Businessmodel of Ericsson

Customer Segments

Ericsson has a niche market business model, with a specialized customer segment. The company targets its offerings at telecommunications operators. Out of its customer base of over 500 firms, its 10 largest clients accounted for 46% of net sales in 2015.

Value Proposition

Ericsson offers two primary value propositions: innovation and brand/status.

The company places a strong emphasis on innovation, as demonstrated through the following:

• It has pioneered many of the technologies used daily on phones – from touchscreen scrolling and location-based apps to Bluetooth and seamless handover between networks.
• It operates the Information and Communications Technology (ICT) team, which consists of approximately 800 employees worldwide who aim to identify new technologies.
• It maintains Ericsson Garage, which serves as an incubator of innovations in areas adjacent to the firm’s current business. Its ultimate goal is to develop minimal viable products that can act as a foundation for future commercial products and services. Garage works much like a startup, using the “lean startup” methodology. Program members are allowed to break from their regular work responsibilities and move into the dedicated facility so they can focus on Garage projects.
• It conducts idea crowdsourcing internally, maintaining a pipeline called Ideaboxes, which is an Internet-based idea-sharing platform that is used to foster innovative concepts.
• It is dedicated to patent licensing, with a goal of sharing standardized technology in order to advance it and promote industry innovation. The company has established a powerful brand as a result of its success. It has over 115,300 employees operating from offices in over 180 countries. Approximately 40% of mobile traffic worldwide runs through networks it has supplied, and over 2 billion subscribers depend on networks that it manages. Lastly, it has won many honors, most notably being recognized on “Great Place to Work“ lists in the U.S., Europe, Asia, and the Middle East.

Channels

Ericsson’s main channel is its direct sales team. The company promotes its offering through its website, social media pages, online forums, expert blogs, sponsorships, and conferences.

Customer Relationships

Ericsson’s customer relationship is primarily of a dedicated personal assistance nature. The company assists customers by providing a wide variety of professional services, namely the following:

• Application Development and Maintenance
• Consulting and Transformation
• Learning Services
• Managed Services
• Network Design and Optimization
• Network Roll-Out
• Support
• Systems Integration Despite this orientation, there is a self-service component. The company’s website features a “Publications” section that includes self-help resources such as articles, infographics, research reports, case studies, white papers, journal/conference papers.

Key Activities

Ericsson’s business model entails designing and developing its products and services for its customers. It outsources production of its products to third-party manufacturers, who operate from 10 locations in Brazil, India, China, Mexico, Estonia, and Sweden.

Key Partners

Ericsson maintains the Ericsson Channel Partner Program, whose members are firms that engage in the selling, implementation, and servicing of its products and services. Those members fall into the following categories:

• Telecommunication Equipment – Firms responsible for the following products/solutions: Microwave Network, Optical Network, IP Network, Network Management Systems, and Wi-Fi. Specific partners include MLL Telecom, KGP Logistics, Anixter, Tessco, Westcon, and Relink AB.
• TV Compression Technology – Consulting and systems integrator partners in the area of TV compression. Specific partners include Ultra Electronics, WTS Group, and Dascom Systems.
• Communications and Media Software -  Consulting and systems integrator partners in the area of OSS/BSS and media software. Specific partners include Accenture, Capgemini, IBM, TCS, and Cognity. The program is on a limited enrollment basis, so membership is selective. Ericsson provides partners with training, sales/marketing support, and access to a partner portal that includes several resources.

Key Resources

Ericsson’s main resources are its human resources and its intellectual property. Its human resources include the technology employees who design and develop its products and services, including 23,689 R&D employees as of 2015.

It has one of the industry’s strongest IP rights portfolios, with more than 39,000 patents in 70 countries that cover 2G, 3G, and 4G technologies. The company is the largest holder of standard-essential patents for mobile communication globally.

Cost Structure

Ericsson has a value-driven structure, aiming to provide a premium proposition through significant personal service and frequent product/service improvements. Its biggest cost driver is likely cost of goods sold, a variable expense.

Other major drivers are in the areas of research and development and sales/marketing, both fixed costs.

Revenue Streams

Ericsson has three revenue streams: sales of products, services (including network rollout and professional services), and licenses. Products and services are typically sold under delivery-type or multi-year recurring services contracts. Licensing revenue is generated by offering access to its IP.