Consolidation results in domain knowledge disappearing, jobs vaporizing, and MDF monies shrinking. Think about the changes in just 2 years time:
Three cablecos became 1: TWC+Charter+BHN = Spectrum. And easily Cox, Altice and Spectrum will make a move in the next year.
Verizon re-entered the channel; sold off 3 big states; bought XO; bought AOL+Yahoo!; re-organized and lost Janet; and now just talk about 5G and advertising. That took another channel friendly vendor off the table (XO).
Birch bought Cbeyond and a couple of smaller fish. Now Birch is reverse merging with Fusion. Another vendor off the MDF shelf.
CenturyLink and Level3 combined means 2 platinum sponsors become one. Plus L3 took out tw telecom.
Many CLECs are trying to transition their business, but also rely heavily on the AT&T APEX program, They also rely on wholesale arrangements with cablecos. Wholesale with cable is worse than what wholesale used to be like with the RBOCs. A punch in the face is now a punch in the nuts. It will be interesting to see how these providers (MegaPath, TPX, Nitel, AireSpring, Altaworx, WCS) leverage APEX+SD-WAN+4G and How they Differentiate.
Broadview got bought by Windstream, which also picked off EarthLink. 3 becomes 1 vendor.
The hottest M&A has been in data center where VZ, CL and WIND all dumped data center. Tierpoint and Cyxtera came out of that. Equinix and 365 have been buying up data centers. DSM went big, then went home. Peak10 bought ViaWest from Shaw in Canada. Digital Realty bought TELx and DuPont Fabros. This is a lot of activity. In the end less vendors. In the end uncertainty too, as Tierpoint is fond of remarking that its owner (a PE firm) likes to buy and sell assets.
Sprint is for sale. Frontier is in financial distress. Fairpoint sold itself to Consolidated Comms. Windstream is on the rocks.
Shoretel and Mitel got hitched finally. Avaya is looking to get out of bankruptcy.
This amount of activity causes unrest and unease (and job losses). It doesn’t look to stop soon because the pie isn’t getting bigger; it just has a lot of forks in it.
So master agencies and expos have less vendors. That is less vendors for MDF and less vendors to sponsor events (even as more events are emerging.) At least, less big name vendors. There are many smaller vendors in the space trying to position themselves in the midst of this flux.
It is easier to sell one 40×40 booth at an expo or a platinum sponsorship of a partner event than it is to sell 10 regular sponsorships or 10 booths.
Think about it: harder to get enough revenue to hold the event at the same time that the number of events is increasing for the same audience. The same audience who are not increasing the number of events they attend.
On the revenue side of the equation: Customers are fighting over pennies per MB!! Internet bandwidth is the new LD! Gigs and Waves are getting too cheap.
Channel Partners are seeing pricing erode as fast as their commissions.
More than one channel partner wondered if the commissions from a UCaaS sale were worth it – the long sales cycle, the project management, the maintenance.
TDM pricing (T1s) just deregulated and the LECs took advantage by raising rates. Partners have to clean up that mess for the customers, too.
Fun Fact: Customers still want POTS, but partners don’t get paid for it. Doctors still prefer fax as a “secure” communication. That usually requires TDM/POTS.
Partners are looking to add their own special sauce to the hamburger we are all flipping and selling today. That will mean less revenue to the vendors (and through the master agencies). That will also mean the partners will negotiate for a larger chunk of the commissions.
All of it is crashing to zero. Fast.
We have consolidation mainly because of declining revenue and easy access to money. All the vendors are heavily laden with debt that they will likely not pay off. Yet most of the M&A sucks!
These companies have large catalogs of services to offer. Yet no one knows what is available, how to quote it, how to provision it, etc.
It costs money to have a large catalog of services. Product managers, SMEs, marketing people, technicians plus the cost of service delivery. In this case, less is more.
Many MSPs are consolidating – but doing so around a vertical (healthcare IT or financial IT). This will be the profitable model. Wait to see.
Being all things for all people with the same line of business offerings equals a price war*. No one wins.
APEX+SDWAN+4G is basically hamburgers. It should be the foundation ingredients – like flour, eggs, butter – for a bunch of bakeries – AireSpring, TPX, Nitel – to start with – to deliver wonderful pastries, cakes and muffins. Each offering a different set of baked goods. It should be. We will see how it shapes up.
Cable owns two-thirds of the broadband market. They are the de facto common carriers for voice. Comcast is already one of the largest CLECs. And now Comcast is doing SD-WAN and Cellular. That balance of power will be interesting to watch.
Who wins in the CenturyLink/Level3 merger? Comcast, Verizon, AT&T and possibly Windstream (if WIND survives).
At some point, cable has to stop paying commission on cable modem and SIP trunking. Then the channel is left selling fiber (Ethernet and Internet) and Broadsoft based UCaaS.
