31 December 2024

Gary Barton, Research Director, Enterprise Technology & Services; and Rob Pritchard, Principal Analyst, Enterprise Technology & Services, GlobalData

Most telecom companies operating in the enterprise market periodically alternate between verticalized and horizontal sales strategies. While verticalization promises increased enterprise sales via deeper sector-specific partnerships, it often leads to unrealistic expectations and strategic recalibration. To achieve sustainable growth, telcos should adopt a pragmatic approach, focusing on their core horizontal strengths - such as secure connectivity and data services - while targeting specific sectors only where they can add real, scalable value, observes GlobalData, a leading data and analytics company.

Gary Barton, Research Director for Enterprise Technology and Services at GlobalData, comments: “Over three decades of working with telcos, GlobalData has seen many ambitious statements about building expertise in specific verticals either in-house or through establishing partner ecosystems. However, while there are examples of telcos being successful in certain industry verticals, often this success is built on opportunism rather than developing a deep relevance to that vertical.”

Robert Pritchard, Principal Analyst at GlobalData, adds: “There are examples of point solutions in areas such as IoT in certain verticals, and co-developed solutions, but these remain the exception rather than the rule.”

“If you scan service provider web sites or enterprise segment sales organizations, you will more often than not find a list of industries such as finance, manufacturing, retail, and so forth. However, if you take a deep dive into the sector ‘solutions’ they tend to be generic elements of the service provider’s core portfolio often with no vertical value-add.”

There are a few sectors that do benefit from more specialist propositions – notably in the industrial and finance sectors where there are interconnected ecosystems, or in the public sector where certification by Government bodies can be a prerequisite for market access.

With IoT (Internet of Things) services there are repeatable use cases which can be applied to multiple verticals, for example in telematics for vehicle and asset tracking. Other solutions such as ‘smart’ building monitoring offer a value-added service, but this is not truly vertical-specific. Equally, Artificial Intelligence (AI) and analytics can assist retail customers for ‘smart stores’ and these can also be complemented by the facilitation of customer Wi-Fi access – but this is a matter of applying a technology to a vertical, as opposed to innovating a sector-specific solution.

One key battleground is solutions selling (i.e., complex and individualized projects), but this depends on bespoke developments, which can be on behalf of the customer, co-created with the customer, or developed in partnership with, for example, a systems integrator. Note that this is not usually sector-specific, but customer-specific. Sometimes, however, these tailored solutions can be packaged and productized for the broader customer base.

The growing complexity of the technology landscape is driving the need for greater specialization in many verticals including manufacturing, banking & finance, healthcare, pharmaceuticals, and transport & logistics. This need for specialization is a reason for telcos to be drawn to a vertical approach through fear of seeming irrelevant to enterprises in these sectors. But the level of specialization required is also a reason for telcos to be cautious of this approach.

Barton continues: “It is tempting to believe that all enterprises in a given vertical buy technology in a similar way and have similar requirements, but there are a growing number of sub-verticals, which all behave differently. Telcos cannot realistically develop the depth of understanding to address all these highly nuanced needs. Furthermore, doing so will lead to targeting increasingly smaller numbers of businesses thereby reducing the total addressable market and preventing the scale necessary to achieve desired margins.”

There is also the issue of vertical definition: is Tesla an automotive company or a software company? How many different verticals is Amazon active in? Unfortunately, in the same way that defining enterprises by their number of employees is a crude measure, so the same can be true for definition by vertical – and there are plenty of variants within sectors, even highly regulated ones such as finance.

Telcos’ core capabilities in connectivity and data networking make them naturally horizontal. This can make it more difficult for network operators to be vertical specialists as they work with enterprises of all kinds. However, this broad appeal is more a strength than a weakness. Telcos are selling solutions that all enterprises need. The challenge for providers is to nuance their messaging around the business benefits of their solutions.

In the context of such a fragmented market, telcos face a dilemma. They need a way to segment their market and tend to use simple filters like geography, sector, and number of employees: it is what they have done for years and the data is fairly readily available, be it office locations, Standard Industrial Classification (SIC) codes, or employee counts from company filings.

This is not ideal, but it is what it is. Within this context, service providers need to construct organizations for their go-to-market strategies. The one most have adopted is based on the above criteria because there is no perfect solution – otherwise everyone would be adopting it. The challenge is how to make the best of the situation. Marketing and product management work to provide the essential business benefits and technology advantages of services available, then complement these efforts with use cases and associated collateral. They should also work hand-in-glove with sales to align broader trends across enterprises with the challenges faced by individual customers and any vertical-specific issues.

The goal is to develop platforms that support service bundling and to have a sales force trained in cross-selling these platforms. This can range from bundles of services for smaller businesses, most of whom face broadly similar technology challenges, through to solutions for the most complex global enterprises that add a bespoke twist to the standard platform solution.

Pritchard adds: “Insights into strategic challenges and possible solutions will always be welcome – for example, moving applications and data to the cloud is a challenge which can be tackled by service providers, addressing security, bandwidth needs, orchestration, and so forth. This will be a trend common across all verticals, but one that still needs nuancing to meet the challenges faced by a specific sector, for example to address data sovereignty or compliance with regulations.”

“An emerging opportunity of particular interest is the potential to exploit Generative Artificial Intelligence (GenAI) to analyse service provider data on broader customer trends. This could provide invaluable insight into the commonalities in service adoption by vertical and help sales to mould propositions to match sector buying trends.”

Barton concludes: “Telcos should be aware that services such as internet/cloud access, mobility, and SD-WAN/SASE are essentially horizontal. Instead of seeking deep vertical relevance in their core portfolios, telcos should demonstrate how their solutions are the crucial enablers for enterprises’ wider digital transformation journey across all sectors. Secure, reliable connectivity has clear business value whichever enterprise you are talking to.”