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How do CSPs sell more to SMEs?
The small and medium sized enterprise (SME) market looks particularly promising for communication service providers (CSPs) but unlocking new growth in this sector will require them to adopt a new approach.
17 Nov 2021
How do CSPs sell more to SMEs?
In 2020 Boston Consulting Group (BCG) presented a stark picture of the telecoms industry’s performance. In terms of value creation, the sector had produced a five-year average annual total shareholder return of just 6.3%, placing it 28th out of 33 industries analyzed. 'What would it take to flip the switch?' BCG asked.
In developed markets, B2C revenue growth has become anemic at best, as revenue from traditional services continues to decline. The UK regulator Ofcom noted, for example, that between 2018 and 2019 UK household spending on telecoms services decreased by 6%.
While CSPs are seeking to build new value in the B2C market, which still represents the lion’s share of the industry’s revenue, 75% now believe more than half their revenues will derive from the B2B sector according to TM Forum research. If they’re to grow their revenues (see Mapping a Path to Telco Revenue Growth) as companies of all sizes digitalize their operations, adopt new business models and adapt to new modes of doing business, the challenge for CSPs is to find new ways of addressing this opportunity in a scalable and cost-effective manner. The small and medium sized enterprise (SME) market looks particularly promising but unlocking new growth in this sector will require CSPs to adopt a new approach - leveraging their data and digital capabilities to build sustainable value.
What’s the SME opportunity?
In developed markets, B2C revenue growth has become anemic at best, as revenue from traditional services continues to decline. The UK regulator Ofcom noted, for example, that between 2018 and 2019 UK household spending on telecoms services decreased by 6%.
While CSPs are seeking to build new value in the B2C market, which still represents the lion’s share of the industry’s revenue, 75% now believe more than half their revenues will derive from the B2B sector according to TM Forum research. If they’re to grow their revenues (see Mapping a Path to Telco Revenue Growth) as companies of all sizes digitalize their operations, adopt new business models and adapt to new modes of doing business, the challenge for CSPs is to find new ways of addressing this opportunity in a scalable and cost-effective manner. The small and medium sized enterprise (SME) market looks particularly promising but unlocking new growth in this sector will require CSPs to adopt a new approach - leveraging their data and digital capabilities to build sustainable value.
“Most telcos know about the B2B opportunity, including its inherent challenges, but are having a hard time operationalising it.” (‘Overwhelming OTT: Telcos’ growth strategy in a digital world’, McKinsey).
What’s the SME opportunity?
The SME sector represents a vast and relatively untapped opportunity for CSPs. But despite having a good understanding of the potential, historically they’ve struggled to address it directly – preferring instead to strike wholesale agreements with resellers who are more adept at meeting the needs of SMEs. With downward price and margin pressure in the B2C and large enterprise market, and the Covid crisis accelerating digitalization, the time has come for CSPs to rethink this approach. Building value in the SME market is not only tactical but highly strategic. Being smaller, SMEs can adopt innovation faster, reducing time-to-revenue and closing the gap between CSPs’ historic business and future revenue opportunities. Beyond the short-term revenue opportunity, another objective is to get in early and grow a longer-term relationship with high-growth SMEs that will become tomorrow’s large enterprises.
But if the opportunity is so compelling why haven’t large CSPs successfully tapped this market previously?
Some have. But for many, maximizing the SME opportunity requires them to break out of their traditional bifurcated approach of a B2C offering on the one hand and a large enterprise offering on the other, and bridge the gap between the productized world of consumer and the bespoke world of large enterprises. Part of the complexity in serving SMEs effectively it that it isn’t a single market, but rather a highly heterogeneous mix of business customers that have very different characteristics and needs.
“Telcos play a key supporting role in enabling SMEs to shift to a digital business model. They can advise SMEs on how they can adapt their businesses to operate in a virtual way as they move from an on-premise environment, with all services and data running at the office, and shift to the cloud.” Songezo Masiso, Acting GM for SME at MTN Business
But if the opportunity is so compelling why haven’t large CSPs successfully tapped this market previously?
