In this article, we’ll look at:
- How telephony has become more commoditised.
- What impact that has on revenue.
- Why value-added-services are crucial for accessing additional revenue streams.
Over the years, there’s been an increase in the number of structured telephony enablement programmes. Major vendors, including Microsoft and Cisco, have taken it upon themselves to introduce methods of integrating systems. While convenient, it has introduced issues.
Telephony now feels commoditised, with the industry becoming more uniform and price driven. ARPU is being pushed down, and 40% of businesses have reported a decrease in their own UCaaS revenue. When price becomes the key differentiator, the ‘race to the bottom’ begins.
What matters, now more than ever, are these value-added-services. For partners to stand out in such a commoditised, competitive market, they need to go that extra mile. Professional services, and that specialised service wrap, is what really makes the difference.
The course towards commoditisation
There are times when, in certain markets, products start looking very similar. Unique traits and features are lost, and the only thing that differentiates them is price. This is commoditisation in action.
This is what’s happened in the telephony industry. Core services, including voice and networks, are now seen as a commodity since they seem interchangeable.
The revenue for global telecoms, until 2028, is projected to rise at a CAGR of 2.9%, but ARPU will decline annually by 2%. There’s now greater pressure on providers to find new ways to boost margins.
So, what’s exactly happened in the telephony market? We’ve reached the point of commoditisation through:
- Technological developments that customers now see as a requirement rather than a unique asset, such as 5G connectivity.
- Funding infrastructure improvements, with a greater focus on cutting costs to manage margins.
- Changing consumer behaviours, as they see connectivity as an essential service, with price and reliability influencing decisions.
- Increased market saturation that leaves little room for new customer growth, leading providers to battle competitors with aggressive pricing strategies.
Through these factors, commoditisation starts to eat into revenue.
Price wars and value plays
When commoditisation sets in, profit margins feel the hit. Once key services become commodities, providers are unable to differentiate effectively. It’s why they turn to lowering prices to gain more market share.
Once pricing drives decisions, and providers seek to undercut competitors with lower prices, that’s when margins shrink. Consumers will only buy from providers who can offer them the lowest price, which translates to short-term trust. The real value lies in long-term relationships built on trust and customer lifetime value.
It’s 5 to 25 times more expensive to acquire new customers compared to retaining an existing one. To combat commoditisation and start rebuilding long-term customer relationships, value must come from elsewhere. Lower prices are always great in the short-term, but for real long-term value, wrap around services are the real differentiator.
The real value
In a commoditised market, businesses can restore margins by introducing value-added services. Suddenly, price is no longer the differentiator; instead, additional support becomes the key point of focus. It changes how consumers perceive a specific offering, with solutions now seen as more unique compared to the wider market.
Right now, Gamma’s partners can benefit from various add-ons and capabilities that takes services further. These include:
- Professional services and readily available expert support as part of the Service Suite for Microsoft Teams proposition.
- The Gamma Edge programme, a partner growth framework that focuses on strategic alignment, long-term growth, and commercial accelerators.
- Solutions like AI Concierge which, as part of the Gamma Plus platform, delivers intelligent, value-added services to the UK’s SME market.
By utilising these programmes, our partners can stand out in a crowded, commercialised market. Taking these additional services defends margins by opening new revenue streams and generating more value from existing products. It’s the best way to take focus away from just pricing.
Going beyond price
As soon as markets become commoditised, tunnel vision can creep in, and eyes rarely stray from pricing models. To break the deadlock and avoid the risk of diminished margins during pricing wars, providers need to introduce real value to their services.
When introducing specialised support, hands-on training, and access to in-depth analytics, the game changes. No longer is price the differentiator between competitors. It all comes down to value-added services that retains customers and build long-term value.
For the telephony industry, services should never become mere commodities. They’re the backbone of efficient business communications and deserve to be valued beyond the price. By introducing value-added services, providers can regain their uniqueness and capture a greater market share to sustain long-term growth.
Now that’s real value.
Quick Answers: Added Value: Defending Revenue During Telephony’s Commoditisation
What does commoditisation mean in the context of telephony?
Commoditisation refers to the process where telephony services become largely indistinguishable from one another, with price becoming the main differentiator. Unique features are lost, and services like voice and networks are seen as interchangeable commodities.
How has commoditisation affected telephony revenue?
As telephony becomes more commoditised, ARPU declines, and many businesses report a decrease in their UCaaS revenue. Price wars lead to shrinking profit margins and increased competition based primarily on cost.
What are the main factors driving commoditisation in the telephony market?
Key drivers include rapid technological developments (like 5G becoming standard), infrastructure funding pressures, changing consumer behaviour prioritising price and reliability, and increased market saturation leading to aggressive pricing strategies.
Why do providers engage in price wars, and what are the consequences?
Providers often lower prices to win market share when services are commoditised. This results in shrinking margins and short-term customer loyalty, making it difficult to sustain long-term growth and profitability.
How important is customer retention compared to customer acquisition in this market?
It is significantly more expensive to acquire a new customer than to retain an existing one. Therefore, building long-term customer relationships and focusing on customer lifetime value are crucial for sustaining revenue.
What role do value-added services play in defending revenue?
Value-added services, such as specialised support, professional services, and tailored solutions, help providers differentiate their offerings. These services shift the focus away from price, restore margins, and make customers view solutions as unique rather than generic.
Are there any examples of Gamma’s own value-added services in telephony?
Examples include professional services and expert support as part of Service Suite for Microsoft Teams, partner growth frameworks such as the Gamma Edge programme, and intelligent solutions like AI Concierge for SMEs.
How do these value-added services benefit partners and providers?
By offering additional capabilities and support, partners can differentiate themselves in a crowded market, defend their profit margins, and unlock new revenue streams. This approach generates more value from existing products and reduces reliance on competing solely on price.
What strategies can providers use to move beyond price competition?
Providers should introduce real value through specialised support, hands-on training, and access to advanced analytics. Focusing on customer outcomes and unique service wraps helps retain customers and build lasting relationships, ultimately supporting long-term growth.
Why is it important for telephony services to avoid becoming mere commodities?
Telephony services are essential to efficient business communication. By maintaining their uniqueness and adding value, providers can sustain growth, capture greater market share, and avoid the pitfalls of commoditisation.
