Sharing 101: Can Pure-Play VoIP Providers, Cablecos, ILECs Coexist in SMB Market?

Clearly, when it comes to VoIP offerings, huge cablecos aren’t picking on somebody their own size. They are taking on smaller companies on the other end of the spectrum who target the SOHOs and the SMBs. So the question is: Are pure-play VoIP providers feeling bullied out of the SMB market? Surprisingly, I’m hearing a lot of nays these days. But not everyone is so confident that cablecos pose little threat.

No Worries
For their part, the pure-plays’ “no fear” attitude seems to be resulting from their comfort with their unique selling proposition — customized and personalized service. Cbeyond Communications Inc.’s chief marketing officer, Brooks Robinson, said that face-to-face sales are a key factor in penetrating the SMB market.

“Cbeyond prides itself in a strong direct and indirect channel that relies heavily on people selling to people,” he explained. “Entrepreneurs who run these small businesses believe highly in referrals, and we take advantage of that working with our direct sales and our very strong indirect channel partners, the value-added resellers.”

Robinson also believes that allowing business owners to control their customer experience, i.e. executing MACDs via the company’s Web portal, as well as providing productivity-enhancing applications, such as mobile integration (Cbeyond is also an MVNO), are other key factors in driving success in the SMB market. He added that Cbeyond offers more than 30 productivity-enhancing applications in integrated packages of communications and IT services to more than 35,000 small businesses throughout the United States, on a 100 percent VoIP, facilities-based network.

On the ILEC side of things, sentiments appear to be similar. Andy Roth, senior manager of business VoIP solutions for Verizon Business said it remains to be seen as to whether cablecos will pose a threat to ILECs and pure-plays, but acknowledges the potential. “Competition is always good for consumers,” he said. “The cablecos have demonstrated their ability to deliver quality VoIP services to consumers and very small businesses.”

Cbeyond’s Robinson said it’s comparing apples to oranges when it comes to the cablecos. “We believe their success won’t necessarily come at our success,” he said. “We’re solving a different problem for a different customer.” Robinson did say, however, that cablecos are likely to take some of the SOHO market share from the incumbents.

Eric Eckman, director of business development for Broadvox LLC, agreed that cablecos don’t pose a huge threat in the SMB space. He said they may make it hard for pure-plays in the “S” part of the SMB market, or perhaps even in the “VS” part of the V/SOHO market. “We really haven’t run into them very much though, once you get to a business that isn’t located inside someone’s home,” said Eckman. “It seems like the cable companies have a better fit going after consumers and leveraging their installed base of TV and cable Internet subscribers.”

The Golden Arches Effect
Of course, as Eckman pointed out, that’s exactly what the cablecos have that the pure-plays don’t — an installed base of consumers watching TV and surfing the Internet. And cablecos are pushing the “one-stop-shop” aspect of this sale.

“The ability to craft communications solutions to meet the business customer’s needs, as well as provide business customers with the value of a single contact and a single bill for all their communications requirements, positions cable companies well to address the SMB market,” said Kurt Fennell, vice president of product management at Time Warner Cable Business Services (TWCBS). “[Cable companies] typically have a local presence in the same markets where customers have their businesses,” Fennell continued. “Customers are familiar with our services from the residential side and they look to us to provide the same high-quality solutions for their SMBs.”

And therein lies the Golden Arches Effect that might allow cablecos to slay the competition in this market — brand recognition. For this reason, John Macario, president of management consulting firm Savatar, feels that cablecos do indeed pose a threat to pure-play VoIP providers and incumbents in the SMB VoIP market. He believes SMBs want to buy from trusted vendors who will be in the market for a long time. “MSOs have very recognizable brands that are respected by SMBs,” he explained. “They have the capital to attack the market effectively and can become dominant players. The real question is whether they can focus on the business market and provide the customer experience that SMBs will demand.”

TWCBS’ Fennell said the company recognizes the personalized service and customization necessary to address this market. “The SMB segment is quite diverse. While they represent a great opportunity, they also represent a challenge because their needs are quite varied,” he said. “Because of that diversity, it is difficult to group or categorize them and offer a ‘standard’ offering. Often the SMB owner does not have the time or desire to investigate communications services in detail. They are busy running their business and want to know what works and is the best value for them. To meet those needs, we work to customize an offering that meets each business consumer’s needs.”

It’s very possible that utilization of the indirect channel might aid in the success of all types of providers in the VoIP SMB marketplace. In fact, Macario said Savatar’s most recent research shows that 50 percent of IP communications purchases are made through the channel. “Pure-play VoIP providers must recruit the right partners, train them on an effective sales and service approach and be a true partner in the demand-generation activities that will lead to market success,” said Macario. “If MSOs choose to sell exclusively through a direct sales force, they could acquire a major market share and marginalize the channel; however, all of our research shows that SMBs prefer to buy through a channel partner who understands the customer’s business and can provide other managed services in addition to VoIP,” he continued. “Agents need to understand that the SMB VoIP is not transactional and will require that agents demonstrate the technical skill necessary to install, configure and support IP communications products.”

Savatar’s research shows that only 15 percent of SMBs have made the switch to VoIP — a virtually untapped market awaits. However, Macario said that service providers might not be attacking this market correctly. “Most don’t understand why SMBs would switch to VoIP and expect the market will come to them,” Macario said. “Service providers who do understand the market largely have brands that are not well-known, causing potential customers to be suspicious of their ability to deliver quality service.”

So, the question remains. Will cablecos, pure-play VoIP providers and incumbents all play nicely in the SMB VoIP sandbox? With so much market share yet to be claimed, it’s difficult to see who will reign supreme.

“MSOs have the skills and brands to take on the incumbents and win,” said Macario. “If they can develop the sales and support organizations needed to serve the business market, they can become a major driving force. Right now, the SMB market is waiting for someone to demonstrate leadership; MSOs have a significant opportunity and are well-positioned to be market leaders.”

Editor’s note: Cbeyond’s Brooks Robinson brought an interesting thought to my attention that affects the way we look at the above discussion. Whether pure-play VoIP providers, incumbents and cable companies consider each other competition within the SMB market depends entirely on how that market is defined. For example, Cbeyond defines the SMB market as those businesses having five to 249 employees, and considers the SOHO market, defined as less than five employees, to be vastly different. “If you include SOHO in small business, which I believe the cable companies tend to do, that’s where you can get a little bit of a challenge in understanding where success will be defined,” Robinson explained.

Do you have a comment? E-mail Cara.

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