Swimming with sharks: is the enterprise market worth the effort?

The enterprise information communication technology (ICT) market is huge. Because its slightly amorphous nature market size estimates vary hugely, but a report from Omdia puts the market at about 1.7 trillion US dollars in 2020, with a 9.4-percent compound annual growth rate (CAGR). Other analyses put the “networking” component of the market at 48 percent, but of course this number refers to IT networks as well as telecommunications networks and connectivity. However, even if we take the pessimistic view that only a small percentage of this market is addressable by service providers, it’s still an eye-wateringly huge market.

It’s recognized that globally the telecommunications market is now a low growth market with a compound annual growth rate of less than 1 percent. But the enterprise ICT market is growing between 9 and 12 percent per annum (depending on how you define the market and whose analysis you believe). So not only is the enterprise ICT market huge, it's also growing at a significantly faster pace than the telecommunications market. So far, so good.

Communications service providers also have an unassailable position in the enterprise ICT market as “connectivity providers”, and to make it even better, there are very few activities in modern business that don’t require connectivity. In modern businesses, connectivity is very much a utility, just like water, power, and heating.  It's also a relatively difficult thing to provide. In a new enterprise service orchestration white paper we give an example of a well-known hyper-scaler that tried to compete with service providers by offering fiber broadband. It turns out there is more to it than digging a hole, laying a cable, and running it to the front door…who knew?

Then it gets even better.  There are also some very exciting market segments beyond traditional telecommunications where service providers have significant credibility, presence, and brand association. These are enterprise security, industrial internet-of-things (IoT), and cloud datacenters. We’ve seen many service providers develop new business areas, acquire companies, and invest in technology to support enterprise opportunities in these three areas.

And where, you may ask, does 5G fit into this enormous enterprise opportunity? A recent survey showed that 69 percent of service provider CEO’s believe the largest incremental revenue opportunity for enterprise services is in 5G. This is the icing on the cake: 5G will enable new services and revenue streams in the enterprise market.

Swimming with sharks

Hopefully I’ve painted a positive picture of the size, breadth, and awesomeness of the enterprise market opportunity. The market opportunity is huge. However, it's also important to note that the market is also a highly competitive and crowded one.  Unlike the highly regulated telecommunications market where the financial barriers to entry are huge, the barriers for entry in enterprise ICT are much lower. In the UK, the average amount paid for a 3G license in spectrum auctions was GBP 5 billion. Only certain companies get to play in that market. The enterprise ICT market is very different.

Let’s use the analogy that the enterprise ICT market is an ocean. The communications service providers are “whales”. Just like whales, which evolved from land mammals, they didn’t start off in the sea, and like whales they are large, slow moving and not totally at home in the water. Just like whales need air to survive, service providers need their core telecommunications market to sustain them. So, let’s look at the fish. Because the barriers to entry in the enterprise ICT market are low there are lots of small start-up “sardines”, some mid-sized “tuna fish” providing niche software, devices and services to the market, and there are the “sharks”. In the enterprise ICT market, the sharks are major IT and independent software vendors such as Microsoft, Google and Citrix, and Hyperscalers such as Azure (a Microsoft company), AWS and Google Cloud (a Google company). Just as in the ocean, these “sharks” are at the top of the food chain and their dominance in the enterprise ICT market makes dipping your toe in the water a potentially fraught experience.

The choice for service providers is simple. Are you happy to stay in the shallows just providing connectivity or do you want to take the plunge, swim with the sharks and embrace the full enterprise opportunity? While some have chosen to remain in the shallows and only provide connectivity services, which if done efficiently can still be a very lucrative strategy, others have already taken the plunge.

Learn from the best

Moving away from the ocean analogy it's important to note that while for the majority of service providers  “enterprise business” consists of connectivity or traditional communication services, there are some companies whose entry into the wider enterprise ICT market has been hugely successful.

These outlier companies have consistently bucked the trend in terms of the revenue their enterprise business provides.

AT&T, Verizon, and BT all represent market outliers not only generating significant revenue from the enterprise market but also from the non-communications market segment. BT generates nearly 50 percent of its revenue from enterprise services, AT&T generates a massive 71 percent of enterprise revenue from nontraditional communications services, and Verizon generates 61 percent of its enterprise revenue from the SME market.

Each of these companies is performing strongly in areas that many service providers struggle with, and by analyzing their success, we can provide some guidance for those aspiring to enter the wider enterprise market.

To find out what these companies are doing to be so successful download the new Ericsson White Paper: Intent-driven enterprise service orchestration . Watch our explainer video to find out more about enterprise service orchestration  or go to the Ericsson service orchestration page.