An old BT marketing campaign was built around the slogan: “it’s good to talk”. That is a philosophy shared by talkRA. In recent weeks I questioned the strategic direction of Subex, the Indian revenue assurance giant. To my mind, Subex had not made enough effort to communicate their direction. There has been an overhaul of Subex’s management team, and a decline in revenues which has allowed WeDo to overtake Subex in the race for market share. Nevertheless, at times it felt like Subex was as quiet as a mouse. So it was a pleasure to receive a call from Vinod Kumar, Subex’s Chief Operating Officer. Vinod’s goal was to speak plainly, and to set the record straight about Subex’s current situation and strategic goals. In turn, it is a duty and a pleasure to share his plans with you.
Building on a solid and well-defined base
In the last financial year, Subex generated USD57M of revenue from their products. Subex consider this to be their base for future growth. They target 15% growth for the next year. At the same time, the goal is to maintain EBITDA margin at around 20%. Crucially, Subex intends to deliver these results through a sharpened focus on their core strengths. No effort will be wasted on chasing sales in peripheral markets. Subex’s expertise lies in microtransactions and the analysis of hard facts about the telco’s current operations. Areas like customer experience management, and what-if marketing analysis, fall outside of Subex’s core competencies, and will not be pursued.
At the same time, Subex has reorganized. The aim is to reduce duplication of effort across its global business. They anticipate that one benefit will be a reduction in the time it takes to bring products to market.
Vinod emphasized that Subex has been recapitalized by its major shareholders. As a consequence, the backers have no interest in selling Subex at prices appropriate for a distressed asset. On the contrary, their backing makes it possible for Subex to invest resources in growing new markets over a longer timeframe.
Previously, I was critical that Subex appeared to be drifting. After the renegotiation of their FCCBs and the replacement of founder Subash Menon as CEO, I felt there was a need to send stronger signals about recapturing Subex’s forward momentum and refreshing Subex’s identity as a going concern. By talking about the desire to grow new markets, whilst drawing clear boundaries between the areas inside and outside of Subex’s competence, Vinod has caused me to reverse my opinion. Whilst Subex cannot afford to take too many risks whilst they strengthen their balance sheet, they have identified which growth opportunities they will pursue. This is a vital component of their strategy, as they will inevitably need new revenues to compensate for the obvious decline in sales for some of Subex’s mature product lines.
Continuing the trend toward long-term relationships and predictable revenues
For several years Subex has pursued a strategy of increasing the share of revenues it generates from managed services. There is no change to this aspect of the company’s strategy. In fact, the reorganization was partly designed to support the acceleration of this trend. Within a year, Subex aims to be generating over a third of its revenues from managed services.
Whilst there is nothing new to this strategy, Subex believes the market is increasingly favourable to managed services. In particular, cost constraints should drive telcos to increasingly pursue long-term relationships with suppliers. The backbone of Subex’s sales pitch is straightforward: they can reduce telco expenditures by performing specialized services at a discount to the cost of the telco performing them in-house.
This is one area where I have always felt that Vinod and Subex were on the right track. If anything, they may have been too far ahead of the market they were seeking to serve. Inside telcos, corporate politics is a major obstacle to long-term managed service relationships. And there is a natural resistance to using external suppliers whenever this threatens jobs. But the business case for managed services will improve as the number of deals increases. In particular, every additional deal makes it easier for Subex to attain economies of scale, whilst the improved predictability of their cashflows also improves Subex’s financial efficiency. These benefits can lead to a win-win virtuous circle, where some of the evolving benefits are passed back to customers. Although Subex has lost the top spot in terms of market share, they should be energetic in explaining the benefits of managed services to their substantial customer base. The vendor’s persistence is vital if political resistance is to be overcome. Furthermore, increasing revenues from long-term deals is more important, in many ways, than just growing the top line overall. Multi-year managed service contracts will increase Subex’s enterprise value more meaningfully than more short-term and volatile sources of income.
Educating markets over the next 18 to 24 months
Vinod conveyed the strongest strategic messages when talking about how Subex will ‘educate the market’ about some of its newer offerings. The aim is to explain to customers why they would benefit from products they have not purchased previously. He referred to a timeframe of 18 to 24 months, making it clear that Subex is now investing effort in growing revenue streams without expecting to see significant returns within the next year.
To be frank, I did not feel that some of Subex’s newer offerings are really that new. But this observation is quite petty; the novelty of the offering is less important than whether the offering still has significant unrealized potential. And strategic focus is more important than novelty. A business that spreads its efforts across twenty different new products is likely to fail with all of them. A business that puts all its efforts into three products may still see their products fail, but the failure will not be due to the dilution of limited resources and management attention.
Three offerings stand out as important to Subex’s growth: analytics, partner settlement and asset assurance. I have not conducted a proper market analysis, so it would be wrong for me to speculate about the potential for growth in each of these three areas. Nevertheless, all three are opportunities for Subex to generate additional sales whilst coherently building upon their existing competencies. The greatest challenge may be to grow these sales without adding disproportionate complexity and cost to Subex’s business. For example, two analytics implementations may look very different to each other. Over time, vendors of RA and FMS systems secured an immeasurable benefit from the relative commonality of the off-the-shelf specifications they had to deliver. A diversity of requirements from a variety of customers makes it much harder to manage and control costs. Diversity also complicates the push to turn software licenses into contracts for managed services.
I am personally most intrigued by the prospects for asset assurance, Subex’s offering which helps telcos to understand and manage capital expenditure on network infrastructure. Subex has had the relevant skills and has been quietly promoting this offering for years. So far, it has not generated many headlines, and does not appear to have had much impact on their financial results. Nevertheless, this may reflect a lack of focus on growing this market, rather than a lack of potential for this offering. If Subex can connect to the right decision-makers working for telcos, the upsides may be enormous. Collectively, the communications industry spends billions of dollars on its networks. Poor information, misguided decision-making and inadequate utilization of existing infrastructure have long been identified as areas where telcos can do better. Subex has previously shown they can educate markets into wanting things they never knew they needed. Subex’s marketing played a high-profile role in educating telcos about the benefits of a relative standard approach to assuring revenues. If they can do something similar for asset assurance, I believe it could be become Subex’s greatest source of income.
I am glad that Vinod took the time to share Subex’s outlook with me. Hopefully he will consider it time well spent. It is good to talk, not least because it ensures that vital and important messages are shared widely.
Subex is not as strong as it once was, but it is far from defeated as a market competitor. Vinod conveyed a sharp sense of Subex’s focus; I encourage Subex’s management team to be relentless in communicating that same sense of focus in all their public communications.
There is always risk when developing new products and pitching them to unfamiliar customers. But that risk is increased if the message is not pushed with sufficient passion and intensity. Subex’s management has identified its potential winning product lines for the future. Having made the difficult decisions about their focus, management should show confidence in themselves. This means they should construct clear and easily repeated arguments that support the need for their products. These should be hammered home repeatedly, until all telcos have learned their lesson. Meanwhile, no words should be wasted on any other topic.
Asset assurance is one of the products where Subex has identified significant unrealized potential. I agree with them. To win new business, Subex needs champions for concepts like asset assurance. Such champions would be encouraged and helped if Subex is wholehearted in expressing a consistent and vigorous message about the benefits that could be delivered. After a quiet time, it is good to hear Subex talking about their future. Perhaps they will think back, and remember when Subex used to roar. They may roar again.