The Impact of Industry Consolidation on Answering Services

Discover why having fewer answering services is a good thing

The telephone answering service industry is consolidating, and it has been for quite some time. Though we don’t have precise numbers to support this trend, the empirical evidence is all around us. Acquiring organizations grow larger, while the number of industry players gets smaller.

The idea of being part of a shrinking industry repels some people and scares others. But the reality of industry consolidation is not one of despair, but of opportunity. It becomes a matter of perspective. Is your glass half-full or half-empty?

Here are the positive considerations of industry consolidation that we should keep in mind, celebrate, and capitalize upon.

Right-Sizing

When a company lays off people, they sometimes call it rightsizing. While this may be a euphemism for reducing payroll, other times it’s an acknowledgment that the organization has too many employees and needs to scale back to reach its ideal size, the right size, the size that its revenues can support.

In many ways the answering service industry is rightsizing. In effect, this is the industry realizing there are too many players as it seeks to achieve its ideal size. It’s self-correcting to reach a sustainable level of capacity to meet client needs.

This will result in stronger answering services who are prepared to offer quality service and collectively elevate the standing of the industry. This stands as good news, and we are part of it.

Strong Prospects

Why has the answering service industry experienced this long season of consolidation? Although the answers are many, the underlying reality is that buyers of answering services are bullish about our future. If they had concerns they wouldn’t be buying; they’d be selling.

The fact that there are buyers out there looking to acquire answering services confirm these enterprise-minded, entrepreneurial-focused businesspeople see value in our industry. And since some buyers are from the industry and others come from the outside, this suggests a universal attraction to the answering service industry as a viable business model with long-term, profitable prospects. Again, this represents good news for our industry.

Less Competition

When we buy a product or service, we see competition as a good thing. It provides options and offers lower prices. However, when we’re selling a product or service, competition can serve to lessen the number of sales we make, decrease client loyalty, and place downward pressure on pricing, which threatens already low margins. These everyday realities challenge every answering service.

However, each time one answering service is bought by another, the net result is one less competitor. In the past ten or so years, many competitors have been removed from the industry. This doesn’t mean there’s a lack of competition, just that there’s not as much as there once was.

This decrease in competition is good news for every answering service. This makes it slightly easier to close sales, a bit less likely for a client to change services, and a smidge less focused on low prices.

As far as the number of answering services go, the industry still has the depth to provide for more acquisition targets in the future.

Niche Opportunities

As answering services grow by acquisition, their bigger scale often means that they will become generalists. They will provide a generic level of service that is flexible and adaptable to fit each market segment and meet virtually any client expectation. 

This means that other answering services are freer to pursue niche markets. They can specialize in a horizontal market or a vertical market, depending on their expertise, vision, and long-term goals. And since they have less competition overall, they will also encounter less competition in their selected niches.

Seller’s Market

With the interest of many industry players in making acquisitions, it remains a sellers’ market. This means that those who opt to sell their answering services to larger players are going to command a higher selling price. This is great news when an owner wants to retire or shift directions to move into a different industry.

Of course a sellers’ market isn’t good news for buyers. It means they need to pay more for the services they acquire. But the reality is, most of them are still looking to make acquisitions. This wave of buying will likely continue as long as there are owners wanting to sell.

Let’s look at the answering service industry with excitement for all the potential it holds. Don’t fret that our consolidation may be foretelling our demise. Instead, celebrate these events as good developments for your answering service business and the overall industry. We are rightsizing and have strong prospects, less competition, more niche opportunities, and higher selling prices.

What’s not to love? It’s a great time to be in the answering service industry.

[In the next two posts, we’ll explore this same theme as it relates to our industry vendors and associations.]

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