Personal View



The more things change…

Simon Drakeford is CEO of Euroffice

When I told my business associates that I was leaving the mobile telecommunications industry after ten years to go and sell office products I got a mixed reaction. In reality, not a lot of that reaction was based on a great deal of knowledge and I admit to not knowing myself much about the industry I was joining.

At first glance, the sector I was leaving and the one I was joining looked very different. As time passes, I am not so sure.

About six years ago, the stellar growth in the mobile phone industry began to slow down. Penetration was very high and the market was saturated, and so began the inevitable squeeze on margin to sustain revenue.

In essence, there were no more customers to acquire, so organisations and the channel became more focused on "eating each other’s lunch".

During the period of high margins, the industry could support a varied and, in some cases, inefficient channel. The networks were paying high commissions (margin) for new customers and there were a great number of small dealers, delivering ‘lifestyle’ revenue through providing the networks with high margin customers. Downward pressure on margin-reduced commission left this critical mass of dealers to do a number of things:

1. Become more aggressive and reduce percentage gross margin in an attempt to maintain cash margin through additional sales.
2. Focus on more efficient channels – online reduced cost and sustained margin, for example.
3. Consolidate or "drop off a cliff".

During this time the larger, more established dealers, such as Carphone Warehouse and Phones 4U were aggressively building on their scale. Carphone was diversifying (into broadband) and Phones 4U used its buying power to form closer alliances with other parts of the supply chain, such as buying direct from the manufacturer for instance.

Meanwhile, ‘back at the ranch’ the networks (read: wholesalers) were steadily building their own direct-to-customer channels.

Nothing hurt them more than paying out a commission to the dealer channel that in some cases took 80 percent of the customer lifetime to pay back. However, until they had a large enough, sustained direct sales volume, they couldn’t risk upsetting the dealer channel. This included both the critical mass of smaller dealers and more importantly the larger, very powerful likes of Carphone and Phones4U.

Then the day came when the networks had a big enough direct sales channel that they could begin to have the difficult conversations with their dealer partners.

Acquisitions, bankruptcies, alliances and partnerships all followed and what we see now is a vastly more efficient but greatly rationalised industry. Does any of this sound or feel even the tiniest bit familiar?

When my former associates now ask me about the industry I joined, I tell them that it is equally as challenging, changing, dynamic and interesting as the one I left.

I don’t tell them that I get just as excited about the form factor of the hottest hole punch on the market as I ever did about the latest mobile phone… but hey, that’s my secret.