SMB Marketing Remains Difficult

By some estimates, small and midsize businesses represent around 90 percent of all firms globally, represent 70 percent of employment and contribute to up to 90 percent of global gross domestic product. 

At first glance, the small and mid-sized business segment is lucrative. But most of those organizations cannot be efficiently targeted by business sales organizations. 

Consider that definitions and behavior matter. If you have ever worked for a firm selling to SMBs, you know that segmentation really matters. As a simple “cost of sales” matter, “medium” is easier to target than “small.”

In fact, the vast majority of “small” businesses can only be profitably marketed using the same channels and programs aimed at consumers. Programs aimed at “smaller” businesses start to make sense someplace beyond organizations with 10 to perhaps 50 employees, depending on the industry vertical. 

Firm classifications also vary by country. In most countries, firms with more than a dozen to a few dozen employees are quite rare. 

In many parts of Australia, for example, 97 percent of all firms have fewer than 19 employees. The International Data Corp. definition of “SMB” is a firm with “fewer than 500 employees,” but more than 20 employees. 

source" Small Business Development Corporation 

In many Organization for Economic Cooperation and Development countries, there are not so many firms in the size range of “at least 250 employees.”

In Canada, 98 percent of firms have 99 employees or fewer, for example. 

According to  the European Union, a small business employs between 10 and 49 full-time employees. By some classification systems, medium-sized organizations employ 50 to 250 full-time employees. Others might say mid-size is defined as organizations with 100 to 999 employees. 

But there is a wide range of definitions of “small” and “midsize.” Sometimes midsize firms are defined as having up to 4,999 employees. Many would consider that an “enterprise” or a “large enterprise.”

Midsize firms also can be defined by revenue. A midsize firm might have sales not exceeding €1.5 billion ($1.75 billion) or has a balance sheet total that does not exceed €2 billion ($2.3 billion).

source: World Economic Forum 

Complicating matters further, many “small” businesses are run out of the home, or have no employees beyond the sole proprietor. That sort of business often has buying behavior virtually indistinct from that of a consumer. Many classifications use the term “microsized” to describe such very-small businesses. 

In the U.S. market, for example, 83 percent of all businesses are “micro” sized, having no more than nine employees. 

“Small” firms with 10 to 99 employees represent  15 percent of all businesses, while “medium” organizations with 100 to 499 employees represent just two percent of entities. 

If enterprise is targeted directly with field sales, then “micro” (83 percent of business entities) are marketed through the mass market channels. “Small and medium” organizations tend to be marketed to by partner and channel entities. Think of the role played by resellers and system integrators and distributors in the computing hardware business. 

source: CompTIA

Metaverse Again Raises the Issue: Role is Not Revenue

José María Álvarez-Pallete, When Telefónica chairman says “the metaverse will be the most profound change the internet has undergone since its birth,” and that that “Telefónica will continue to play an essential role in this evolution of the Internet towards the Metaverse because new experiences will be possible thanks to the telcos’ networks,” he is right. 

Without internet access, provided by internet service providers, internet-delivered apps and experiences cannot be delivered. 

But Álvarez-Pallete is right mostly in the sense that, in a loosely-coupled internet ecosystem, apps can run on any compliant network. As has been true with the prior development of the internet, when the architecture is separated into layers, app access is “permissionless.”

source: Wikimedia 

Loosely-coupled architectures have important business ramifications. Among the most important implications is that organizations can participate in value chains without having direct business relationships with other key participants. 

Any lawful app can be accessed by any user with internet access, without the permission of any intermediate participant in the value chain, including specifically any provider of the internet connectivity. That business architecture mirrors the technology architecture of the internet.  

What remains to be seen is whether access providers will be passive or active participants in the metaverse. By design, they will be passive conduits, providing the connectivity all internet apps require. By aspiration, they might do other things; assume other roles; provide other value. 

