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1 V E N D O R P R O F I L E M o d e l s a n d O p p o r t u n i t i e s f o r B i l l i n g a s a S e r v i c e i n t h e C l o u d E c o s y s t e m : A L o o k a t A r i a S y s t e m s Robert P. Mahowald Hadley Reynolds I D C O P I N I O N Global Headquarters: 5 Speen Street Framingham, MA USA P F Aria Systems targets the growing market for on-demand, service-delivered billing solutions for subscription-based businesses. The Aria Billing Platform provides billing process services to businesses deployed in the cloud, as software-as-a-service (SaaS) software, or via consumer direct business models through ecommerce Web sites. Billing as a service is a natural development in the emerging SaaS (application services) and cloud (infrastructure resource services) business services market. Not only are billing services core to the online operations of any ecommerce site, but they are also of particular importance in the process of customer monetization for SaaS and cloud software providers themselves, as the market shifts from on-premise software licensing models to subscription- or demand-based pricing and billing. In addition: The new business model requires the SaaS service provider to monetize customer activity on a usage basis, monitoring and billing in an ongoing cycle, which must recognize customer options across a range of products, across varying functionality configurations, across changing volumes of usage, across current promotion or discount levels, or all of these. Subscription-based Web businesses, including gaming, entertainment, telecommunications, and multiple varieties of etail and ecommerce businesses, require secure, complete platform services for customer acquisition and continuing billing operations. IT strategists and Web-centric ISVs across many online business segments are looking for options to access billing software platforms through a service-delivery model. Aria Systems has brought its expertise in large-scale Internet billing and customer monetization processes to businesses that are facing the need to ramp up their online operations to Web scale and Internet speed and that are looking to avoid the substantial up-front investments in hardware, software, customization, and expertise required to craft an online billing solution. I N T H I S V E N D O R P R O F I L E This IDC Vendor Profile introduces Aria Systems, a billing systems software provider offering billing-as-a-service solutions. This document explores the company's history, product configuration, product positioning, and competitive posture. It also reviews key success factors: market potential, technology/solution, corporate strategy, force Filing Information: February 2010, IDC #222026, Volume: 1 Software as a Service: Vendor Profile

2 multipliers, and customers. Leveraging IDC's expert understanding of the competitive landscape and future outlook, this document highlights company and market information tailored to the investment professional's needs. S I T U A T I O N O V E R V I E W C o m p a n y O v e r v i e w Aria Systems is a billing systems software provider, offering billing-as-a-service solutions across a range of industries, company sizes, and geographies. The Aria Billing Platform offers a SaaS or cloud-delivered "process as a service" solution for online billing in the context of "on demand" and subscription-based business models. The company serves the online operations of both enterprises and small- to mediumsized businesses. Founded in 2003, Aria Systems entered the market initially with a billing solution targeted to wireless ISPs. At a time of rapid growth in the wireless Internet business, service providers were seeking process efficiencies across their business operations, and the rise of Web-based billing solutions enabled them to replace what had been manual systems with automated software, delivered in a modern services environment. Aria Systems has been able to both save wireless Internet service providers' operational expense dollars and allow them to ramp their sales at Web speeds with accurate account initiation and billing, a capability that they did not previously enjoy with primarily manual systems. The company is a pioneer in providing billing process services in a SaaS model, which leverages the benefits of service delivery to provide customers with faster implementation times compared with on-premise software, lower capital investment requirements, continuous software enhancement and maintenance, and flexible management of transaction volume requirements and peak load accommodation. Over the years, Aria has introduced feature enhancements regularly three to four times annually, an upgrade model that many CIOs prefer to the once-per-year (or longer) release cycles associated with the on-premise software license model. The focus on the billing process has allowed Aria to incorporate important features specific to this area, including integrations with related accounting and CRM software and core compliance with industry security standards like the Payment Card Industry Data Security Standard (PCI DSS) and the SAS 70 Type II standard. As a SaaSdelivered system, the Aria Billing Platform normally has the advantage of requiring less time for initial certification for companies needing to submit their billing systems to compliance review. A r i a ' s B i l l i n g P l a t f o r m Aria's portfolio incorporates a full range of billing and customer monetization functions, including automated product and service provisioning, usage rating, customized invoicing, multicurrency support, automated payment collection, taxation engine, user self-service, support for promotions and discounts, transaction audit, security, reporting, and related features. The platform is extensible via Web services APIs (see Figure 1). 2 # IDC

3 Aria's billing platform includes eight modules, encompassing the range of service creation, selling, onboarding, fulfillment, upsell/cross-sell, billing, and support/customer care: Aria's price plan module provides flexibility for flat-rate, usage-based, and subscription-optimized plans and for mashups of multiple services/skus. Onboarding and provisioning lets platform operators activate services and provision in real time, protecting against revenue lost from customers not being able to access new services quickly. Channel management helps indirect partners build multichannel strategies, set granular pricing for different partner types, and track the effectiveness of multiple channels against goals like closing sales and total revenue. Activity management lets service owners track usage and rating, create tiered rates, and manage multiple services. Billing lets operators reconcile charges, calculate based on multiple current and rate options, present bills to customers in various formats ( , screen pops, etc.), collect from customers, and remit for the service. Customer care provides some customer service and marketing outreach capabilities, such as a user self-service portal and customer management suite, optimized for both high-frequency transactional sales and long-time sales (multiple payments over time to complete a transaction). Event notifications allows individual client's business rules to drive events, including messages to customers and internal/external partners, with configurable message templates. Reporting and analytics allows for role-based access to reports pulled from either a standard report catalog or a custom, with full integration with ERP and CRM systems IDC #

