Sunday, July 29, 2012

Some Parts of the Telecom Business Are Shrinking

Virtually all experienced observers of the global telecom business are familiar with the notion that, over time, there always is consolidation. In large part, that is because there are scale effects in the business, meaning that the more volume a supplier has, the lower its costs typically are, per unit delivered.

But there is something more at work, as well. Generally speaking, global service provider revenues, overall, are flat. Some regions are growing, while some are shrinking. But if you assume any public company must continually grow its revenues, acquisitions simply are the only way to grow revenue, long term. That leads to supplier consolidation. 

There are changes beyond the tier-one service provider level, as well. Smaller or more specialized service providers likewise are consolidating. And so is the channel. 

"The channel is shrinking," argues channel expert Dave Michels.  "Enterprises are buying less, prices are dropping, models are changing."

"There will be fewer dealers tomorrow than there are today," he says. "There is still plenty of channel opportunity, in fact huge."

"Just not as huge as it once was," argues consultant Dave Michels.

Some of us might argue that the revenue opportunity might not be so much "huge," as it is "significant." The reason is that distribution by channel partners historically has made sense in the medium-sized business segment. 

Consumers and small businesses are best reached using mass media and now the Web. Enterprises can be sold direct. In the middle is where the channel has made financial sense. 

But some of us would argue that cloud-based application delivery will shift more of the mid-sized business opportunity away from channel partners and towards direct delivery as used in the mass markets. Not all mid-market applications can be delivered that way, to be sure. But a significant portion will shift. And that means suppliers will "go direct" rather than using channel partners. 

Veritical specialities also are likely to become more important, once cloud deliver makes it easier for enterprises, mid-market firms and small businesses to "buy direct" and provision from the Web. 

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