When the Young Eat the Old
When the Young Eat the Old by Kevin Kieller
"Tell me what you eat, and I shall tell you what you are." - Jean-Anthelme Brillat-Savarin (1755-1826)
As new technologies are introduced, they often supersede the functionality of existing technologies and often do so at a lower cost. The young (products) thus often have the opportunity to “eat,” the revenue, of the old.
And yet, if you are a provider of the old technology, often delivering it while earning “comfortable” margins, you need to decide if you will choose to “cannibalize” your existing product base in the pursuit of market share in the newer technology. From Wikipedia we have, “cannibalization refers to a reduction in sales volume, sales revenue, or market share of one product as a result of the introduction of a new product by the same producer.”
If you are a vendor, you may have some choice in timing the introduction of a new product model in order to maximize revenue. For instance, when Apple announces and makes available the iPhone 5, this will diminish sales of the iPhone 4 and 4s and often also trigger a price reduction for these previous models. However, Apple has the ability to plan when the introduction of the iPhone 5 takes place. Arguably, Apple has more control over the timing of its “cannabilization” process in that only newer iPhones directly compete with the existing iPhone products.
Other vendors that face more direct competition, more so than Apple, may need to decide to cannibalize an existing product without as much control over the timing. In any case, through the process of product line extension, which leads to cannibalization, vendors attempt to maximize the organization’s revenue over a period of time. Vendors hope that product line expansion grows overall revenue. For instance, when Diet Coke was introduced, revenue for the standard Coke product fell while the total overall revenue for the Coca-Cola organization increased. In this case, “cannibalization” left a good taste.
There are at least four key areas in the Collaboration and Communication arena where providers and purchasers should consider what they “would like to eat.”
1. Cloud services
The UCStrategies experts have often discussed how a cloud services model reduces complexity for purchasers while totally up-ending the financial model for resellers and vendors.
For vendors, no technology shift more ravenously cannibalizes existing revenue streams as does the cloud. Timothy Chou in his excellent and approachable “Cloud: Seven Clear Business Models” provides clear insight into the disruptive impact this technology shift has on existing business models.
From compensation models to operational models, solutions delivered via the Cloud have the opportunity to “chow down” on traditional revenue streams. And despite this, even traditional vendors that have the most to lose, such as Microsoft, have embraced the Cloud.
2. SIP/PRI
The primacy of voice may be fading however any business communication must provide the capability to place calls to and receive calls from “regular phones” (i.e. the PSTN).
SIP Trunking as a method to connect to the PSTN supports the more centralized architectures found in many newer UC solutions and also offer the potential opportunity to save organizations money (join the ongoing debate on SIP Trunk savings here.) Of course with reduced costs to customers comes reduced revenue for vendors. Many telcos are grudgingly offering SIP Trunking service to replace traditional (and high margin) PRI services.
3. Newer PBX replacement options
Alternative PBX solutions, most notably Microsoft Lync, unbundle the trifecta of custom hardware, licenses and installation services. Depending on which groups are making the selection decision, these alternative solutions may be hyped or derided – simply based on opinions and often not substantiated with facts. In any case, newer options that provide voice and other communication feature “buffets” are gaining “mindshare” with most customers. Indeed some of these alternative PBX solutions are also being offered as cloud solutions (e.g. Office 365 in conjunction with BT).
4. Mobile phones as “the” phone (FMC)
At one point no one was going to need a desk phone because their computer would become their phone. This may have happened for some people but for most it may be that their mobile smartphone is what truly replaces the need for a desk phone. Fixed Mobile Convergence (FMC) envisioned the seamless transition of a call from your mobile device to your desktop device, however now the desire is simply to transition the call from the costly cellular network to the “free” corporate WIFI network, the calling continuing on the mobile device. The Cisco Cius takes a different approach whereby the mobile device, the Cius tablet, becomes the desk phone by placing it in a docking station.
With these and more changes coming, when considering your product “menu,” what are some of the things you should keep in mind?
If you are a vendor, you need to realize that few can hold back “the hands of time.” You may be able to delay in order to not cannibalize your existing market share; however, be aware that others may not delay the transition and as such may take the market share you were trying to protect. Some market shifts happen quickly enough that the incumbents only realize it is “too late” – when it is too late! Kodak should serve as a cautionary tale for larger successful companies such as the telcos. The shift from PRIs to SIP and from the PSTN to the internet for communications is happening. The shift from fixed phones to mobile has happened!
As a reseller, you can choose to add to your solution catalog. Offering customers a choice of traditional solutions as well as Cloud and newer UC PBX alternatives allows you to compare and contrast the differences and hopefully earn the sale. Of course this will likely require an investment in training for your sales and implementation resources. Some newer solutions may mean you are opening yourself up to newer competitors, so additional competitive research may be required.
As a consultant, increased choice and new options provide more opportunities to assist your customers in fairly evaluating these newer options. Sometimes newer options save money and are a great fit. Sometimes newer options, when you work out the details, actually cost more and introduce increased technical risk. Evaluating as opposed to “selling” takes time. For more information on a transparent evaluation process see the article “The Goldilocks Approach: 7 Steps to Get to ‘Just Right’”.
As a customer, you owe it to yourself and your organization to ensure you work with consultants, resellers and vendors who can help you understand both the pros and cons of newer technology. New does not necessarily mean better, just as using older, more established technologies, does not necessarily ensure a project’s success.
Bon Appétit!
“If you are what you eat and you don't know what you're eating, do you know who you are?” - Claude Fischler (2004) Sociologist with the French National Center for Scientific Research