Still, in a layered, disaggregated, permissionless ecosystem, metaverses can be created and accessed without formal business relationships. How much--beyond connectivity--is possible is an open question for access providers.

Can Telcos Become "Techcos?" And What Does that Mean?

Many telcos--or those who advise and sell to them--say telcos need to become techcos. So what does that mean?

At least as outlined by Mark Newman, Technotree chief analyst and Dean Ramsay, principal analyst, there are two key implications: a culture shift and a business model.

The former is more subjective: telco organizations need to operate “digitally.” The latter is harder: can telcos really change their business models; the ways they earn revenue; their customers and value propositions?

source: TM Forum

It might be easier to describe the desired cultural or technology changes, even without a change in business model. Digital touchpoints; higher research and development spending; use of native cloud computing; a developer mindset and data-driven product development.

Most of us might agree that doing such things is good, but does not necessarily mean telcos become something else. 

The key to possible business model changes comes specifically with the notion that telcos can become “platforms.” And even that overused term is subject to huge differences of meaning. Some use the classic “computing” definition that a platform is “hardware or software that other software can run on.”

Think “operating system” or even containers, program application interfaces, languages or X as a service as examples. In that sense, telcos might hope to become “techcos” by advancing their capabilities as application enablers. 

There is a tougher definition, though. A platform business model essentially involves becoming an exchange or marketplace, more than remaining a direct supplier of some essential input in the value chain. It is, in short, to function as a matchmaker. That is a different business model entirely.

For most of history, most businesses have used a pipe model, creating and then selling products to buyers. 

The platform facilitates selling and buying. A pipe business focuses more on efficiency in its value chain, where a platform focuses more on orchestrating interactions between members. 

The platform allows participants in the exchange to find each other. 

Platforms are built on resource orchestration; pipes are built on resource control. Value quite often comes from the contributions made by community members rather than ownership or control of scarce inputs vertically integrated by a supplier. 

In other words, using a “computer function” definition of “platform” implies one set of changes; using the “business model” definition is something else entirely. 

The point is that as useful as the phrase “we are not a telco; we are a techco” might be, it is marketing jargon. “Being digital” or “moving fast” or “being cloud native” or “boosting research and development” arguably are cultural changes many businesses can benefit from. 

It is not so clear that such changes (equivalent perhaps to the change from analog to digital) necessarily change a business model, though they might often improve the existing model. 

As helpful as it should be to adapt to native cloud, developer-friendly applications and networks, use data effectively or boost research or development, none of those attributes or activities necessarily changes the business model. 

If “becoming a techco” means lower operating costs; lower capital investment; faster product development or happier customers, that is a good thing, to be sure. Such changes can help ensure that a business or industry is sustainable. 

The change to “techco” does not necessarily boost the equity valuation of a “telco,” however. To accomplish that, a “telco” would have to structurally boost its revenue growth rates to gain a higher valuation; become a supplier of products with a higher price-to-earnings profile, higher profit margins or business moats. 

What would be more relevant, then, is the ability of the “change from telco to techco” to serve new types of customers; create new and different revenue models; develop higher-value roles and products or add new roles  “telcos” can perform in the value chain or ecosystem. 

That is the profound meaning some of us would say “techco” represents, if it can be achieved. To what extent can “telcos” earn lots of money--perhaps most of their money--from acting as a marketplace, rather than as creators and sellers of products built around connectivity?

To be sure, if “becoming a techco” has other intermediate value, such as boosting revenues and profits while reducing costs and speeding new product creation, the process would still have value. 

It would perhaps be the business model equivalent of the transition from analog to digital processes overall. That is important, but does not transform a telco into something else, which is what all the verbiage about “techco” implies. 

It is too early to assess whether “techco” is simply a change in marketing hype or something more profound. 

Fixed Network Revenue in Singapore Declining to 2026

Fixed communication services revenue in Singapore is expected to decline at a compounded annual growth rate (CAGR) of 2.2 percent from US$765 million in 2021 to US$683 million in 2026, GlobalData predicts.

