How APIs Combat Race-to-the-Bottom Pricing

Source: Intellisys, Frost & Sullivan

When competing UCaaS platforms deliver similar value, the inevitable happens

What happens when the service providers of UCaaS platforms all deliver virtually the same value and aren’t able to differentiate on feature set, UX, security compliance, mobile apps, or quality of customer service? You have a “very commoditized market” and providers are forced to compete on price.

This leads to a “race to the bottom” on pricing. In a recent report on the UCaaS industry, Frost & Sullivan research confirms this development, finding that the market price is dropping 5% year-over-year for UCaaS (unified communications as as service) solutions.

In this environment, what happens to gross margins over time?

Well, if you’re a 20% gross margin last year, you start losing money in 2024 (negative margins).

If you were a 30% profit margin last year, your profit margins are cut in half within two years. “This is a significant trend in the industry and not a lot of folks are paying attention to it yet,” said Jason Byrne, NetSapiens SVP of Products and Marketing in a recent webinar.

How to combat price erosion

To combat price erosion, the first thing service providers must do is understand why people choose cloud-based unified communications. According to IDG Research, the top five purchase drivers in order are:

  1. Flexibility and scalability
  2. Improved agility to react to business changes and opportunities
  3. Freeing up IT resources for business initiatives
  4. Improve IT alignment with the business/image
  5. Cost benefits and operational expenses pricing models

“The UC industry is trying to push unified communications into businesses of all walks of life, whether it’s lawyers or pizza chains. UC is one of many business applications that these companies need to succeed. So flexibility and agility are at the top of the list of drivers for UC — well above pricing models,” says Jason.

“Companies want their UC to have a seamless workflow with their other business apps. So you  can understand the importance of flexibility because the applications that businesses are using vary greatly — whether it’s tech companies or health care industry companies or hospitality organizations.”

Standing out in a crowded, competitive market

Service providers that want to stand out in a crowded and competitive market should consider adding value to their offerings. It will help them differentiate and not have to compete on pricing. 

What’s the best way to add value? Build a competitive advantage through differentiation with APIs (application programming interfaces) and integrations. By doing this, the worst that can happen is that the price drop is slowed down to a stable one.

“NetSapiens has over 200 service providers with two million end users and we can see which of the service providers are growing fastest. It’s those with innovations that are unique, sustainable, and really focused on APIs,” states Jason. “The fastest growing service providers are the ones who focus their resources on differentiation and tighter vertical integration.”

Popular types of API use cases

Below are some great API use case examples:

  • Tracking and connecting real estate agents with home buyers
  • Enabling dating app users to communicate directly with each other without revealing their private phone numbers
  • Allowing staff to talk directly with customers via the help desk web interface
  • Permitting soft drink supplier field technicians to receive automated alerts as soon as vending machines need maintenance

With many options on the market for potential customers to choose from, differentiating a UCaaS offering with APIs is one of the best ways for service providers to win business.

Ready to learn more?

View the on-demand webinar Amplify Your UCaaS Profits with APIs that Work for You sponsored by and featuring Jason Byrne, NetSapiens Vice President, who offers clear and smart advice to service providers.