The company is bullish about progress so far and the growing market
At a press roundtable hosted by Mark Bunn, he announced that in the last year Nokia Telco Software-as-a-Service (SaaS) has he started by saying so far Nokia has announced 10 services. They are in analytics (Nokia AVA Network Data Analytics Function or NWDAF), cybersecurity, core networking and monetising IoT and 5G use cases.
Bunn is Vice President of SaaS Business Operations, Nokia Cloud and Network Services, and said that Telecom SaaS has “signed several deals with both communication service providers and enterprises in different parts of the world, including one tier one operator in the Americas,” He attributes this “traction” to “ensuring our customers derive critical benefits around…improving their time to value…principally by reducing the time spent on software installations.”
Larger market
He also pointed out that Nokia’s estimate of the addressable market has risen since launch to $3.6 billion from 2022 to 2026 from the original estimate of $3.1 billion at the SaaS launch. Bunn said, “We expect this addressable market to continue to grow substantially by CAGR of 20% and we also expect Nokia’s growth rate is going to exceed that …CAGR.”
Even so, right now SaaS is a very small fraction of Nokia’s revenues and the business is not making a profit yet – and nor is it expected to according to Bunn who says, “Think of it as a start-up within Nokia”. Nokia’s SaaS customers are not tied to a specific length of contract, Bunn said, but are expected to sign up for two or three years after a six-month trial.
He couldn’t provide information about conversion rates yet, but noted, “I can tell you though, that good SaaS companies, mature SaaS companies will convert at least at an 80% rate. So that will be a standard KPI which we’ll be measuring as our business matures.”
Subscription model ceiling?
The good thing about subscription-based business is that it is steady, predictable income compared with the peaks and troughs of its hardware business. However, as has been noted, Cisco too is in the throes of trying to make the transition from selling hardware to software subscriptions, but appears “stuck” at 30% of overall revenues.
Bunn also declined to comment when asked if Nokia Telco was experiencing any problems with its suppliers of cloud-native software and playing a middle role between them and operators who are typically averse to rapid change.
“I would say is hold that question till next year,” Bunn replied. “but let me comment on that because it’s a good observation. Our industry doesn’t typically move very fast…because of the heritage…there’s a lot of legacy systems to deal with that aren’t in the cloud native environment.”
He continued, “If we’re really serious as an industry about adopting rapid change to create business agility it does start with the technology we use and the way we use and implement it has to change. It has to come back on to the vendors themselves to manage it on behalf of the customers so that they can free themselves up from those responsibilities and start taking advantage full advantage of the agility that’s inherent in the software.”
Involving hyperscalers
How much as the big three cloud hyperscalers involved or will be involved? Bunn said, “We’re highly dependent…we don’t build it into a definition of Telco SaaS that it’s run on a hyperscaler. Today we are not offering the ability to run it on the customers’ data centre for a lot of reasons – it’s a foreign entity to us.
“The hyperscalers however, have built a very mature offering. In their well-defined APIs [and] well-defined rules of engagement, if we deploy our services on any one of them, we know exactly what we’re going to get.”
Bunn said Nokia had evaluated all major hyperscalers to see if it would deploy one or two primarily, but that they have different strengths and “the conclusion we came to is that it we’re still a little bit young for that, still a bit premature to make a decision to narrow it down to one or two.”
He explained, “We feel well-positioned going into 2023. We’ve established commercial momentum. We’ve strengthened our self-service capabilities, and we’re going to continue with investments that are already planned. Each of our services has a roadmap.”
“The expectation is that as more 5G services come online, CSPs and enterprises will increasingly recognise the benefits of moving away from customised on-premise software that has dominated our industry in past years to move to a standardised SaaS approach and standardise SaaS services and solutions as we bring more of our portfolio to market.”