Channel Considerations in the Emerging UCaaS Market
We are entering a world where the workspace becomes a software-based mobile unified communications and collaboration (UCC) platform that runs on any device, any place, and any network. Moreover, the cloud-based sourcing model, UCaaS, allows UCC capabilities such as: voice, IM/presence, UM, video, and web conferencing to be delivered to companies in a manner that’s agile and cost-effective while meeting the IT KPIs for QoS, security, etc. that the business has come to expect today. Cloud services offer self-service, metered use, elasticity and scalability which permit Small Businesses (SBs) to exploit the economies of scale in operations that most could never achieve on their own. Gartner predicts that in 2012, 40 percent of businesses will meet their communications needs by using a blend of premises-based services and Internet or cloud-based services, compared to 3- to 5-percent of businesses in 2009.
The early adopters of UCaaS have been SBs; firms with less than 500 employees. UCaaS gives their knowledge workers the ability to access all business information regardless of location – a key input to increased productivity while enhancing the SB’s capability to deliver unbeatable customer service. In most geographies, organizations with fewer than 500 employees account for a majority of total employment. With respect to U.S. job creation, since the mid-1990s, small businesses have generally created 60 to 80 percent of the net new employment. Such organizations are more open to working with the applications specialists that have been at the vanguard in offering a full UCaaS product suite. SBs also have less restrictive technical and procurement requirements, resulting in a faster sales cycle.
Of course cloud adoption will be gradual, and SBs will continue to operate in a hybrid model with an increasing blend between off-premises and traditional on-premises infrastructure. Larger SBs are slightly more inclined to cloud adoption says Microsoft with 56 percent of companies surveyed with > 50 employees willing to pay for an average of 3.7 cloud services within three years.
What does this mean for the cloud vendor’s Go-to-Market (G2M) strategy? Vendors will need to identify the market opportunity, size it, segment it, identify the various needs and risks, and reassess their Strategic Routes to Market (SRMs). SRMs are a multi-dimensional picture of the G2M channel model describing how a vendor and its distribution channels (direct and indirect) sell the vendor’s products including: selling/fulfillment relationships, Implementation relationships delivering "value in use” by building a fully-integrated system from a set of components, and post-sale support relationships. SRMs need to be few enough in number so that each type is strategically significant and provides a manageable set to use as a base for coverage management processes.
Two factors determine not only what channels are right for a product, but whether the vendor can expect the channel to "push" its product or whether vendor "pull through” will be required are:
- How do customers plan to buy a product and put it into use?
- How difficult is the product to install and use?
- What are user preferences for “self” versus “third party” implementation?
- How will channel partners make a profit from the product?
- What mix of product transaction and attached services revenue does the product offer?
- What is the margin in dollars and cents?
Keep in mind that, in the UCaaS space, the partner’s business model is largely services driven and attached services such as: managed services (remote desktop management and end-user support), business consulting, and migration & integration are key components of partner profitability.
From the cloud vendor perspective there are a number of strategic G2M decisions to make:
- Will the vendor permit the partner to bill the end-customer?
- Does the vendor want to be the sole data center hoster for their solutions?
- To what extent will the vendor allow the partner to provide migration, integration and post-sales support?
- To what extent will a partner be able to buy the UCaaS service from the vendor, bundle it with a data plan or an additional piece of software as a service, sell it to the end customer and bill appropriately for use?
And cloud providers need to better educate partners about the available options and support practice development.
Traditional resellers will be affected by the first issue, hosters and Managed Service Providers (MSPs) and Systems Integrators (SIs) via the remaining vendor G2M strategies. And keep in mind that brand specification depends far more on technical information, training, integration ease, manufacturer support, and appropriate incentives than on product margins or volume.
It follows that when it comes to their vendor investments, channel partners will be focused on business model enablement as the first rule of order followed by technical competency offerings in dictating their alignment with vendors. Partners will clearly have to rethink how they’re positioned in the cloud delivery value chain and where and how to approach the customer’s buying center in light of the changes in the market. Going forward partners will have to involve both Business Decision Makers (BDM) as well as the Technical Decision Makers (TDMs), since a clear understanding of business needs and priorities will be central to driving the UCaaS discussion.
With only a third of SBs having a communication strategy plus less than a quarter with a deployed UC solution, the SB market is huge and wide open. And let’s not forget that it’s a truism that small business spending leads economic recoveries, and market researchers at IDC are forecasting that a spending rebound by small and medium businesses (SMBs < 1000 employees) is happening. As an early adopter of cloud computing, the U.S. accounted for 62 percent of worldwide spending in public IT cloud services in 2011, said IDC. Furthermore, SMBs spent $11 billion on cloud computing in 2011, according to recent research from Techaisle.
Service providers (traditional telcos) have the most ubiquitous channel to sell telephony services and products to small businesses. They have the historical relationships providing traditional phone services (key, small PBX and Centrex) to SBs. And they are the easiest to contact and reach for moves, adds, changes or other compelling events. In/Out-bound contact centers and direct mail to small businesses with a single location and < 20 employees works fine for traditional telephony systems which can be engineered, installed and supported by SP forces. However, more advanced on-prem/hosted UC-based systems require a more solution-based route to market.
Value Added Distributors (VADs) offer another key UCaaS route to market to small businesses. VADs offer varying degrees of marketing and sales support coupled with pre- and post-sales technical capability, logistics, and customized finance programs for their resellers serving the general SB market, and possibly specializing in a vertical such as Healthcare, Education or Government. Though large VARs also source from VADs, it’s the SB VAR who needs services a la carte that benefits the most. VADs are willing to do a lot of the upfront pioneering work that gives vendors a head start in an emerging market with very little investment in market development and channel recruitment.
Tech Data, for example, recently announced general availability of TDMobility, a new platform-as-a-service offering intended to facilitate and standardize the process by which VARs sell mobile hardware and service plans to enterprise, SMB, and public sector customers. TDMobility enables telco VARs to create a complete, “end-to-end” mobile offering for customers, including activation and billing – without having to deal directly with the carrier themselves. Tech Data, instead, takes that task into its own hands, serving as a go-between for TDMobility VARs and the program’s three participating carriers: AT&T, T-Mobile, and Sprint. TDMobility encompasses two separate offerings, CellManage and TDActivate. With CellManage, VARs have the ability to manage multiple cellular lines from a single portal to track billing, deployments, and assets. End users also have the ability to manage their mobile fleet.