The Over-The-Top Service Threat to the Telecommunications Industry

Telecommunications companies used to provide communication platform as a service at the end of a value chain that they themselves has built from the ground up, and dominated that space for some time.

 

This value chain included infrastructure, connection services such as television and Internet subscriptions, hardware receptacles (such as cable boxes and proprietary routers), and even software to run certain communication platforms—especially email, phone lines, and conference lines for businesses.

However, smaller and newer companies have created competitive services that are gaining a larger share of the business communications market on the existing infrastructure of telecommunications companies.

 

These are the over-the-top (OTT) companies that threaten lucrative revenue streams for established telecommunications players.

What Are Over-the-Top Service Providers?

 Over-the-top service providers don’t invest in the entire telecommunications value chain—they just offer services and platforms at the end of it for B2B and B2C business models.

 

“Over the top” refers to these services providers’ delivery system and business model, opting for CPaaS and UCaaS products over the Internet that circumvent the the rest of the telecommunications value chain.

 

OTT service providers also shy away from traditional channels both in their services offered as well as their marketing channels—often to great effect.

For example, Amazon Web Services and Twilio have built their own Internet-based offerings that rest on infrastructure built by the Telecom industry. This lets them offer unified communication platforms as a service without investing in the infrastructure to deliver it—even for call center support.

 

Similarly, OTT office communication and storage platforms like Google for Work not only offer digital-only services over high-speed Internet connections, but they advertise where Internet users are likely to frequent during work hours. You won’t find Google advertising its business suite of tools on television or in movie brand placements; instead, this OTT service provider appears in social newsfeeds and search results.

 

That’s because it knows that businesses seeking Internet-based services will be more likely to get exposure to its office suite while browsing online or using other web-based apps (like the ads found in Skype messenger).

What Are Examples of Over-the-Top Service Providers?

OTTs also tend to be smaller teams or organizations, or they grew with a small product focus into their current size. They are rarely affiliated with a large telecommunications enterprise. Google is an exception to this rule, but you will find its competitors to be much smaller:

  • Amazon Web Services handles storage, security, and even cal centers
  • Twilio provides API integrations to build enterprise software without heavy coding skills.
  • Slack handles office communications
  • DropBox handles cloud storage
  • Netflix offers video for the consumer market
  • Shopify handles eCommerce solutions
  • Facebook created an advertising platform
  • Brightcove and Vidyard process video hosting and analytics
  • Roku aggregates video content services

While B2C models focus on delivering entertainment, the B2B OTTs tend to deliver a platform for advertising and/or communication, often creating a new niche for end-to-end service as long as the customer has an Internet connection.

For telecom enterprises, this means that all kinds of service offerings are up for grabs from new competitors, be it entertainment media or call center cost centers.

Why Do OTTs Threaten Telecommunications Enterprises, Specifically?

 Over-the-top service providers have jumped into the CPaaS and UCaaS niche just as it began rampant growth, leaving telecommunications enterprises to catch up.  The growth margin for CPaaS and UCaaS services is a profitable one, too. The industry’s worth has skyrocketed from $410 million in 2015 to an expected $8.1 billion by 2019.

 

Twilio, for example, has a suite of APIs that let enterprises build their own versions of commonly available platforms (call centers being important for telecoms in particular). Their pricing is built on telecom infrastructure, but they take in extra profit by building in their own margins.

Established telecommunications providers are missing out on billions in revenue at the end of their own value chains.

 

OTTs could do this because they created highly focused products with small teams. By contrast, established telecoms have larger teams working on services that complement their entire platform’s offerings—chalk full of integrations, thorough quality assurance testing, and multi-layered reviews.

Telecom products have been designed to work with everything to add value for the customer, while OTT service providers designed narrowly focused services to fill a single market niche with a lean features list.

The Billion-Dollar Opportunity Cost

That’s a billion-dollar opportunity waiting on the table in an increasingly competitive industry.  Telecoms cannot rest on their laurels with full-service platforms as a core value proposition, either. OTT service providers have made huge efforts to integrate their platforms with other services—even their competitors in some cases.

