Business Market Opportunity for MSOs

The small and medium business (SMB) market for telecommunication service has long been an exclusive domain of the entrenched Telcos.  Over the past few years, MSOs have started to leverage their massive fiber optic network, built over a decade ago, to encroach on Telcos’ turf by addressing this very profitable market segment, and delivering these services over HFC and in some cases fiber to the customer.

The market for telecom services can be segmented by residential, SMB and enterprise (including remote access and telecommuting).  The core product offering that comprises the residential and SMB market bundles are voice, video and internet; the data segment (particularly Ethernet) growing in value for some SMBs and many enterprise customers.  Moving up the value chain from residential to enterprise, the key differentiator moves from a perception of a better grade of service (“Business class”) to the robustness of the offering.  Enterprise customers demand services that are backed by SLAs that meet stringent QoS requirements.  The added benefit for the carrier, of course, is the revenue potential (and more importantly the margins) from business customers - that are several times that of residential customers. 

Comcast’s 2008 year end financial statements address the growth in the small business market of an opportunity of about 5 million businesses (under 20 employees) with a revenue potential of $12-15 billion (annual spend), a sizable market opportunity for a company that delivered over $500 million in this segment with a year-over-year growth of over 40%.  Thus, the key questions that need to be addressed are: (1) is this growth sustainable and (2) is there a potential to participate in this market beyond a zero-sum game with the telcos?  The answer to both these questions, I believe, is yes.

The key differences between the SMBs and Enterprise customers involve CPE and purchase decisions (SMBs don’t have an IT department and the decision maker is typically the owner of the business).  Keeping this is mind, there are some effective strategies MSOs can implement to both grow their business and grow the market (share of the pie and size of the pie):

Simplicity – Eliminate complexity in product use, billing and customer service.  Create simple yet effective technology agnostic solutions that deliver on the needs of the small business. 

Pricing – Create a pricing structure that emphasizes value for the service, yet is competitive in the market place; leverage bundle offerings and provide options for discounts on long term contracts to reduce churn and marketing costs.

Distribution efficiency – Leverage sales channels to the customer to increase penetration and grow revenues by providing value added services on an as-needed basis (for instance, storing and backup, security, maintenance, tech support, etc.).

Customer experience – Provide a consistent customer experience so that the service offering is reliable and scalable with customer growth.  A seamless experience across all communication products is absolutely essential.

Differentiating product in a commoditized setting (more specifically making a case for value vs. price) is by no means a simple task, yet one that is absolutely essential.  The Internet has quickly become the great equalizer, essentially transforming the core product of the company (voice for Telco, and video for Cable) into little more than an application on the net (VoIP for voice, and IPTV for video).  Furthermore, moving from SMBs to enterprise requires actions that are more organic and involve network level changes, innovative sales techniques, and partnerships across industries and geographies.  Delivering a “me too” experience will not lead to big gains for MSOs, as it marginalizes the offering – leading to the downward spiral of a price war with Telcos. Solving these problems requires strategic thinking and marketing plans to achieve short-term growth and long-term sustainability - more on that next time.