Some have. But for many, maximizing the SME opportunity requires them to break out of their traditional bifurcated approach of a B2C offering on the one hand and a large enterprise offering on the other, and bridge the gap between the productized world of consumer and the bespoke world of large enterprises. Part of the complexity in serving SMEs effectively it that it isn’t a single market, but rather a highly heterogeneous mix of business customers that have very different characteristics and needs.
The heterogeneity and hybrid nature of SMEs, their widely varying needs, and huge variation in size, spend, growth potential and maturity make them more akin to the consumer market: it’s a volume proposition with the smaller average ticket size requiring a lower cost to serve and thus higher levels of automation to make it profitable. But the requirement for business services makes it more like the enterprise market. This presents another challenge. Simply levering existing enterprise services into the SME market doesn’t work, because they’re often too complex and too hard for SMEs to consume. Instead CSPs have to create simplified, productized but configurable services that lend themselves to being sold in a more digital and automated way, with the ability to grow in both scale and complexity as the SME itself grows.
Product innovation
CSPs are targeting a number of product opportunities to better meet the needs of SMEs. Many of the most promising offer simplification through convergence of traditionally separate product lines to transform CSPs into a one-stop shop for SMEs. These include products such as unified communications; blending office applications, cloud storage, security and communications into a converged ICT offer; supporting the Work Anywhere paradigm; and converging connectivity offerings into a connectivity-as-a-service product. The proposition here is both to consolidate existing SME spend with a single service provider and subsequently to build on this relationship by providing an even wider range of services that scale as the SME grows. Currently, SMEs are often forced to shop around to gather all the service components they require, which slows their adoption of innovative digital services and makes ICT management more complex and expensive for them. A one-stop shop is appealing, because it reduces their management overhead and accelerates their digitalization.
BT’s Cloud Voice is an example of SME product innovation. It’s a cloud-based unified communications solution that supports voice and video on any device and includes integrated security software, encrypted calls, 24/7 monitoring and call traffic analysis. It can also be combined with a dedicated leased line offering (BTnet). Packages start from £6.30 per user per month.
Deutsche Telekom’s MagentaBusiness HomeOffice is a subscription service for small businesses that provides connectivity, collaboration tools, security packages, consulting, support and hardware. The company uses a digital portal and provides three preconfigured packages as well as the ability for SMEs to configure their own package online. It provides a choice of upfront payments and subscriptions. Customers have the opportunity to buy a MacBook Pro 16’’ for a preferential price of EUR1,973, for example, or pay for it via a EUR37.55 per month subscription.
A key determinant of CSP success and one of the more challenging aspects of serving the SME sector successfully is getting the sales and marketing approach right. CSPs need to use their data to improve their segmentation and targeting to increase their upsell and cross-sell effectiveness, as well as to identify the many SMEs hidden within the B2C customer base. Success also requires CSPs to re-examine their internal sales targets, incentivization packages and operational structures, which often stand in the way of effective SME propositions. Despite SMEs’ constrained budgets, they still have high expectations of the sales process – demanding a mix of automated care, smarter self-service and knowledgeable account management that adds value and helps them consume innovation to boost their growth. Getting this mix right while managing cost-to-serve is vital to ensure profitability.
Swisscom has a nationwide network of 4,000 sales, installation and support partners. In addition, it provides more personalized and in-depth advice to SMEs via its 40 SME centers. SMEs can pre-book an appointment at one of these centers to get a free meeting with a small business adviser or ring a dedicated freephone support number.
Consumerization of ICT is a key trend in the SME sector. But while SMEs may desire a high level of automated self-care when it comes to buying and managing their services, they require far more support than consumers. As they become increasingly ICT dependent, SMEs need assurance that their CSP will either fix the problems for which it is responsible, or give them information to help diagnose and resolve problems quickly if the issue lies beyond the CSP’s domain. Importantly, service & support isn’t just about boosting customer loyalty – SMEs are willing to pay extra for access to knowledge, expertise and premium care services because often they don’t have sufficient internal resources. This transforms service from a differentiator into a potential revenue generator.