 

For example, Slack offers file storage similarly to Google Drive and DropBox—yet it allows users to integrate both of these cloud storage services with Slack to maintain its position as the most convenient office chat and collaboration platform on the market.

 

OTT service providers have created focused, lean Internet services to dominate the market at a growth spurt worth $8 billion in potential revenue.

No single OTT service will offer everything that a telecom’s full-service CPaaS or UCaaS products can, but they can circumvent this with relatively easy-to-use integration features. This entrenches them in their respective niches within the CPaaS space, even if they only claim one part of the $8 billion-dollar market.

 

Competition has become the standard in the new industry space.

How Can Telecoms Gain Ground on OTT Service Providers?

Direct Competition

Large telecom enterprises that haven’t yet entered the space have paid a heavy opportunity cost, but that isn’t the end of the competition—not by any means. Telecoms can follow these strategies to work their way into a competitive share of the CPaaS and UCaaS market.

 

Enterprise telecommunications have the resources to build products and services that match their competitors line for line. This is a brute-force approach that claims OTT market shares with the weight of branding and competitive pricing, all made possible by the telecom’s resources and ability to take a hit on lower revenue in exchange for higher customer acquisition.

 

This plays directly to the strengths of established telecoms—their size. It can also be used in tandem with other strategies to drive higher revenue even if the product doesn’t claim as much market share as predicted.

 

Facebook has done this to great effect in pursuing the market share it lost to Snapchat in the social media vertical; the social giant has imitated every new feature that Snapchat introduces, giving its existing user base few reasons to switch to the other platform. It renders Spapchat’s innovations null in many cases.

 

Telecoms are in a similar position to exert power over OTTs, particularly by offering services billed at lower usage rates. Telecoms control the infrastructure, after all, and can offer discount usage pricing to acquire more customers accordingly.

Acquisition

Telecoms may need to acquire their competition in the long run, but this could be expensive—even for telecom enterprises that could afford it.

Having said that, the benefits of acquiring an OTT could have far-reaching benefits. Google, for example, acquires many smaller companies so that it can build on the tools from those companies and incorporate them into its entire G Suite platform.

 

Telecoms can bolster this strategy with pressure from a proprietary platform, driving down the cost of direct acquisition when the time comes.

All of those core benefits could become features of the telecom’s value chain once again.

Bill-on-Behalf Partnerships

If the OTTs aren’t receptive to a sale, then telecoms can still create mutually beneficial revenue opportunities based on advanced billing technology.

Bill-on-behalf revenue models will become a big part of the CPaaS and UCaaS industries, especially where platform integrations are concerned.

 

Communication platforms like Slack and Skype already let you integrate email, social media channel engagement, and even email into different feeds. Telecoms are uniquely positioned to take advantage of that by partnering with OTTs to create usage-based billing models for everything on top of basic subscriptions, including:

  • Streaming video
  • File storage space
  • Guest channels used
  • Integrating collaboration tools
  • Value-added service bundles

Telecoms still control most of the value chain, and leveraging that will be key in monetizing the market that OTTs have rushed to claim.

 

Telecommunication enterprises have multiple options to monetize the CPaaS and UCaaS vertical, but they will face stiff competition from established over-the-top service providers that continue to entrench their positions with value-added features and integration capabilities.

 

Read our report on Real-Time B2B2X Billing to discover how your telecommunications organization can reclaim market dominance from OTT service providers threatening its revenue streams.

 

About the author
Ryan Susanna, VP of Sales and Marketing

Ryan Susanna, VP of Sales and Marketing

Ryan is a seasoned telecommunications expert with a broad background in both the service provider and software vendor sides of the business. Ryan is currently responsible for worldwide sales at LogiSense. During his tenure, Ryan has held executive level positions including Senior Sales Executive, and Director of Sales. In these roles, he has provided strategic sales, product, and market guidance for our next generation IP service management solutions. Prior to LogiSense, Ryan held B2B sales roles within the ISP and Digital Imaging verticals. With a flair for selling complex solutions at all levels, Ryan has more than a decade of sales and product management experience in the telecommunications industry. Ryan holds a Bachelor of Science degree in Computer Science from Wilfrid Laurier University.