This is the third in a series of articles applying the wisdom of Harvard Professor Michael Porter to the world of telecoms. If you missed it, you should start by reading part one here. In the previous article we applied his principles to local IOCs.
This article will focus on carriers who primarily offer hosted VoIP services to businesses – either on your own network or over the top. If that’s you, read on!
In the previous article I focused on regional IOCs, whose primary strategy came from their position as the local telephone company, embedded in their market.
However, not all regional carriers are rural LECs – some have a larger footprint, a larger organization, and more scope to craft a strategic position based on more than their geography.
From what I’ve observed, most of the success among these carriers has come from selling hosted VoIP / hosted PBX products to business customers. Residential lines are becoming less common and less used, but businesses still recognize the significant feature and quality benefits they get from using a “real” phone system rather than cell phones.
Within this group of companies there are two different situations where I think slightly different challenges and strategies apply.
If your business is built mostly on sales of hosted voice services to business customers, and you do so only in your geography then you have two distinct advantages compared to your over-the-top competitors.
- The business customers are local to you, which allows you to provide some in-person customer service, which is especially important during the initial service installation phase. You can meet the customer, install the phones, get everything working and perform a little customer training – all activities which a remote over-the-top provider would find very difficult to perform, thus allowing you to perform different activities to your competitors in a way that provides more value to your customers.
- Your other big advantage is that you are also the provider of IP connectivity, which gives you a great deal more control over the quality of service than an over-the-top hosted VoIP competitor. This gives you the opportunity to truly invest in that difference and enhance it – by setting appropriate quality of service rules, by monitoring the quality of their connection, and ideally by managing their internal IP networks so the business can’t undo all your hard work with a badly designed LAN. This is all a big investment, yes, but it’s an investment that enhances your distinctiveness creating more value for your customers, and more profit for you.
On the flip-side, if you offer hosted VoIP outside your own geography then you’re in a tougher spot.
Firstly, it’s worth saying that there are some ways you can seek to minimize the impact of a local competitor’s distinctiveness.
- Perhaps you can partner with some local agencies to resell your services, thus allowing them to provide the in-person sales and customer service that your local competitor can provide.
- Similarly through the use of SD-WAN / edge-router products from Velocloud or Edgewater you may be able to monitor and even manage the quality of the IP network, but you’ll never quite match the ability of the ISP to compete in this area.
The more important question is how can you create a strategic position where you are clearly able to provide more value for a certain segment of customers through performing a different set of activities?
Most of us jump to the idea of Operational Effectiveness – “most providers offer poor service, but we have really great customer service” – and while there certainly may be some inefficiency in the market that allows you to stand out by providing a high quality product, there will be other well-managed companies that also reach the productivity frontier – the best practice that is possible with today’s technology. Doing things well is not a long-term sustainable advantage.
Nor can we rely on new features from our software vendors – unless you have an exclusive relationship with your vendor (or develop your own products in-house), I can assure you that there will be competitors using products from the same vendor, and even if you get to market first (or develop something cool yourself) that feature differentiation will not last.
Unfortunately, the answer has to lie in choosing to be different not better – we need to choose a position where we are performing different activities and providing different services to our competitors, in a way that requires trade-offs. We are choosing to perform some task or serve some customer less well… in order that we can perform better in some other area.
What does that look like in practice? I don’t have all the answers, but maybe the following questions will help to get the conversation started.
Variety-based positions (focused on providing one service really well)
- What if you focused your entire organization around replacing a specific PBX or key-system, to the extent that you could easily replicate every function exactly with minimal effort?
- What if your company specialized in serving businesses that needed to combine mobile and desk-phones into their call flows?
- What if you sold only HD voice quality systems and all the associated IP services for folks who care primarily about quality rather than price?
Needs-based positions (focused on a particular type of customer)
- What if you sell exclusively to the hotel industry, which has a whole bunch of unique needs?
- What if you focus on an industry with high security requirements (like banks)?
- What if you focus on inside sales teams that care strongly about phone system integration with their CRM software?
- What if you focus on retailers – perhaps a large retailer has a large number of identical stores, but each one only has a handful of lines?
More generally, one tip from Michael Porter’s article was to look for a set of customers who are either being under-served or over-served by current offerings.
An under-served customer, like many of the niches listed above, would happily pay more to get a better quality of service that more precisely suits their requirements.
An over-served customer is someone who is paying for features or services that they don’t really need – and would rather pay less and receive less. In Porter’s article Ikea shoppers are given as an example – they don’t mind that Ikea has few sales associates, that they have to pick up furniture from a warehouse, that they have to transport it home and build it themselves. These customers are happy to receive less service because they get good quality, stylish products at a low price.
Are there customers who would be quite happy with just a soft-client but you’re forcing them to pay extra to receive a physical handset? Is there some other kind of price-conscious group of customers you could focus on by providing less value at a lower price?