In part, the decline will be caused by a steady drop in circuit switched subscriber lines and slower growth in fixed broadband subscriptions. 

source: GlobalData 

Circuit switched subscriptions are expected to drop at a cumulative average growth rate of -0.4 percent over 2021-2026 as users continue to shift towards mobile and internet-based communication services, the company says. 

Voice revenue, in the past the chief driver of connectivity provider service revenue, peaked between 2000 and 2003 globally, so the Singapore trend is not at all unusual. 

Mobility services have driven global revenue growth in the telecom industry for a few decades.  

source: Analysys Mason

Surveys are Difficult to Create and Interpret

Getting meaningful data from customer or user surveys are not as easy as many believe. Samples sizes, survey instruments, poorly-designed questions and research assumptions all affect the validity of results. Word chioce is another common source of error. 

Rank order questions sometimes help to discover relative priorities. Consider information technology professional responses to a survey on endpoint management. This set of responses does show some differentiation of “ability to manage” various elements of the IT environment. 

source: Automox 

Those results are not a normal probability distribution. As often is the case with self reporting, all the organizations perform “above average.” If capabilities really are described by a normal probability distribution, that cannot be correct. 

Sometimes researchers are looking for indicators of “most important/least important” opinions. In such cases, forcing respondents to choose can better highlight opinions about what is  “most important.” 

 

source: Automox 

Harder to control are researcher frames of reference. Any multiple-choice survey must necessarily embed assumptions about a few variables researchers believe are relevant. That bias is among the most-common I encounter as someone who gets asked to take surveys.

Disintermediation is at Heart of Many Telco Worries

When the global connectivity industry chose TCP/IP (Transmission Control Protocol/Internet Protocol) as its next-generation protocol, it opened Pandora’s Box. The industry does not presently like the business changes IP was wrought, but can hardly deny that it chose the platform willingly. 

The key problem is disintermediation, the removal of distributors and “middle men” from value chains. In a loosely-coupled ecosystem, participants operate in “layers” or disaggregated roles, much as software can run on a compliant platform without a formal business relationship with the platform or operating system. 

Think of the way modern software runs on compliant hardware, operating systems or networks: so long as the agree-upon interfaces are in place, software, hardware and networks can work seamlessly, without formal business relationships. 

Disintermediation is at the heart of the promise and period of a wide range of potentially-huge new enablers of business and economic life, including blockchain, cryptocurrencies, distributed finance and distributed autonomous organizations. 

source: GSMA 

One example of this is the direct supply of services to enterprises that otherwise might have been provided by a connectivity provider. A recent survey by TelecomTV illustrates the concern. Some 44 percent of respondents believe an inability to compete with the major cloud firms in the enterprise services sector is a major issue.

 

source: TelecomTV 

That’s a classic example of disintermediation.

A Good Definition of Initiative

Omaha Beach was the toughest of all the beaches targeted by the allies on June 6, 1944, on D-Day. "On this two-division front landing, only six rifle companies were relatively effective as units," says S.L.A. Marshall, who was there.

To put that in perspective, a U.S. Army division contains between 10,000 and 15,000 soldiers. So two divisions means 20,000 to 30,000 soldiers. A company contains between 60 and 200 soldiers. So six rifle companies functioning effectively implies somewhere between 360 and 1200 men in organized units that are "combat effective."

On Omaha Beach, "relatively effective" likely is the better description. 

Somehow, individual soldiers, on their own initiative, managed to climb the bluffs and secure the beachhead. A better example of initiative I am hard pressed to provide. 


source: taskandpurpose

source: Thirteen 

My nephew, who serves with the 101st Airborne, (82nd Airborne was the other) who dropped behind German lines) brought me back some sand from both Utah and Omaha beaches he picked up while representing the 101st Airborne at the 75th anniversary of D-Day. Sacred soil, indeed. 

source: National Archives

Supply Chains are Where Either Digital Transformation or Digitization Could be Seen Early in Most Industries

Digital transformation and digitalization (applying new technology to business models, in the former case; to business processes, in the latter case) are perceived as having the greatest benefits for product creation. 

