In the ever-evolving landscape of technology and telecommunications, business-to-business (B2B) customers displayed a positive investment outlook for the upcoming year, according to our latest Pulse survey. And, these customers’ needs are clear: from a product perspective, first-class cybersecurity, product features, and integrations are top of mind; and from a vendor perspective, brand and reputation as well as competent sales representatives are central. These findings signal a meaningful shift from historic spending priorities and provider preferences, with the potential to reshape the markets over the coming year. In particular, the market outlook could be viewed as a wake-up call for telecommunications companies, which need to accelerate their efforts to find a compelling value proposition that allows them to play a greater role in the “beyond the core” space. On the other hand, channel partners, tech players and cloud providers especially seem to be well positioned to gain traction and boost their shares in the market.
To gain a deeper understanding of technology and telecommunications market drivers and opportunities, McKinsey regularly conducts a comprehensive survey of a diverse set of business decision makers among enterprises that purchase telecom and technology equipment and services. The latest edition of the Global Technology and Telecommunications B2B Pulse Survey is based on an extensive analysis of more than 3,000 responses from enterprises of all sizes, spanning 11 industries and 15 countries. It serves as a valuable resource for businesses seeking to navigate and grow in the converging technology and telecommunications B2B landscape.
Positive investment outlook
Even as companies devote more resources to their digital transformations, the pace of innovation in tech and telecommunications may be difficult for them to keep up with. That is just one possible conclusion from the broadly bullish perspective revealed in this year’s customer buying survey. With more than half of all enterprises planning to grow their tech and telecommunications spending, the 2024 market outlook represents a healthy three percentage point overall increase from last year, even after inflation.
While spending on virtually all product categories looks poised for growth according to our survey results, a select group is the driving force behind this positive trend. The largest shares of decision makers intend to increase their spending on security, cloud, and Internet of Things (IoT), which all look set to capture at least 8 percent more in total spending than the year before. As for connectivity offerings, fast-growing companies are placing increasing emphasis on next-generation solutions, with investments in 5G technology becoming a prerequisite for success, and the adoption of private networks gaining traction.
The growth in enterprise budgets signifies a recognition of the importance of being at the forefront of technology to drive innovation. Being agile and adaptable is critical, but the vast majority of organizations now also seem to indicate they believe that truly investing in the digital future requires increasing the size of their portfolio year by year.
Large enterprises are leading the way
The fact that all enterprises on average have generally ambitious tech and telecommunications spending plans for this year doesn’t mean they share an equally bullish view. On the contrary, large enterprises are much more likely than their small and medium-sized enterprise (SME) peers to grow investment across product categories. More than two-thirds are planning budget expansions, compared to about half of small enterprises, across industries. While SMEs remain largely focused on fixing the basics, larger, more established organizations are moving beyond core tech expansion with close to three-quarters planning a higher degree of investments in more advanced categories such as IoT, cloud, and next-gen connectivity. Increased spending on IoT is understandable; our research shows enterprises must adopt a trial-and-error strategy to unlock its full potential. Notably, however, almost two-thirds of large enterprises plan to increase their spending even further on more traditional fixed and mobile connectivity services, proof that they believe no aspect of tech or telecommunications can be taken for granted.
Africa and Asia–Pacific display strongest upside
From a global perspective, different regions do not necessarily share the same upbeat view in their spending projections. Companies in Africa especially, and Asia–Pacific to a slightly lesser extent, hold a much more optimistic outlook compared to their European counterparts. Just half of European enterprises surveyed plan to grow their budgets, compared with two—thirds of respondents in Asia–Pacific, and three–quarters of respondents in Africa. These two regions’ heightened optimism reflects growing recognition of the untapped market potential. By contrast, survey findings suggest the general macroeconomic challenges Europe is experiencing are directly affecting the spending appetites of companies. For its part, the Americas are not too far behind Asia–Pacific in investment outlook.
A clear shift in vendor preferences
While the overall outlook for rising customer spending budgets in the tech and telecommunications space appears promising, our survey results show some signals that telecom operators may not have as much to celebrate. Across all product categories, many enterprise customers expressed a clear preference for shifting a sizeable portion of their business to other vendor types, especially channel partners, specialists, and tech manufacturers. In particular, the biggest potential shift away from the telcos looks like it could be in their core fixed and mobile connectivity business.
The degree of desire among respondents to look elsewhere than telcos isn’t universal, however. SMEs, for instance, displayed a roughly 35 percent lower intent to switch away from telecom operators than larger enterprises did. In addition, the trend was strongest in Asia–Pacific and the Americas, and less pronounced in the more conservative European market. Plus there are selected countries such as Nigeria where telecommunications providers are still able to make significant gains beyond connectivity, although the global trend of planning to move away from telcos is similar in Africa overall to the rest of the world.
Of course, intentions don’t always translate into action, and that may well be the case here as well. To date, other types of vendors in most geographies have provided few suitable alternatives to the connectivity offerings from telcos. At the same time, switching providers for even smaller organizations can require a good amount of effort and, at least initially, can be costly. It is no wonder, then, that only about 20 percent of the stated intent to switch vendors that was expressed in last year’s survey actually took place over the past 12 months.