Uniti Fiber has acquired a number of assets. Not yet a channel vendor.
Zayo is at $2.4 Billion in revenue. What happens next? They are mainly dark fiber, fat pipe and colo. The channel isn’t a big sales factor for 2 out of 3 of those services.
As I wrote yesterday, the billion dollar CLECs don’t last long.
We could talk about cloud services and security, but those are NOT a large chunk of what the channel sells. Even The leader in channel sales enablement of next-generation IT technologies mainly sells connectivity. (They have a head of cable sales!)
MSPs will be the main seller of security, in my opinion.
Agents could become a major cloud pusher but the vendors would need to ensure a smooth deployment/migration or a package to provide that.
As there are too many UC/Hosted VoIP providers in the US, there are also far TOO many cloud companies. Not all will survive. It isn’t likely. It is expensive to build, sell, maintain, backup and secure.
We are already seeing – in the backup space – where at least 2 backup vendors sold for pennies because they became insolvent. This is the beginning. We will see more of it in all segments.
Amazon owns IAAS and storage (S3). Microsoft and Google are a distant second and third. IBM and Rackspace are playing fourth fiddle. Let me say that again: IBM is coming in tied for 4th! How would a provider with less than $1B play in this space? The telcos left this space.
In UCaaS, “Synergy Research Group says that cloud business communications grew 23% in the first quarter of 2017 and now generates about $2 billion in annual revenue per year. By comparison, the potential market size in the US alone weighs in at about $25 billion.” 2000 providers bringing in about $2B in revenue. A handful of players are starting to dominate but also are looking to sell out (8×8, BSFT, Vonage, RC have all had rumors around being acquired.)
One news item: Amazon has entered the telecom space. They have launched in Workspace as a Service (WaaS), Cloud Contact Center, Web Conferencing and messaging.
Facebook is looking to get into the business comms and workspace place.
Microsoft wants Teams/Skype/Office365/Sharepoint/Dynamics to be your only necessities for work.
These companies – GAFAM (Google, Apple, Facebook, Amazon, Microsoft) – CAN own the workspace and biz comms if they can execute. They have the war chest of dollars and eyeballs. Even if they fumble and only take 5-10% of the marketplace each, that doesn’t leave a lot of room for anyone else to make a profit.
You could argue that forecasts are for $60B (or some such number that has no basis in reality). And that a 5% share of that number is huge. True, but when you examine the VoIP space, 80% of the providers make less than $5M in revenue. You can run a company on that but you won’t be a channel sponsor or major vendor in the channel.
For example, CBB is just over a billion dollar company and they are just starting to make noise in the channel. GTT is hoping to hit one billion and are just starting to make noise in the channel. Meanwhile, Verizon, AT&T and Comcast make $100+ Billion in revenue. 8×8 is at $250M – and that is small compared to Vonage or RC at $1B and $400M, respectively.
A number of cloud brokers – including the VADs (Tech Data and Ingram) – have emerged. Sprint has a toe in this water. No idea yet how the cloud broker space will play out. Surveys suggest that after 3 services, buyers want help, but it has to be more than just a marketplace to buy X-aaS. These apps have to all be integrated, managed, secured, backed up. Users needed to be trained. Adoption has to occur. Who is going to DO all of that?
The smart companies will go Vertical, go niche, go up the stack. The profitable companies will also emphasize customer experience. There will be few smart & profitable providers.
It is less risky to try to sell hamburger to the masses than it is to hire a creative chef who will turn that hamburger into a Big Mac or Salisbury steak or a rice-veggie-beef bowl.
Here’s the other factor in hamburger: it is a commodity. Right now bandwidth and voice are commodities. SDWAN+4G+APEX is on the teetering edge of becoming a commodity as well.
It is far easier to make a jingle about a Big Mac than about a regular cheeseburger. You get more ARPU for a Big Mac, too.
The way we do telecom today is ending. CPaaS will supplant UCaaS. Tablets and WaaS will hit mainstream. More and more work is being accomplished on your $1000 smartphone.
There are less and less W-2 employees. More AI, chatbots, automated attendants, contracted workers (1099), etc. means less customer experience, less payroll, less opportunity. It also means less brainstorming, less creativity, further from the customer.
Bundling, packaging, branding and messaging – these will become significant components of success moving forward.
Who do you think wins?
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*Seth Godin has been talking about the end of mass market for years. (Try this.) When you consider if you are not one of the 10 companies in the Duopoly – Comcast, AT&T, Spectrum, Verizon, CenturyLink – then you will be lucky if you get 100K customers. Most companies didn’t hit 60K customers. 60K is NOT mass market. Think about that. 8×8 has just less than 50K customers. Birch has 150K. You are NOT in the mass market game. You are in the 1000 at a time game. But then that smells like defeat because of the dreams of billions. Unfortunately that is reality. Thousands, not millions.