Strategic partnerships have many advantages – they allow companies to leverage complementary skills, they rapidly reduce the time it takes to bring complex solutions to market, and they help to minimize the costs and risks associated with R&D. However, while many service providers embark on long-term partnerships and significantly invest in new underlying infrastructure, customer needs and market dynamics can quickly shift with significant consequences. The intoxicating stages of a new product launch where a service provider might enjoy good sales without fear of retaliation from competitors is short-lived. Rivals can quickly jump on the "me too" bandwagon, duplicate your offering, and leave you without differentiation and an ailing return on your investment.
In the unified communications and collaboration (UCC) market, the typical barriers to entry (e.g., capital investment and high switching costs) have declined. Infrastructure-as-a-service from vendors such as Amazon, Google, and Microsoft have quickly led to increases in rivalry from new entrants and there is also consternation from service providers as their partners essentially become competitors, as they develop their own offerings to maximize their revenue opportunity. A reduction in profit potential and increased competitive rivalry should be a clear signal to service providers that they should either consider exiting a specific market segment or reconfigure their business for increased returns.
As enterprises look to transform digitally to modernize their business processes, service providers need to transform their capabilities accordingly. There is no "one-size-fits-all" vendor solution that a service provider can implement that will solve a customer's digital transformation challenges. The monolithic closed solutions of the past (and arguably, some vendor solutions in market today), will not suffice, nor will a lack of complementary deployment, customization, and integration services. To improve ARPU, reduce the threat of over-the-top software vendors, and differentiate, service providers must look to integrate services on top of open platforms that provide custom opportunities for specific vertical applications and use cases. Furthermore, in the battle to stay relevant, service providers need to move toward an independent software vendor (ISV) model and develop their own intellectual property to improve their revenue potential.
Competition is not a zero-sum game; indeed, service providers should choose their partnerships carefully and ensure they choose a solution offering that provides the flexibility to adapt to the changing needs of their customers. Service providers should also recognize that long-lasting strategic partnerships are only effective if they continue to create business value for their prospects and profitability for their business.