CFOs are Likely to Demand More Inside Sales than Field Sales

Before the Covid-19 pandemic, international business travel was a $1.5 trillion annual expense, growing about seven percent a year. So among the questions to be asked is whether such business travel spending rebounds to former levels, or changes.

According to researchers at Growth Lab, business travel and spending has grown far faster than global gross domestic product. So it might be reasonable to expect executives to consider whether such spending--and how much--is required, post Covid. 

To be sure, much such travel arguably is related to the emergence of global firms that must coordinate across geographies, creating a need for personal relationships best developed face to face, rather than virtually. 

source: Growth Lab 

As a matter of necessity, business-to-business sales and support operations have had to move to virtual modes during the pandemic, when international travel was unlawful. As was the case for much office or knowledge work, productivity arguably has not suffered from enforced virtual work modes. 

Whether that remains true long term is another question. Most businesses can work, short term, off embedded social capital and relationships. How well they can do so long term is the unanswered question. Will new employees be able to socialize and learn each organization’s culture on a mostly-remote basis? Will human bonds be sustainable when they are created and sustained mostly virtually? 

Can business-to-business sales permanently shift to virtual modes on a permanent basis?

source: McKinsey  

There is evidence that although online traffic to company websites has grown substantially, sales close rates have fallen. In a business-to-business context, face-to-face interactions arguably are important. In other words, field sales became impossible and all sales became “inside sales.”

Most organizations selling B2B use a mix of field and inside sales, but inside sales has a bigger role for smaller customers and follow-on sales.

It remains unclear how the field sales roles can change, longer term. But there is some thinking that the distinction between field sales and inside sales almost vanishes when remote sales is ubiquitous. And, to be sure, financial officers will welcome the chance to reduce sales costs by emphasizing virtual and reducing the cost of field sales. 

Most buyers are comfortable with remote purchasing when sales amounts are relatively small. The issue is how big purchases must be handled or how to reshape sales funnels. 

Over the longer term, sales effectiveness will drive the balance of physical or virtual; field or inside sales. As always, larger sales with a longer sales cycle will be more apt to use physical processes. 

And since most organizations set operating budgets based on historical norms, a dip in sales expense in 2020 is likely to be followed by continuity in 2021 and at least a few years beyond. 

Face-to-face sales in B2B settings will get more attention as the pandemic ends. The issue is how much of a return can be expected. “Less” seems more likely than “more.” And “less” seems more likely than “return to 2019 levels.” Any organization that believes it can permanently change its sales cost metrics is going to try and continue doing so.

What 5G Might--and Might Not--Do to Boost Connectivity Revenue

Paradoxically, some apparently-contradictory statements can all be true. It is argued that “5G will not lift average revenue per user” and also that ARPU will climb. Some argue the revenue lift from 5G will be slight; yet others believe consumer revenue will climb. 

That belief is based on slow global revenue growth--despite faster growth in some regions--of about one percent a year, overall. Indeed, some believe global connectivity revenue is near a peak. 

Strategy Analytics, for example, predicts that “wireless service revenue will peak in 2021 at US$881 billion, just three percent above the level forecast for 2018.” 

Observers believe that 5G mostly displaces 4G, so most “5G” revenue cannibalizes 4G. But 5G also will create new consumer revenue streams. 

source: STL Partners 

Some argue 5G revenue will come from new enterprise use cases, and at the same time that consumer revenue still will drive the bulk of revenues. 

All of these apparently-contradictory views can be true, simultaneously. Perhaps it will prove generally true that use of 5G networks will not materially boost consumer mobility revenue. On the other hand, other packaging practices--such as offering 5G only on the most-expensive, unlimited access plans--will boost revenue. 

In other words, revenue is greater because consumers move to higher-priced plans that include 5G. The direct driver is unlimited usage and other features (including 5G) that come along with such plans.

As has been true for all prior mobile generations, 5G will replace 4G. On a one-for-one basis, resulting in little net revenue change. Still, 5G likely will create some new use cases--with revenue-- around use of virtual reality or augmented reality apps, use of internet of things for home security or in the form of 5G-optimized content services. 

In many cases, new access charges might be bundled with the cost of the service or app, or revenue is generated by software as a service or other recurring charges. 

And though a majority of total 5G connectivity revenue will come from consumer mobile phone accounts, new use cases are likely to come from enterprise or business-to-business use cases. T-Mobile is introducing new mobile-based business phone services, for example.

AT&T and Verizon supply connected car services. Comcast offers home security that uses connected sensors. 

And most observers believe there is revenue upside for connectivity providers in supporting private 4G and private 5G networks, for example, from system design, integration or operation or additional direct connectivity services. 

source: Mobile Experts 

Will Post-Covid Behavior Create Consumer Revenue Upside?

Most observers would agree that long-standing consumer habits—more money spent on services, greater digital adoption, and more time and money spent out of the home—have been interrupted, accelerated, or reversed during the Covid-19 pandemic. 

There likely is less agreement on the permanency of those changes. The question for connectivity providers is whether there are direct implications for revenue streams, if any. One might argue that the simple fact that data consumption grows 40 percent each year drives revenue upside. It does not.

Higher consumer data usage tends to drive capital expenditure, as networks must continually be upgraded, but consumer spending is quite resistant to upside changes. In the mobile or fixed business, average revenue per user grows over time only as users buy more-expensive usage plans. And such changes are relatively slow-moving and slight in magnitude.

