A private equity client identified a business communications provider for small and mid-sized businesses as a potential investment opportunity. For a monthly fee, the target company provided customers with a wide variety of business communications services including business email, VoIP-based telephone service, instant messaging and other communications.
The client specifically wanted a fact-based assessment of the hosted solutions space along three key metrics: (a) an estimate of the shift to and away from paid hosted solutions; (b) an overview of the competitive landscape including market share, brand awareness, and brand consideration; and (c) an understanding of business purchase behavior including purchase channel preferences, purchase criteria, reasons for switching, and current and future usage of several hosted software services.
To assist the client in making an informed decision, Stax conducted a web survey of 300+ IT decision-makers targeting small and mid-sized businesses. Stax then developed a model to size the market for hosted solutions usage. US Census data provided the baseline number of small to mid-sized companies in the US
Stax estimated the market size and expected growth in the industry by incorporating the average monthly price paid per user and the average number of users at each company into the model for switching behavior. Despite the target company’s relatively low level of market share and brand awareness, Stax believed this was a good investment opportunity due to the size of the overall market and the target company’s brand strength.
Using the results from the web survey, Stax estimated the number of small businesses currently using a hosted solution as well as those likely to switch to a paid hosted solution within the next three years. Stax also gauged the likelihood of businesses currently using a paid hosted solution to switch to another provider within three years.