Proximus sells Bizz Mobile M to smaller business customers either directly from its website or via a nationwide network of shops. Its Business Flex service (priced from EUR86 to EUR139 with discounts for the first three months) allows businesses to get instant expert advice via their mobile from a dedicated support team. The service is designed to provide outsourced IT advice for businesses that are too small to have inhouse resources.
How CSPs are addressing the SME market
Product innovation
CSPs are targeting a number of product opportunities to better meet the needs of SMEs. Many of the most promising offer simplification through convergence of traditionally separate product lines to transform CSPs into a one-stop shop for SMEs. These include products such as unified communications; blending office applications, cloud storage, security and communications into a converged ICT offer; supporting the Work Anywhere paradigm; and converging connectivity offerings into a connectivity-as-a-service product. The proposition here is both to consolidate existing SME spend with a single service provider and subsequently to build on this relationship by providing an even wider range of services that scale as the SME grows. Currently, SMEs are often forced to shop around to gather all the service components they require, which slows their adoption of innovative digital services and makes ICT management more complex and expensive for them. A one-stop shop is appealing, because it reduces their management overhead and accelerates their digitalization.
BT’s Cloud Voice is an example of SME product innovation. It’s a cloud-based unified communications solution that supports voice and video on any device and includes integrated security software, encrypted calls, 24/7 monitoring and call traffic analysis. It can also be combined with a dedicated leased line offering (BTnet). Packages start from £6.30 per user per month.
Deutsche Telekom’s MagentaBusiness HomeOffice is a subscription service for small businesses that provides connectivity, collaboration tools, security packages, consulting, support and hardware. The company uses a digital portal and provides three preconfigured packages as well as the ability for SMEs to configure their own package online. It provides a choice of upfront payments and subscriptions. Customers have the opportunity to buy a MacBook Pro 16’’ for a preferential price of EUR1,973, for example, or pay for it via a EUR37.55 per month subscription.
Sales innovation
A key determinant of CSP success and one of the more challenging aspects of serving the SME sector successfully is getting the sales and marketing approach right. CSPs need to use their data to improve their segmentation and targeting to increase their upsell and cross-sell effectiveness, as well as to identify the many SMEs hidden within the B2C customer base. Success also requires CSPs to re-examine their internal sales targets, incentivization packages and operational structures, which often stand in the way of effective SME propositions. Despite SMEs’ constrained budgets, they still have high expectations of the sales process – demanding a mix of automated care, smarter self-service and knowledgeable account management that adds value and helps them consume innovation to boost their growth. Getting this mix right while managing cost-to-serve is vital to ensure profitability.
Swisscom has a nationwide network of 4,000 sales, installation and support partners. In addition, it provides more personalized and in-depth advice to SMEs via its 40 SME centers. SMEs can pre-book an appointment at one of these centers to get a free meeting with a small business adviser or ring a dedicated freephone support number.
Service & support innovation
Consumerization of ICT is a key trend in the SME sector. But while SMEs may desire a high level of automated self-care when it comes to buying and managing their services, they require far more support than consumers. As they become increasingly ICT dependent, SMEs need assurance that their CSP will either fix the problems for which it is responsible, or give them information to help diagnose and resolve problems quickly if the issue lies beyond the CSP’s domain. Importantly, service & support isn’t just about boosting customer loyalty – SMEs are willing to pay extra for access to knowledge, expertise and premium care services because often they don’t have sufficient internal resources. This transforms service from a differentiator into a potential revenue generator.
Proximus sells Bizz Mobile M to smaller business customers either directly from its website or via a nationwide network of shops. Its Business Flex service (priced from EUR86 to EUR139 with discounts for the first three months) allows businesses to get instant expert advice via their mobile from a dedicated support team. The service is designed to provide outsourced IT advice for businesses that are too small to have inhouse resources.
Technical capabilities to address the SME market
By taking a more digital approach to delivering personalization, self-service and product configurability, CSPs can simplify SMEs’ digital experience and reduce the barriers to them buying and consuming ICT services. Data analytics, however, will be critical to help CSPs identify SME customers and their needs, and subsequently match these against their current products and offers.
