- Software-as-a-service: cloud-hosted enterprise software such as productivity software (e.g. Office 365), CRM software (e.g. Salesforce) or accounting packages (e.g. local accounting software)
- Infrastructure-as-a-service: compute / storage resources and networking capabilities
- Cybersecurity and disaster recovery: email backup and security services including firewalls, anti-phishing and DDOS attack prevention
- IoT connectivity: bespoke connectivity solutions for IoT devices (though not the focus of this report, it is a major new area for telco enterprise services).
For most telcos, moving into new services is a crucial move to combat the commoditisation of connectivity. This move is critical in the SMB market, where cost of acquisition of new customers is relatively high, so telcos must offer value-add services to make it profitable.
Telcos’ key challenges in SMB markets: Fragmentation, heterogeneity, “high-touch” engagement
Disparity characterises the SMB market. The divergence of expectations, needs, and technological maturity of SMBs creates fragmentation. Additionally, SMB needs vary by vertical and region, both of which create additional elements of disparity. This market fragmentation has created two crucial challenges for telcos.
- It’s hard to understand the customers’ needs because they vary so greatly from one SMB to another.
- It’s expensive to serve them because of the time it takes to understand these needs and develop bespoke solutions to address them.
Both of the above challenges are complicated by SMBs’ relatively limited buying power and often limited understanding of their own IT requirements. Despite their smaller budgets, SMBs traditionally require a relatively large investment to win a sale. In comparison to the highly automated, self-service environment of many telcos’ consumer divisions, SMBs want and expect personalised, often dedicated (even face to face) sales and support. Along with knowledge of their product suite, sellers may need to help solve wider IT problems or offer technical guidance. Successful SMB sales teams require broad knowledge and time, making it a comparatively big investment for telcos.
It is not just the sales process that needs to be personalised and consultative; SMBs may also require bespoke product configuration and integration. This kind of service would be expected within a large enterprise but becomes prohibitively expensive within smaller businesses unless it is provided by channels with wider monetisation models (e.g. IT support or equipment sales). In short, SMBs have the engagement expectations of enterprises, with budgets closer to that of consumers. No wonder that few telcos made the effort with SMBs while their consumer businesses were still growing.
To seize this opportunity, telcos must find a way to bridge the gap between the entirely productised world of consumer, and the bespoke sales and services for larger corporates and enterprises.
Table of contents
- Executive Summary
- SMB markets: An elusive opportunity for telcos
- SMB markets are attractive due to sheer size and (potential) margins
- Telcos’ key challenges in SMB markets: Fragmentation, heterogeneity, “high-touch” engagement
- There is a disconnect between what telcos think SMBs need and what they actually want
- Untapped opportunities: Strategies for SMB market success
- Channel strategies: Engaging SMBs to provide a “high-touch” experience
- Short term channel strategies
- Long term channel strategies
- Product strategies: Where to win quick in a fragmented market
- Short term product strategies
- Long-term product strategies
- Supporting capabilities: Where telcos should invest for success in the SMB market
- Short-term supporting capabilities needed
- Long-term supporting capabilities needed