Telcos Could Be The Future Enterprise Software Vendors For Small Businesses

Having worked on enterprise software product and go-to-market strategy for SMB (small and medium businesses), I can tell you that these are the most difficult customers to reach to, especially the S in SMB. It’s an asymmetric non-homogeneous market for which the cost of sales could go out of control if you don’t leverage the right channels. The competitive landscape varies from region to region and industry to industry. In many cases instead of competing against a company you would be competing against a human being with paper-based processes.

Tomorrow I am speaking at the Razorsight annual conference on the topic of cloud computing. I am excited to meet their customers, the telcos. While I prepare for my keynote, I can’t stop thinking about the challenges that the telcos face and the opportunities that they are not pursuing. My keynote presentation is about how telcos can leverage the cloud, but this blog post is about how telcos can become successful enterprise software vendors and market their solutions to small businesses.

There are very few things that are common across small businesses. They own a landline (at least for now) and they have Internet access, in many cases from the same vendor. I believe that the landlines will be more and more difficult to sell to these customers, but losing a channel – a relationship – would be even worse. If leveraged well, these relationships could be worth a lot more compared to the landline business as it stands today. Just think about it. Selling to small businesses is all about leveraging existing relationships with them. This channel is priceless.

What will it take for the telcos to market products to small businesses?

ISV acquisitions or VAR agreements: If telcos are bundling software, on-premise or SaaS, the telcos, as organizations, don’t necessarily have the skills or resources to make software for small businesses. This would mean a series of small and niche ISV acquisitions across geographical areas and industries and VAR agreements with current ISVs.

What kind of software can telcos bundle?

There are two kinds: horizontal and vertical. The examples of horizontal software are accounting, payroll, point of sale etc. Ask Intuit and they will tell you all about the horizontal cash cow. The vertical software is industry specific for the business that you are in. One of my favorite companies in this area is OpenTable. If you have made an online reservation at a restaurant you have most likely used their software. They had a successful IPO last year and they are on track to become a $100 million company.

Telcos should be doing all these things. They have cash and they can borrow cheap money to buy companies. Telcos also have an option to leverage the cloud, their own cloud in many cases, to provide SaaS solutions to small businesses. They can leap frog the on-premise ISVs who don’t have access to these customers and are sensitive to margin cannibalization.

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