Time for dynamic billing in the cloud

With so many cloud providers competing to enable richer applications and services through public and private clouds, telecom cloud service providers have to quickly respond to market pressures (e.g., thinning margins, capacity demands) and monetize cloud computing so they can differentiate themselves from cloud giants like Amazon, Google, Microsoft and IBM.

It won't be much longer that telcos can sustain the practice of building out networks to sustain OTT services for which they earn no revenue. For them, monetization through the cloud has to become a primary focus.

Many telecom operators are on the right path, beginning to differentiate themselves by monetizing capabilities around hardware, software and services they have built from hosted offerings and long-term, trusted relationships with enterprises. These include scalable operations, trusted, intimate relationships with enterprise customers,  complex forms of licensing, experience handling sensitive data on behalf of customers and a proven track record with large-scale service delivery.

The next step is monetizing these capabilities through the cloud to overcome thinning margins and the onslaught of competition from traditional and non-traditional players. Operators are well positioned to take a good piece of the cloud market if they are smart about how the differentiate from large IT and internet players. According to IDC, revenue for private clouds predicted to grow to $11.8 billion in 2014 while revenue for public clouds is expected to hit $718 million in 2014.

"Accommodating change is going to be the No. 1 capability for monetizing the cloud because as soon as a telco makes a strategic change to its cloud offering, its competitors will make a strategic change too," said MetraTech CEO Scott Swartz. He cites the elements of "constant change" as shrinking margins, commoditization, bundling and reselling of other companies' products, changing retail billing and wholesale billing models, and emerging channels and compensation types.

To response to that constant change, Swartz espouses an architectural approach - one that centers around dynamic billing as a differentiator (see sidebar, "Beyond 'standard features'").

As operators come under increasing pressure to efficiently monetize their businesses fast, and as they become squeezed by increasing traffic volumes and price-per-unit decreases, they are being forced to step outside their comfort zone, having for the first time in their history to sell services they do not own or control. As this trend move forward, Swartz believes monetization will require two angles: billing on one side, and compensation, settlement, revenue sharing and commissioning on the other.

"Successfully monetizing the cloud will be about more than just billing, revenue and profitability, as cash flow will be of great importance," says Swartz. "If you bill out one side, but owe money for what you distribute and mark up on the other, then you have to be careful about how you negotiate your deals for settlement and compensation with partners. If you settle slower than what you are able to bill and collect, then you'll have a good cash flow; if the opposite, than you'll have a bad cash flow."

Because telcos will have to coordinate with multiple parties to deliver or to participate in the delivery of compelling cloud services, they also have to understand how a new breed of problems presented by the cloud can impact their cash flow and profitability. "If you have multiple parties participating in a service and $5 in compensation to splice up multiple ways, understanding how compensation, settlement and cash flows are viewed by all partners is very important. If the operator is the one responsible for breaking an SLA, it helps to know ahead of time what penalties exist," noted Swartz.

Today, that determination is rather difficult, as most billing solutions focus on consumers rather than the currently underserved enterprise market. There is some irony in that consumer billing continues to become consumerized and simplified to support offerings in gaming, content and subscriptions, yet the settlements, compensation and revenue sharing side is getting proportionately more complex, even though it is considered a consumer business on the retail side of the equation.

Because the value chain in B2B requires more complex terms and negotiations, this is a time that will prove either problematic or opportune for telcom operators, which now have a chance to mix and match computing, storage, and software in B2B-focused "mash ups" that can spawn value-add packages, and hence more stickiness and loyalty.

Empowering the enterprise

Building stickiness in the enterprise is difficult today, as many enterprise customers remain confused about whether they negotiated the right price for what they actually used. And, similarly, cloud providers are often doubtful they can adequately predict how much to charge enterprise customers to effectively cover the cost of delivering cloud services to them every month.

Dynamic billing capabilities are needed that empower enterprise customers to have visibility into bandwidth, storage, transaction costs and service fees so that they better understand the cost, quality and performance of services they consume in the cloud.

With all of their experience and architecture, it would seem telcos already have what it takes to differentiate and build loyalty over those with best-effort infrastructure. But to go the next step in terms of differentiation, operators need to move toward granular metering as an essential part of billing for cloud services.

Since metering often is a primary source of data for determining charges and chargebacks in a pay-per-use model, it should trace activities according to a user or product or service.

That means per-user charging must become a reality, with enterprise users given the tools they need to clearly see what their usage was and what they were charged and why (through easy-to-use dashboards or APIs.)

The reality, however, is that most cloud providers - telco and otherwise - lack "standard" mechanisms or metrics for metering, which continues to lead to confusion for customers as to what is a cost or charge in one facet of an organization might not be in another. Metering should evolve to enable operators to measure and open visibility to the use of resources of all types, even if they are not important for cost purposes. There has to be recognition that there are people within the enterprise that look at more than just cost, as they are responsible for understanding performance and quality or capacity planning issues - depending on if it's a user in engineering, marketing, finance or other facets of an enterprise.

Sophistication and ease of use

As operators develop a higher level of sophistication in terms of billing and payments, they must ensure ease of use as a focus, otherwise others possessing less sophistication but reputations for simplicity may win out. Easy-to-access APIs and easy-to-understand dashboards are needed to reflect in as simplified a manner as possible the sometimes intricate use of shared resources.

