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By Alex Danyluk, Microsoft

Unified communications can mean different things to different people, but in the end, the only opinion that matters is the opinion of the customer making a purchase and whether that customer is happy with what they’ve purchased. I’d like to share some thoughts on what I’ve seen as successful service provider-hosted UC offerings for small and medium businesses and why some have failed or succeeded.

What Customers Want

When you’re talking about companies that have less than 100 employees, especially less than 50 or 25 employees, the decision maker is often the business owner. The leadership of a small business is balancing every aspect of running their business while looking to simplify the management of their company and maximize the value of their purchase. Intuitively, packaged services from a single provider offer both simplicity and often better values. Microsoft Corp. sponsored a survey earlier this year and found that more than 50 percent of companies with 75 employees or less prefer to purchase the core components of UC — hosted e-mail, unified messaging, IM, VoIP and voice/video/data conferencing — from telecommunications companies (mobile, traditional wireline and cable companies) together with their network offers as bundles. In previous years, similar surveys found that customers would like to purchase just hosted business e-mail (MAPI) bundled with broadband and mobile. However, are we seeing such win rates in the market today via service providers? Are you? I believe the primary reason for success or failure depends on how the service provider goes to market.

When Service Providers Fail in SMB Unified Communications

There are many service providers that are offering hosted e-mail and UC offerings. Some are succeeding and others are not faring so well. Why? I offer in this blog one perspective and only one dimension of the challenge service providers face. Having personally been at large service provider companies and now at a vantage point where I have the privilege to meet with various service providers around the globe, I see some common trends.

Service providers have grown up over the years and focused predominately on their network offerings: mobile, local voice, long-distance, consumer Internet, business Internet, business data services, hosting and applications services, professional services, etc. Every major group has its own vice president and/or director and its own P&L to manage. This organizational structure tends to drive where certain aspects of an offering reside. E-mail is in the Application Services or Hosting group. VoIP is sometimes in the Voice Services or Internet Services group, and other times in multiple groups, including Professional Services and Hosting. Unified Messaging is often part of the Local Voice or Mobile group. Instant Messaging may not have a distinct home. Conferencing is in a standalone group often with its own sales force.

When trying to create a unified communications offering, elaborate virtual teams are created to bring the various different business groups together to form what I call a “duct tape” offering. Transfer pricing between groups occurs because each group is a profit center and must justify its individual existence, and margin is added at each step of the bundle.

Another more common technique is creating a soft bundle or after-market bundle where, for example, a service provider sells broadband or mobile with the option of purchasing business e-mail at a standalone price. This has several problems. First, the customer is not buying a bundle. They are making two independent purchase decisions. Second, what often happens is the person selling the broadband or mobile offering does not spend the time selling the add-on offering because they either are not as familiar with it or it takes longer to sell than the base offering, despite the additional revenue. No additional one-time incentives seem to break this sales behavior. The net result? Service providers are acting as standalone UC sales providers rather than true bundlers. The legacy organizational models and associated profit centers are not helping to motivate the Broadband group, for example, to bundle UC capabilities as part of their core offers. The customers are not getting the bundle the surveys say they want and the sales effectiveness of such service providers goes dramatically down.

When Service Providers Succeed in Unified Communications

There are, however, some service providers that seem to have overcome these internal obstacles and are providing true bundles. Some, like Comcast Corp., are including several business MAPI e-mail boxes, sometimes selling at up to $15 per mailbox standalone on the open market, in every one of their broadband sales for business customers. You cannot purchase business broadband from Comcast without the inclusion of high-end mail. Of course, you must pay for e-mail beyond what is included in the bundle. Likewise, others, such as Cbeyond, are creating full bundles with broadband, voice and mobile and a portfolio of hosted applications, all bundled together. In fact, if you read Cbeyond’s public financial statements, they actually measure applications per customer as a key metric. In Cbeyond’s October 10K report, they stated they achieved 6.8 applications per customer. What makes these companies and others like them so successful in hosted applications with their network offerings? I would say four things:

1. Messaging: They have successfully integrated the hosted application value proposition into the core message of their network offerings. They are selling “business productivity,” and not “outsourced applications management” or “standalone after-market features.”

2. Bundles: They truly have bundled their hosted applications with their network services into one offering. No trials, no after-sale upsells, it’s a bundle.

3. Sales Model: They leverage their core sales motion, selling their network services. That’s what their sales people understand as their fundamental offering and their core offering comes with some included bells and whistles. They are leveraging their strength and not becoming yet another “third-party hoster or outsourcer” where they may not be differentiated.

4. Internal Alignment: These companies are not looking at the individual piece parts as profit centers, but are looking at the bundle as the business case, including overall win rates, additional usage sales and retention rates for the core network.

These companies either have looked past their internal organizational structures or have never had to contend with them because of their company life cycle, which makes them a powerful competitor in the marketplace.

So why should a service provider care? Why work to break down the organizational barriers to create a true bundle, one that 50 percent of SMBs want? Well, several reasons. Imagine how hard it’s going to be to win back the small business broadband connection won by a service provider such as Cbeyond that has 6.8 applications associated with the average customer. Also, imagine what the revenue per customer profile looks like when you have a growing list of applications being used by your broadband or mobile customers.

Lastly, we also have seen customer satisfaction go up with companies that offer services such as business-class MAPI e-mail with broadband versus only network services. Potential increased retention? More revenue for each application? Customer satisfaction? I think most people believe that unified communications is not a matter of if, but when. How you go to market with it and leverage your core assets for bundled offerings, integrated messaging and integrated sales may be the difference between winning or losing to someone that has figured this out.

Alex Danyluk is industry director for the global telecom business in the Communications Sector at Microsoft. He’s spent the last four years at Microsoft working on Unified Communications channel models, the previous 13 years at three different service providers (a tier one, a tier two, and a hosting start-up) offering business services and spent seven years managing network equipment offerings. His mission currently at Microsoft is to work with the global telecommunications community to drive joint sales of Microsoft and service provider offerings to business companies.

User Comments !

Alex - great article and I am a believer!!!

Posted by: Robert Rothstein | March 03 2009 10:40:12