March 25, 2020

The “New Normal” for SMB UCC and Managed Services

Near-Term Effects of COVID-19:

COVID-19 has forced small and medium businesses (SMBs) across all industries to rapidly adjust business operations to comply with federal, state and local pandemic responses and corporate guidelines to keep employees and the public safe.  BCE has identified common themes impacting the UCC (unified communications and collaboration) and managed services markets:

» Business slowdowns: COVID-19 has reduced production across the majority of industries, with firms limiting output or closing down completely, reducing the utilization of UCC and managed services.  However, long-term contract structures insulate UCC and managed services companies from near-term revenue loss

» Cost-cutting: In response to slowdowns in production, companies have been forced to re-assess budgets with an eye towards financial stability and cash flow maintenance. The resulting layoffs and cost cutting have the potential to limit UCC and managed service expenditures in the long-run but near-term effects are minimal, with most UCC and managed services spend already contracted.

» Remote work: Remote working mandates have shifted tasks that traditionally took place face-to-face in an office setting to remote meetings, largely via videoconferences. SMBs accustomed to in-person collaboration have gone remote, business travel has been grounded, and many phone meetings have shifted to videoconference.  Even select doctor’s appointments have shifted to telemedicine.  COVID-19 has forced previous non-users to adopt teleconferencing and remote collaboration services supported by unified communications and managed services.

Of these near-term effects, remote working is most likely to have a lasting impact on UCC and managed service market dynamics.

The “New Normal”:

Whether in 3, 6, 12 months or more, eventually we will reach a post-pandemic world.  We expect the following dynamics to have a lasting impact on UCC and managed services markets:

Remote working: Three major elements will combine to drive greater use of remote work in the long-term.

  1. COVID-19 forced SMBs previously resistant to remote work to familiarize themselves with technologies supported by UCC and managed services. Forced adoption of videoconferencing and remote collaboration in the near term has the potential to accelerate existing trends towards remote work in the long-term.
  2. The technologies that support remote work have improved considerably, with developments focused on ease of use and increased functionality to replicate an office setting. COVID-19 forced many SMBs to use this technology for the first time and market experts report that reviews have been highly favorable.
  3. The timing of COVID-19 aligns with the rise of the millennial workforce, a generation that both values workplace flexibility and is familiar with remote work enablement services. These three trends will combine to drive increased remote work and use of UCC and managed services in the long-term.

Telemedicine: Medical policy responses to COVID-19 to loosen restrictions on telemedicine for select medical appointments, particularly for mental health therapy and routine check-ups, have the potential to accelerate the trends toward increased use of telemedicine.  Telemedicine will never fully replace in-person appointments, but forced adoption due to COVID-19 will combine with improved technology, reduced restrictions and increased emphasis on reducing healthcare costs to drive the increased use telemedicine supported by UCC and managed services.

Reduced business travel: As SMBs invest in remote working services, some non-essential business travel will be replaced with videoconferences.  SMBs replacement of business travel expenses with increased investment in remote work enablement services will help SMBs to reduce overall costs and achieve green initiatives.

Infrastructure Investments: SMBs shifting to remote work will be forced to support their initiatives through increased spend on cloud computing and security to keep workers connected while out of the office. UCC and managed services companies will be expected to deliver on these capabilities.

Service models: COVID-19 has accelerated the highly competitive race for share amongst leading providers video-conferencing and remote collaboration services supported by UCC and managed services.  Many providers have offered their services free of charge to drive adoption and win share.  However, these providers will seek to monetize their user base in the long-term, shifting from free to as-a-service business models.  While some SMBs may cease use of these services once asked to pay, providers are confident use will continue to grow even as prices go up.

Fiscal and monetary policy responses: While initial fiscal and monetary policy responses to COVID-19 have been enacted, the rollout of additional response remains likely, creating additional market uncertainty.

  1. Fiscal policy: The passing of a $2 trillion dollar stimulus package includes small business interruption loans and payroll tax relief line items designed to support SMBs that maintain pre-COVID employment. While employers are incentivized to maintain payroll, some may seek to reduce rent expenses by increasing remote work and thus increasing the use of UCC and managed services. However, rental contracts and company-owned offices may limit the ability of companies to exit rental agreements in the mid-term.
  2. Monetary policy: The Federal Reserve’s rate cute has reduced the cost of money, opening the door for increased lending as SMBs seek financial stability. SMBs can capitalize on cheap money to keep operations afloat, maintain operations, and pursue M&A. Additionally, the lower cost of money and record amounts of PE dry powder have the potential to drive significant M&A activity as buyers seek to grow business and distressed sellers seek liquidity. Experts expect a high volume of SMB M&A transactions in the post-COVID-19 market.

Market experts believe that COVID-19 has the potential to be the spark that ignites a long-term re-configuration of how SMBs conduct business.  Forced adoption of remote work will accelerate the trend towards workplace flexibility, driving increased spend on UCC and managed services. Fiscal and monetary policies are expected to keep many SMBs afloat in the near-term while positioning for growth in the long-term. With the SMB market growing and increasing its use of UCC and managed services, the new normal market presents significant opportunities for transformational growth.

Related team members

Craig Belanger
Senior Partner & Co-Founder Boston
Richard Crumb
Managing Partner & Co-Founder Menlo Park
Rachel Eschle
Partner & Co-Founder Boston
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