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Tech categories are leading growth
The generally optimistic spending outlook of enterprises appears set to translate to solid growth for the tech and telecommunications B2B market this year. In total, we project an increase of roughly $150 billion, or about 8.5 percent, in the 15 geographies covered by the survey, reaching $1.9 trillion in annual revenue. Cloud, business applications, and communication and collaboration, are expected to be the most dynamic product categories, with growth rates higher than 10 percent. As an emerging subsector, communication and collaboration is still starting from a relatively small base, but the other two soaring categories—cloud and business applications—each now represent roughly 22 percent of the total market. They are fast approaching the biggest revenue generator—end user devices and services—which, at almost $600 billion, makes up around 26 percent of the total market but is expected to grow only 3 to 4 percent.
While connectivity categories are also expected to continue growing, the rates are projected to be slightly lower, around the mid-single digits, except for fixed connectivity, which is expected to be close to flat year-over-year. The more restrained growth in the overall category, coupled with the upswing in spending on tech products, further reinforces the need for vendors with a traditional stronghold in the area, telcos, to refocus on expanding the appeal of their tech offerings.
From a regional perspective, the Asia–Pacific region is projected to grow the fastest and continue catching up to the Americas in total market volume. In Europe, where the overall economic outlook remains challenging, all providers will have to compete for the lowest incremental spending.
Changing landscape for telecom providers
Unsurprisingly, not all providers will benefit equally from the upward trend in the tech and telecommunications market. The stated intent of many enterprises across geographies to move away from telecommunications providers for certain products and services, not to mention the slowing growth in core connectivity categories, poses yet another challenge for the already challenged sector. While the overall market is projected to grow around 9 percent this year, telecommunications providers could only reach half that rate, at an estimated 4 to 7 percent clip. That means the biggest absolute category player in the market, which still accounts for more than a third of total revenue, could now find itself claiming far below its normal “fair share” of market growth. In sharp contrast, cloud providers, channel partners/specialists, and tech manufacturers are well-positioned to capture a higher share of the market growth, with expected growth rates of up to 13 percent in the upcoming year. Cloud providers in particular stand to reap the biggest rewards, potentially grabbing as much as half of all market growth even though it makes up roughly one-quarter to one-third of the total market on an annual basis.
Cybersecurity—the most pressing need
There is little doubt about enterprise buyers’ biggest tech concern these days; cybersecurity was the clear, top-ranked need, cited by close to 20 percent of all respondents, up 50 percent from the prior year. It also outpaced the closest competing concerns (e-commerce and next-gen connectivity) by a similarly large margin. Given the vast amount and sensitivity of data that companies of all sizes now handle, along with greater regulatory oversight and rising geopolitical tensions worldwide, the importance of cybersecurity is only set to increase. If providers want to maintain a distinctive value proposition in the tech and telecommunications market, regardless of their area of specialization, they will need to develop a solid capability in cybersecurity, through partnerships with recognized experts if necessary. If cyber offerings or expertise were still viewed as a nice-to-have by any providers, it is increasingly evident that they are now table stakes in the market.
Cybersecurity—a global priority
While the choice of cybersecurity as the top tech priority was unanimous across the globe, the distance between it and other perceived needs was not uniform from region to region. Cybersecurity was put at the top of the list by a greater share of buyers in the Americas and Europe, reflecting the usually more stringent regulatory requirements and higher levels of maturity and awareness of enterprises in these geographies. And while Asia–Pacific and Africa matched the Americas and Europe in ranking e-commerce and next-gen connectivity as high priorities, they both exhibited a wider range of interests or concerns. Organizations in Africa, for instance, put strong emphasis on enabling flexible or digital working and improving operations, while Asia–Pacific companies were alone in reporting that switching to cloud was their second-ranked tech need.
What separates B2B GTM outperformers in tech and telecom
Cybersecurity—also the reason to switch providers
Enterprises across the globe overwhelmingly cite cybersecurity combined with privacy as their top tech and telecommunications need, and their main reason for changing their tech or telecommunications provider for a range of different product categories. Vendors with solid cyber capabilities now have the chance to capitalize on this trend by leveraging cross-selling and upselling potential, reshaping product offerings to include premium products with security add-ons, adapting product naming, and upskilling the salesforce. At the same time, product innovation and vendor reputation are emerging as significant drivers of provider switching. And if vendors needed any more evidence that they cannot afford to rest on their laurels, an existing relationship with a provider was not among the top three reasons for switching in any single category.
Interestingly, mobile connectivity was the only category where price was considered a primary reason for vendor switching. Even then, the category was much more relevant in the Americas, where respondents cited it twice as often as survey takers in other regions. Additionally, next-gen connectivity was the only category where cybersecurity was not among the top three reasons for switching providers.
Convenience vs best-in-class
As enterprises navigate the complex landscape of technology and telecommunications, they face a critical decision: whether to opt for best-in-class products in every category or to choose an integrated offering for greater convenience. More often than not, companies choose the ease and simplicity of a bundle from one provider over the absolute highest-quality products from a number of different vendors. Security is the only category where more decision makers prioritize the highest-quality product over convenience, which makes sense in that the biggest tech priority for enterprises would also be the one for which they are most reluctant to compromise on quality. On the other hand, mobile connectivity is the product category that consistently draws the strongest preference for integration. Approximately two-thirds of enterprises in all regions prefer to purchase mobile connectivity together with other tech or telecommunications products, highlighting the importance of seamless integration and ease of use in this category above all others.
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