In fact, the real cost of broadband and communications has--in many cases--dropped over the past two decades. Upside arguably exists for owners of content streaming services and possibly some connectivity providers who also are partners in healthcare delivery services using connected consumer devices, especially when using new dedicated access accounts (internet of things access, for example). 

McKinsey consultants have argued, for example, that e-grocery shopping, virtual healthcare visits, and home nesting were likely to stick while remote learning, declining leisure air travel, and decreasing live entertainment would likely revert closer to pre-pandemic patterns.”

source: McKinsey

Orchestrator or Platform?

Rather than the term platform, which implies that a company creates an orchestration role or marketplace, systems of delivery might be a better way of explaining a path forward for connectivity providers trying to supply more value for their customers and create new roles within the value chain. 

In the enterprise software as a service space, some argue for approaches that are more agile because something akin to an operating system can be envisioned: a way of breaking down silos and allowing horizontal integration. 

The problem is either too much integration (too “tight” and therefore not flexible) or too loose (little to no effective integration). Think of the way application programming interfaces are used to allow systems to work together, in a more loosely-coupled manner. 

The analogy for connectivity providers is to become something of a process orchestrator, integrating various functions on behalf of a customer. The older model of system integrator comes to mind, but in the context of orchestrating the use of resources, more than creating the resources. 

Creating a system of delivery arguably is far easier than creating a platform. One arguably sees this in the software as a service business. “SaaS is upping its game with a growing number of vendors downplaying 'best of breed' and talking instead of a 'rising tide' where they become centralizing hubs in which an ecosystem of other apps are operationalized,” notes S&P Global. 

source: 451 Research 

That sounds akin to “platform,” but might be better characterized as “orchestration.” Agility and alignment arguably are parts of it. Integration might arguably be part of it. Overcoming silos is part of the idea. 

The key observation is that almost every effort made by connectivity firms to increase value for customers will require some orchestration of value to create a solution. Though not easy, it is perhaps easier to envision a large connectivity provider becoming an orchestrator of value than becoming a true platform.

Fixed Wireless Could Reverse a 20-Year Trend

Cable operators and many observers say they do not believe fixed wireless is a threat in the home broadband market. The argument is that speeds will not match what hybrid fiber coax or fiber to the home is capable of; usage allowances will not match that of cabled networks and price discounts will not be significant enough to attract switchers. 

T-Mobile and Verizon are enthusiastic for perhaps equally-compelling reasons: $195 billion worth of annual revenue. Comcast and Charter Communications alone book $150 billion annually from internet access services that largely are generated by home broadband customers. 

But even most business accounts could be candidates for fixed wireless, including smaller businesses as well as larger entities using fixed wireless as a backup service. 

source: S&P Global 

Beyond all that, fixed wireless is interesting for attackers in the home broadband market, simply because the easiest possible business model is “same service, lower price” in a market with proven demand characteristics. And the “lower price” part of the value proposition is powerfully enhanced by fixed wireless.

Fixed wireless does not have to compete with the high-end FTTH or cable gigabit services. As history has shown, most competitive attacks in software or communications happen at the low end: a product that is “not as good as that provided by the leaders, but still useful.” 

Fixed wireless only has to shift a bit of market share to become a significant revenue driver for T-Mobile, and allow Verizon and AT&T to reverse a 20-year loss of market share to cable operators in the home broadband business. 

And since at least half of all U.S. home broadband customers buy services operating in the 100 Mbps to 200 Mbps range, a fixed wireless service only has to provide about that level of performance, with adequate usage allowances and a lower price, to be competitive. 

Most likely, the center of gravity of demand for 5G fixed wireless is households In the U.S. market who will not buy speeds above 300 Mbps, or pay much more than $50 a month, at least in the early going. The reason is that that pricing level and downstream bandwidth fits the profile of 5G fixed wireless using mid-band spectrum.

The other issues are coverage and infrastructure cost. T-Mobile has had zero market share in home broadband because it is not in the fixed networks business. Verizon has a small geographic footprint and has never been able to compete in 80 percent of the U.S. home broadband market. Fixed wireless, provided by the same 4G and 5G networks they must operate in any case, provide a platform for doing so.

Look for Expedited FTTH Investment in U.K. Because of "No Price Controls" Rule

Regulated prices in the connectivity industry generally result in less investment. Pricing freedom, on the other hand, tends to lead to more investment. That was true in the U.S. market and seems to be shaping up in the U.K. market as well. U.S. policy, early in the wake of the Telecom Act of 1996 focused on robust wholesale pricing. 

Wholesale discounts as high as 40 percent encouraged lots of new competitors to buy wholesale capabilities, while also leading the providers of facilities to complain that they had few incentives to invest robustly in optical fiber infrastructure, given the existence of robust mandatory wholesale policies. 

“We currently do not expect to introduce cost-based price controls (on new fiber to the premises) facilities until at least 2031,” said Ofcom. 

That is expected to lead to faster investment by OpenReach and BT, since a higher return is possible. 

U.K. Broadband Illustrates Key Change in Business Model from Voice Era

Consumer internet bandwidth speeds, consumption and retail prices illustrate one enduring issue for connectivity providers: where the voice business was usage based, the broadband access business is largely untethered from usage charging. 

The revenue implications are key: where additional voice usage tended to generate additional revenue, that tends not to be the case for broadband services. As this data from Ofcom illustrates, usage and speeds keeps climbing, but revenue is flat. 

source: Ofcom 

The business model implications therefore are stark. Capital investments must be made without necessarily producing incremental revenue. To keep profit margins stable, other areas of the business must become less expensive, whether that is marketing, sales, operations fulfillment, customer support or customer premises equipment.