Applied digital technology seems to be seen as a threat to supply chains and distribution mechanisms. 

That would be in keeping with the general impact of internet technologies generally, which have had an impact of varying degrees in product creation, but arguably the greatest impact in changing distribution costs and roles. 

source: McKinsey 

In other words, it is possible that digital transformation and digitization (changing business models and operating costs) will have the greatest business impact as a way of collapsing the distribution portion of all value chains. “Cutting out the middleman,” or disintermediation, could be the area of greatest immediate change in many industries.

FTTH Payback Models Have Changed

Larger U.S. internet service providers using fiber-to-home platforms sometimes continue to face an excruciatingly difficult business case for such investments. Consider Lumen Technologies, which has been relatively slow to upgrade copper access to FTTH. Lumen says average revenue per user (account) for new fiber connections is $59 a month. 

source: Lumen Technologies 

If average FTTH capex is about $1,000 per passing, and take rates are about 40 percent, then capex per account is about $2500. At $59 a month revenue, annual proceeds are about $710 per account.

That can make for a long payback cycle, which is why assets are being purchased by more-patient investors such as private equity, pension funds and other institutional investors. Such investors buy access assets as an alternative investment that produces predictable cash flow and offers some diversification from other asset classes. 

Recent presentations BY Frontier Communications also have shown fiber-to-home home broadband average revenue per user of about $63. 

source: Frontier Communications 

That is lower gross revenue than many had expected three decades ago. Where a triple-play bundle might have produced $130 per month to $200 per month revenues, home broadband might produce $50 to $80 a month. 

With the shrinkage of both fixed network voice revenues and entertainment video, ISPs increasingly must build their revenue models on home broadband. 

And payback models have changed. Increasingly, it seems, capex costs are not the most-important element of such models. Instead, take rates matter much more. Customer density and competitive conditions still matter, but government subsidies and expected equity value increases also are a factor. 

The former aids the investment cost; the latter increases the total expected return by increasing exit multiples or exit prices. 

That new FTTH projects increasingly are feasible with a $50 to $60 monthly revenue target and adoption around 40 percent to 50 percent shows how much the capex and opex assumptions have changed over the past three decades. 

Of course, some ISPs are able to justify the dense fiber networks by including the benefits of fiber to support cell sites and business customers. Government subsidies also help. 

Nor are profit margins in home broadband especially high. AT&T profit margins for new broadband builds are said to produce profit margins “in the mid- to upper teens,” AT&T has said. 

Such revenue prospects are one reason why co-investment has grown in popularity. If expected revenue is at such levels, a reduction in capital investment burdens is necessary.

Innovation Takes Time, Be Patient

Anybody who expected early 5G to yield massive upside in the form of innovative use cases and value has not been paying attention to history. Since 3G, promised futuristic applications and use cases have inevitably disappointed, in the short term. 

In part, that is because some observers mistakenly believe complicated new ecosystems can be developed rapidly to match the features enabled by the new next-generation mobile platform. That is never the case. 

Consider the analogy of information technology advances and the harnessing of such innovations by enterprises. There always has been a lag between technology availability and the retooling of business processes to take advantage of those advances. 

Many innovations expected during the 3G era did not happen until 4G. Some 4G innovations might not appear until 5G is near the end of its adoption cycle. The point is that it takes time to create the ubiquitous networks that allow application developers to incorporate the new capabilities into their products and for users to figure out how to take advantage of the changes. 

Non-manufacturing productivity, in particular, is hard to measure, and has shown relative insensitivity to IT adoption.

source: MIT

Construction of the new networks also takes time, especially in continent-sized countries. It easily can take three years to cover sufficient potential users so that app developers have a critical mass of users and customers. 

