Dynamic billing moves to the cloud

Susana Schwartz
21 Mar 2011
00:00

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.

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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