Are there states in the US that present a special opportunity for network and cloud services? That’s a question I’m getting more often as vendors and service providers look for attractive targets for new revenue. In fact, to me at least, the big question is why this particular question hasn’t been asked and answered long ago.
The most fundamental measure of network potential I’ve discovered is “demand density”, which measures the economic activity per unit of addressable geography. Where demand density is high, a mile of infrastructure passes a lot of opportunity dollars and is likely to generate a good ROI. If we look at state-wide demand density, we find that there are four states with sterling demand density and seven where demand density is low enough to make profitable deployment of wireline broadband challenging. Roughly 20 of the 50 states have demand densities high enough to indicate that business broadband would be practical there.
One factor that strongly influences demand density (or perhaps correlates with it) is the prevalence of single-family housing. One one hand, it would seem that single-family households would be higher-income, but on the other hand single-family housing results in lower population densities than apartment living. None of the states with the largest percentage of households living in single-family homes place at the top in terms of demand density, and only three of the top ten in single-family housing are in the top 20 states in demand density. Urban/suburban concentrations make for more efficient networking, and that same concentration is linked to a higher population of businesses.
That doesn’t mean that selling broadband and cloud services would be practical everywhere demand density is high. Generally speaking you can’t sell broadband or any form of business technology except to the headquarters of a multi-site business. Major enterprises aren’t headquartered everywhere, and while every one of those 20 states has at least one enterprise headquarters, the largest number of enterprise headquarters are found in a group of ten states: New York (58), Texas (50), California (49), Illinois (37), Ohio (25), New Jersey (22), Virginia (21), Pennsylvania (20), North Carolina (19), Massachusetts (18). All of these states have demand densities in the top 20; the top four in demand density are also on this list. It’s also true that these same states have the largest number of headquarters sites for SMBs.
While you can’t generally sell tech except to headquarters locations, you also can’t sell tech if you ignore where the other sites are located. Only multi-site businesses buy business networks, meaning more than Internet access, and generally business networks are found only in businesses with at least 20 sites, of which there are roughly 600 thousand in the US. On the average, network salespeople say that only the top 50 thousand companies in terms of number of sites are really profitable sales targets, and these represent a bit over a million and a half locations. In order to sell network services, a provider would have to cover (somehow) all the satellite site locations.
The top states for carrier Ethernet, meaning specialized business broadband services (according to TeleGeography) are almost the same as the states that are top in enterprise headquarters. Only Florida and Georgia are on the Ethernet list and not on the top headquarters list, and only Virginia and North Carolina are at the top of the headquarters list and not on the carrier Ethernet list. That illustrates that some secondary sites are large enough to justify carrier Ethernet, and some states seem to harbor more of those high-volume secondary sites. Interestingly, these same states have the largest number of network integrators.
Suppose you’re trying to empower workers with new applications. How do you find the right targets? It turns out that there are 25 occupations where jobs have a high information content, and can therefore be empowered readily. The occupations with the highest unit value of labor represent the prime targets, and the same states that have the highest number of headquarters sites have the highest unit value of labor overall, and the largest percentage of high-value occupations. There’s only one outlier here; Washington state has a high unit value of labor and isn’t in the top ten on either of our other categories. Guess what’s responsible? Tech and Microsoft.
A good measure of a state’s growth in tech dependence is the number of computer schools found there, and here again the states with the most carrier Ethernet have the most computer schools. This demonstrates that carrier Ethernet requirements correlate with the employment of computer-savvy workers, ones that are most easily empowered through IT and network investment.
The states with the lowest unit value of labor on average, and the smallest number of high-value occupation targets, are the same states with low demand densities. These states also have the lowest number of personal computers per capita, which is a good measure of the technology use in a state, and the lowest average unit value of labor. We see here the contrast between an “empowerable” state and one that’s far less likely to benefit from technology projects aimed at worker productivity improvements.
The point of all of this is that it’s a serious mistake to think of a country as a homogeneous market for computing, cloud, and network services. Business headquarters are concentrated in a small number of states, and for most vertical markets (healthcare being the exception) high-value workers who present attractive empowerment targets are concentrated in roughly the same places. The best indicators of an attractive area for tech product and service sales are the number of carrier Ethernet sites and the number of computer schools, but demand density is a close third.
Of course, it doesn’t take a national intelligence organization to figure out where carrier Ethernet can be found, and furthermore the location and size of those particular business sites hasn’t changed much over the last decade. Real estate needed to house a large workforce and justify carrier Ethernet connection is high-inertia. The greater opportunity right now lies in the secondary sites that are too small to justify carrier Ethernet, and thus too small to support on MPLS VPN technology.
In order to be a “networked” business you need multiple sites to connect. There are roughly 2 million business sites that are part of a multi-site business, and a million and a half of them are associated with the top 50 thousand businesses ranked by number of sites. The other half-million are typically businesses with fewer than 10 sites, and only about a fifth of these are networked other than simply given Internet access.
The average major multi-site business has 53 sites, and only 25 are connected via MPLS VPNs and carrier Ethernet. One of the most important trends of the last five years has been the pressure to add small sites to VPNs, and it’s this pressure that created the SD-WAN opportunity. Gartner says that there are roughly 20 thousand US SD-WAN sites and my model says 32 thousand. Ether way, there are about 400 thousand satellite sites not connected via either MPLS or SD-WAN, and if you count all multi-site businesses there are over a million sites that could be on a VPN and are not.
Whether you want to consider it a cause or an effect or indicator, the most significant event in the transformation of a “business” is the connection if its sites to a VPN. It implies that there is a central set of resources, applications and data, to which the workers in the remote offices need access. It provides a central mechanism for the management of those resources and access to them, and even to local information resources. It’s an instrument of policy, of control, and in almost all cases a tool in security and compliance. That means that the time at which the connection is made is the ideal time to assess the quality of all these things, and to provide augmentation as needed. In particular, site and connection security policies are usually set at this point, and that means whoever sells the VPN connection has an inside track into the security of the network and the sites on it. Security tools are one of the most enduring sales opportunities of our current times, so that’s important.
The key takeaway here is simple; you have to know your market target, not only the usual “know about”, but the more general and more-often-ignored point of simply knowing what your target is. The business market for network products and services is, in particular, made up of highly differentiated segments. Every state in the US has its own mixture of segments. Blasting out material, sending out salespeople, with no notion of what segments you can hope to address is wasting time, effort, money, and opportunity.