And that is just the start. Once a baseline of performance is created, the task of creating new use cases and revenue models can begin. Phone-based ride hailing did develop during the 4G era. 

But that was built on ubiquity of mapping and turn-by-turn directions, payment methods and other innovations such as social media and messaging.

Support for mobile entertainment video also flourished in 4G, built on the advent of ubiquitous streaming platforms. But that required new services to be built, content being assembled and revenue models created. 

The lag between technology introduction and new use cases is likely just as clear for business use cases. 

The productivity paradox remains the clearest example of the lag time. Most of us assume that higher investment and use of technology improves productivity. That might not be true, or true only under some circumstances. 

Investing in more information technology has often and consistently failed to boost productivity.  Others would argue the gains are there; just hard to measure.  There is evidence to support either conclusion.

Most of us likely assume quality broadband “must” boost productivity. Except when it does not. The consensus view on broadband access for business is that it leads to higher productivity. 

But a study by Ireland’s Economic and Social Research Institute finds “small positive associations between broadband and firms’ productivity levels, none of these effects are statistically significant.”

“We also find no significant effect looking across all service sector firms taken together,” ESRI notes. “These results are consistent with those of other recent research that suggests the benefits of broadband for productivity depend heavily upon sectoral and firm characteristics rather than representing a generalised effect.”

“Overall, it seems that the benefits of broadband to particular local areas may vary substantially depending upon the sectoral mix of local firms and the availability of related inputs such as highly educated labour and appropriate management,” says ESRI.

Before investment in IT became widespread, the expected return on investment in terms of productivity was three percent to four percent, in line with what was seen in mechanization and automation of the farm and factory sectors.

When IT was applied over two decades from 1970 to 1990, the normal return on investment was only one percent.

This productivity paradox is not new. Information technology investments did not measurably help improve white collar job productivity for decades. In fact, it can be argued that researchers have failed to measure any improvement in productivity. So some might argue nearly all the investment has been wasted.

Some now argue there is a lag between the massive introduction of new information technology and measurable productivity results, and that this lag might conceivably take a decade or two decades to emerge.

Work from home trends were catalyzed by the pandemic, to be sure. Many underlying rates of change were accelerated. But the underlying remote work trends were there for decades, and always have been expected to grow sharply. 

Whether that is good, bad or indifferent for productivity remains to be seen. The Solow productivity paradox suggests that applied technology can boost--or lower--productivity. Though perhaps shocking, it appears that technology adoption productivity impact can be negative. 

All of that should always temper our expectations. 5G is nowhere near delivering change. It takes time.

Mobile Innovations Often Fail to Arrive as Predicted

Exponential technology change never is matched by exponential human and culture change, which means the use of technology by humans will lag what  the technology enables. As rates of change climb, it is reasonable to assume that what “can be done” will diverge from “what is being done.”

Much of the capability change is driven by Moore's Law and its effect on computing power and cost. 

source: Intel

As computing costs decline, capabilities are embedded where it would not have been commercially possible in the past. That drives innovation. 

  

source: Cadbury Communications 

But humans, organizations and culture do not change at exponential rates. 

So even if we can envision implanted communications, it is unlikely to happen as fast as some predict. 

source: Astro Teller 

In fact, it is normal for developers and hardware designers to be “behind the curve” where it comes to matching product capabilities with technology advances. That is the case for 4G internet of things products, for example. 

source: Embedded Computing 

For such reasons, we commonly see forecasted innovations fail to arrive as early as expected. That will likely be true of implanted communications, as has been the case for other innovations. 

The established trend in mobile communications, for example, has been for product expectations to take a decade or more to achieve commercial adoption. If implanted communications devices are expected to displace phones in less than 10 years, it might take 20 years to happen at scale. 

Some innovations will simply never happen, and others will take 30 years or more to arrive.