Hosted PBX Industry Future Relies on Wealthy Vertical Markets
UCaaS vendors may start small and target for big payoffs.
Vertical marketing is the next frontier for hosted PBX companies. It can easily double revenues for providers, and industry specialization by hosted UC vendors has caught on worldwide.
In compiling our new report, "Worldwide Hosted PBX Market 2017-2022," Eastern Management Group surveyed more than 3,500 IT managers and dozens of vendors to understand the importance and potential of vertical marketing to hosted PBX vendors and customers.
One could argue that vertical industry marketing is just plain common sense when selling hosted PBX. The argument might go something like this: Today's hosted field is overrun with suppliers. (Note: At the Eastern Management Group, we monitor 187 hosted UC companies worldwide). That alone can make vendor differentiation useful. Vertical industry marketing, where a hosted UC company targets certain industry markets, say legal or healthcare, can help shrink the competitive field, while adding industry knowledge and credibility to the providers.
At one level this argument makes sense. Here's why. The majority of new hosted customers do their own homework, shortlist the attractive providers, then contact just a few vendors -- about four -- before buying. Hosted PBX vendors, by directing some indirect marketing dollars toward a couple of industries, say retail or legal, can target their pitch to buyers with much in common. They've narrowed the competitive field, matched pitches to buyers, offered reasonable prices... and can often meet with success.
Because some vertical markets are almost unbelievably large, they may be ripe for industry marketing. Here are two examples taken from 22 vertical markets Eastern Management Group analysts study. In 2018 the worldwide hosted PBX total addressable market (TAM) for the manufacturing industry will be $3.1 billion. For a smaller industry like retail-wholesale it will be $2.4 billion. There is plenty of opportunity just in these two industries to justify vertical market selling.
Why Hosted PBX Vendors and Customers Need Industry Marketing
Some 50 years ago IBM began segmenting customers into vertical markets. Without significant competition -- unlike what we now have with hundreds of hosted UC vendors -- IBM had no need to winnow the competitive field. But the company wanted to chase down wealthy vertical market customers in order to sell more than "iron." It did this by understanding customers' unique business interests, in certain vertical markets, then matching up solutions. Ten years later AT&T copied the IBM method. By understanding and matching offers to vertical market customer needs, both IBM and AT&T were able to generate pull-through sales, often in the range of 100%.
Eastern Management Group analysts find a similar opportunity with hosted PBX today. Here's our current thinking on the subject. The hosted UC market is actually two markets. One comprises businesses with fewer than 300 employees (SMB), while the second has more than 300 employees (Enterprise). The small group generally lacks an IT department, while the enterprise should have one.
The presence of an IT department is what creates a perfect environment for industry marketing. Here's why. CIOs and CTOs buy solutions to advance the company toward its mission. They may want to improve employee productivity, not just cut phone costs. They may want to provide good customer service, not just pick up the phone. One expects this behavior from a business competing for position and sales in a vertical market. To succeed, the enterprise expects more sophistication and tools from hosted PBX vendors. Down the road, the SMB can be seen to be wanting the same.
Start Small and Know Where You're Going
Selling to vertical markets isn't expensive. It's good to start small, get your sea legs, and then progress from there. Here are two examples, one using third-party integrations and the other using your platform. Each one lends itself to starting small before getting ambitious.
- Integrations -- Bundling and selling vertical market integrations doesn't have to entail complexity. Say the vertical market is employment agencies. A bundle of three integrations -- JobDiva, Jobscience, and PCRecruiter, priced at $49 per month as one vendor does -- can greatly increase seat revenue.
- Platform -- In another case, let's say the vertical market is retail. A contact center application with call flow management tools, real-time monitoring, reporting, and disaster recovery management can increase monthly seat revenue by $50 or more per agent.
Multi-location vertical market enterprises have the greatest need for hosted PBX vendors with vertical market specializations. IT managers may require systems integration, network planning, managed services, UC applications for collaboration, and CRM, all of which can be tailored to vertical markets.
Hosted PBX Vertical Market Specialization Isn't Expensive
Targeting one or more vertical markets doesn't have to be expensive. Google AdWords are cheap. They are a favorite of many hosted PBX companies and a good tool for targeting favorite vertical markets. If you eventually put together a market management team that targets key industry segments, budgets can start small and grow as needed. Whatever amount is invested in vertical markets there is the potential to create an outsized return for both the vendor and the customer.
This is the second in an eight-part biweekly series featuring research from Eastern Management Group's exhaustive "Worldwide Hosted PBX Market 2017-2022" report. For the first in this series, see: "Hosted PBX Market Is a Whopping $20B."
For questions about the hosted PBX study please ask Eastern Management Group researchers.
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