Ease-of-use will be particularly important as the cloud continues to evolve from an outsourced/hosted model to infrastructure that is increasingly moving within enterprise firewalls. With virtualization growing as a means to further optimize resources and scalability, a telecom operator's ability to isolate, assure, meter and bill for a service or tenant will become even more difficult.

"Ease-of-access and ease-of-use are not strong points today, as most major telco players offering cloud are repurposing solutions adapted from prior applications-hosting business models or relying on homegrown, paper- and spreadsheet-based solutions," according to Michael West, VP and analyst with Saugutuck Technology, a boutique firm started by former Gartner analysts.

West evaluated cloud billing and payment providers according to functionality and ease-of-use and the results included some prominent or gaining traction in the telecom space for on-premise hardware, software, networking and services (Aria, MetraTech, Parallels and RevX) and honorable mention to Amdocs, Convergys, eVapt, Netwuite, Oracle and SAP/Highdeal.

According to West, the major components that operators should assess billing and payment providers are presales and on-boarding, reporting and administration, fraud management, customer subscriber management, invoicing and tax, payment processing, and partner and reseller management.

Whether available on premise, or in cloud infrastructure, or through SaaS models, billing solutions will have to accommodate constant change and variations - both for enterprise customers who want to modify and change parameters, as well as for the telco cloud service provider, which will be under increasing pressure to become aggregators to outside parties.

He asks: "When a Microsoft comes knocking at your door to attack the small-to-midsized business market, can you readily resell the Microsoft solution? Can you bundle it? If Microsoft re-architects its CRM offering, can you integrate and package the new suite as part of your offering? Can you tweak the primary and reseller relationships tied to that offering and update your catalog through which you aggregate and bundle different solutions in the cloud?"

He added that operators have to seek billing solutions with characteristics specific to the cloud, such as complete catalogs for capturing cloud-specific variables around channel partners, currency-neutral rating, language-specific options, management of online fraud, charge-backs, or integration with leading finance, tax and accounting solutions.

Those capabilities will be more important as operators continue to grow their role as aggregators and as enablers of SaaS, or other models where they will resell and white label business solutions through the cloud, possibly leveraging their billing capabilities on a more frequent basis.

Lance Walter, VP of marketing for Aria Systems, agrees that aggregation and SaaS models will become increasingly important for telcos offering cloud solutions. In response to that trend, he believes that operators will transition away from on-premise billing solutions that can't physically scale because of hardware limitations.

"It will be cloud and SaaS solutions that will be important to managing costs through licenses that enable operators to manage usage and ramp up subscribers without investments in storage arrays and other resources," said Walter. "There has to be a functional fit for today and tomorrow, so future proofing and focusing on the rapid introduction of new pricing, plans and functions will be the key to success."

He notes that the time required to install and configure hardware and software for metering at a cloud level will not be feasible for long, especially when operators start to grow their B2B businesses.

"That requires increasing amounts of flexibility in automatically provisioning and accommodating each enterprise's services and individual needs. Operators will be under pressure to go beyond just calculating usage or emailing a bill, as they will have to monitor what is happening in real time and then react to security, compliance and payment parameters established with customers in real time so that if someone consumes more than what they negotiated, operators can offer the option to upgrade or turn the customer off before revenue is lost or before the customer experience is degraded."

Walter believes the need for real-time decision making and action will galvanize operators to transition away from their traditional, consumer-oriented billing systems and toward SaaS-based approaches or cloud-based billing solutions.

Already, the growth of SaaS and cloud business solutions has led to a robust ecosystem of cloud billing and payments solutions that vary but strive for the same thing: provide operational support that is more cost-effective and robust than what can be accomplished with in-house or with homegrown or incumbent billing systems.

Sidebar: Beyond 'standard features'

To handle the complex partnerships, expectations and negotiations necessary in cloud, operators need billing geared toward B2B relationships.

Cloud providers should be able to tailor services to corporate hierarchies - users, departments and projects - in order to work within classic corporate reporting structures, says MetraTech CEO Scott Swartz.

"If billing systems can recognize and accommodate the different types of usage inherent with an 'engineering project' vs a 'marketing project' vs an 'R&D project', then there is more that can be done with dynamic pricing to build satisfaction and loyalty if spikes of usage are tracked and accounted for so that budgeting is built around the specific needs of different groups, people and initiatives."

Having the ability to negotiate deals on an individual case basis is something Swartz says gets an "I can't believe" response from customers.

"If you can negotiate deals with changeable parameters around minutes, megabytes, data transfer costs and data interchange rates among different regions important to your client, then each customer is comfortable that contracts reflect what is important to them, as opposed to being forced into standard features," explained Swartz.

In addition to billing corporate entities individually, a holistic view that shows aggregate rates and bundles for region-to-region billing will make procurement individuals at multinationals happy as well, according to Swartz. "They want a 'total-book-of-business' view that aggregates rating based on volumes, purchasing commitments, discounts and incentives, while simultaneously having tailored schemes for each of their regions."
 

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