The idea of convergence – systems combining telephony and networking functions – is slowly coming to the fore. Christopher Walton examines what SMEs need to know about how to acquire this essential technology.
Both IT and telecoms technologies have been sold to business users through indirect channels for decades, but in recent years the two markets have ‘converged’, leaving the average SME customer bemused and confused.
The major elements of an indirect channel starts with a vendor who has a technology to sell and relies on an ICT distribution partner to manage their supply chain. The average SME will usually only ever come into contact with the channel through the vendor and its distributors’ business partners, localised resellers who will install and manage your ICT needs throughout the product lifecycle.
According to industry analysts Canalys, which provides market data on both the telecoms and IT sectors, the demand for ‘hybrid IP systems’ – a network which blends the business need for telecoms and networking technology – accounted for more than half of the world market for telephony in the second quarter of 2003 for the first time.
There are six leading vendors when it comes to the hybrid IP systems market, more commonly referred to as the convergence market. Measured by Canalys by the volume of lines shipped, a mixture of networking and telephony vendors account for 51 per cent of the global market: Nortel, Siemens, Avaya, Alcatel, Ericsson and Cisco.
Canalys analyst Rachael Power indicates both Avaya and Nortel are doing well in the UK. “The SME needs something that can be easily deployed, and will only really use a reseller or BT but mainly a reseller. Every vendor in the convergence market needs to take a two-pronged approach. Cisco, for example, has recruited voice (telecoms) resellers in the SME space lately. The telecoms resellers are currently being forced to add to their skills set with IT knowledge while the IT reseller is having to understand a voice system that is very complex, In terms of a ‘convergence’ reseller, some have made the leap either way, but we believe we will be seeing more coming to the fore over the next six to 12 months.”
Enterprise networking giant Cisco Systems has sneaked into the sector over the past year, taking 1.5% of the convergence market in the second quarter of 2003, and embraced the SME market as a target for growth. Dave Kelly, SME business manager at Cisco, remains adamant that the channel will be their only route to market for SME sales.
“What we are trying to do is say that it is not just ‘product’ that the SME requires. They have the same requirements as a large enterprise, but on a smaller scale. The SME needs to be competitive and more efficient and what [our resellers] try to sell to them is that solution. You do not try to push products at them; products do not make a solution. An SME will generally not know what convergence is and we do not see an SME looking at a problem and saying I need some convergence infrastructure – they are trying to drive cost out of their business. That is the angle we come from at Cisco. We are trying to sell the SME a solution to a business need.”
Total service mantra
The need not just to provide you with ICT products but a total service is a mantra that can be found being chanted throughout both the IT and telecoms channels. But Tim Wells, Marketing Manager at hybrid telephone systems manufacturer and reseller Aastra Telecoms, admits it is difficult to sell a converged solution when most SME customers remain in the dark about what convergence actually is.
“We manufacture business telephone systems that are IP-orientated. Most users understand [business telephone systems]. There are those in the market who are looking for a fully converged reseller who will provide them with telephony products but if the buyer is an IT manager the chances are they will go back to their original IT supplier.”
The top requests for telephony products at Aastra are PBX, telephone systems, PABX and switchboard services. Converged systems or IP do not feature. Wells says that most SMEs appoint a sales contact who is not aware that a converged system is out there. “The people who approach us are all types, from the managing director to the secretary. They may have lots of experience in purchasing a telecoms system or none at all.
“You can never explain over the phone in detail and get them to understand convergence. You have to ask the right approach questions and explore beyond what they say they want. Do you have regular offices? How do your employees do their work? Do you have remote workers? It helps to build the system they want and provide them with the most functionality.”
The convergence market is not just about IT vendors and telecoms vendors offering products through their respective channels; vendors offering fully converged systems have entered the market too. Avaya held 10% of the global market in the second quarter of 2003, according to Canalys, and has a reseller base of some 100 telecoms and IT dealers in the UK.
Richard Pitt, Sales Director for SME systems UK at Avaya, concedes that while the vendor has a reseller base “in excess” of 100 selling their products to SMEs, the traditional sales rule of 80/20 still applies, with 20% of their reseller sales force doing most of their business.
“For my money I think the majority of our sales will be into organisations that want to buy something that has some ‘feature briefing’. A lot of mid-size customers are buying on application as they find they need to deal with inbound calls and emails in a timely manner,” Pitt says. “A lot of the mid-sized SMEs say we need to refresh our network infrastructure. If they have the knowledge they will go to the market and say we need to talk to Avaya or a couple of the other players and we get more of those approaches than expected.
“When it comes to the reseller the predominance of our sales go though telephony resellers. It would be more of a consolation if one of the misapprehensions were not that the IT data resellers are not really embracing convergence as much as they should. It is the guys from the voice side of the business who are taking the lead in terms of selling IP solutions and telephony-based solutions. The IT guys are missing an opportunity and need to have as strong a relationship with their customers when selling applications.”
Wells does not reiterate Pitt’s view. He said “The IT resellers are working their customer database better. If there is a big lesson to be learned it is making sure your customers know you can provide them with convergence, now.”
Power concedes that such confusion in the market is easily explainable for one in its infancy. “If a reseller decides to invest in a voice and data solution they will not get left behind.”
For many resellers such impetus to become a converged reseller comes from their distribution partners, who will offer them the consultancy and technical support they need to make the leap.
One of the leading UK players is Crane Telecommunications, who with a current staff of 235 and a turnover of £77m in 2001-2002 can be classified as an SME. Simon Brough, Crane Communications Consultant, warns his reseller partners that with most SMEs they are selling to it will be financially unrealistic for them to transfer to a single communications infrastructure overnight.
“This being the case,” Crane adds, “the focus should be on guiding your customer’s strategy, with the two key determining factors being how and when your customer is able to upgrade their network. In order to run a future-proofed network you should advise customers to give serious consideration to putting in an infrastructure capable of running both voice and data. In the SME sector less than 1 per cent of the infrastructure can support this function, thus the task is clear to deploy a single network capable of supporting both voice and data.”
One player you cannot ignore in the UK market is BT, which signed a letter of intent with Cisco to develop converged solutions earlier this year on the back of an existing agreement with Nortel. Power admits BT has the “potential to be a reseller to the SME market”.
“BT has the capacity to develop and sell convergence to the SME. The local reseller is very much looked at by the SME as the trusted reseller and service provider. But the SME needs a business case and needs to understand what value they will get from convergence and to do that they need some sort of maintenance and support contract.”
From Avaya’s point of view, Pitt believes the best strategy for procuring and deriving service from convergence for the SME means the best solution for their problem. “Ask the vendor business questions and work with their resellers who understand the business needs you’ve got.”
Cisco’s Kelly reiterates the sentiment, with almost an identical message. “The key strategy the SME should adopt is looking at their business and what they are trying to achieve. What am I trying to do by asking for an improved network? What am I trying to achieve by solving a problem?”