4 F I G U R E 1 A r i a B i l l i n g P l a t f o r m Source: Aria, 2010 New Age of Online Billing Aria used to call its product a revenue processing platform, but as it grew from its very early telecom-model billing roots (its founder comes from Covad), it is finding a whole universe of new software and services companies which understand IP and service creating, but lack any knowledge of real-time service provisioning, microbilling, and revenue processing, which have for years been fundamental to the telecom industry. Telecom services providers like Amdocs and Covad have perfected classic operational support systems (OSSs) tasks like provisioning, maintaining inventory levels, and configuring new services and business support systems (BSS) tasks like configuring customers, taking orders, bill presentment, and collections. Aria has figured out not only how to build these systems into a lightweight platform, but how to take it from the telecom world where BSS/OSS is an embedded infrastructure into the IT world where it is a service, and operationalizing services with BSS/OSS capabilities is foreign. 4 # IDC

5 Infrastructure Versus Service The "infrastructure versus service" dichotomy is half semantic and half technological. SaaS vendors have services DNA and think in classic terms of having an invoice, generated by an ecommerce platform, to present to a customer essentially a linear process. But this view of the customer and transaction is limiting because it affords only one-time revenue capture and because accounting systems and billing systems often don't talk to each other well, new orders have to be manually input. Accounting systems are designed to be point in time (batch), while online billing has to be real time (dynamic), at point of sale/cross-sell/upsell, and not just during financial reconciliation times. This accounting-centric approach to billing also isn't flexible enough to accommodate situations where the vendor's product is on a third-party platform, which doesn't in itself have strong built-in monetization. For example, the growing number of services vendors that choose not to build infrastructure and instead park their services on platforms like Amazon Web Services (AWS) face a liability when it comes to charge customers appropriately. AWS has only three axes on which it configures its services: CPU, bandwidth, and storage; and its customers the ISVs that put their software on the AWS platform are limited by the same three axes when provisioning and billing for their customers. Beyond that, AWS only provides very broad options, like marking up bandwidth, CPU, or storage, on a cost-plus model (the cost AWS is charging plus some of the ISV's profit) but that isn't anywhere near the level of granular metering most vendors need and doesn't allow them to monetize their products based on true value they provide, or in unique use cases. The market for firms like Aria and others is at the seam between the ISV using AWS and the ISV's customers, to expand on the relatively few options AWS provides out of the box and to standardize not only the billing but the provisioning and authentication of services. Selling to cloud platform providers, like Amazon, and recent customer win NetSuite, helps to validate this opportunity and the necessary interaction required between accounting and billing systems. K e y C u s t o m e r S e g m e n t s Since the initial applications on the system, Aria has opened up additional customer segments among firms that operate online and sell using on-demand business models. Currently, these segments include the online gaming industry, the online media and entertainment business, the telecommunications industry, particularly mobile products, and the online subscription-based software market, but Aria's longer-term play is in the online retail and franchise- or agent-based financial services businesses, insurance, energy, and utilities segments, which have inherent real-time subscription dynamics. These customers share the need to initiate relationships with their prospects and customers instantly in the online environment, to fulfill customer orders and provision their product accurately and in the agreed upon time frame, to pattern continuing or recurring billing streams depending on the nature of the relationship established with the customer, and to appropriately recognize the revenue generated by the recurring transactions in the appropriate time period. These processes often put high demand on the billing infrastructure to handle complex, multitier relationships with full security, auditability, and efficient throughput IDC #

6 Gaming The online gaming industry has been an area in which Aria has developed a significant customer group, as the gaming sites seek to manage very large volumes of new, continuing, and returning customer accounts among the communities of gamers. Billing for gaming sites not only has to be online, immediate, and accurate, but the billing systems also need to accommodate a wide variety of payment models, including micropayments, subscriptions, and single downloads. And when new games break out virally, the billing infrastructure is required to have the flexibility to handle spikes in volume and handle new "hit" titles. SaaS Application Services The subscription-based software market is another key segment in Aria's business development. The SaaS software providers all face the need to create new, subscription-based relationships with their customers and provide billing operations that accurately reflect the recurring nature of those relationships. SaaS software firm executives can readily appreciate the convenience and economy of using SaaSdelivered software for as many processes as they can, so that they can conserve resources to focus on the core value proposition their software delivers to the customer. There is also an emerging group of SaaS business platform aggregators, which offer integrated core business process software to other software developers. The aggregators offer a channel opportunity for Aria's products. B2C ecommerce As subscription-based Internet commerce becomes an increasingly common model for businesses in many industries, Aria Systems is in position to leverage its expertise in the billing process and to continue to expand its customer base to embrace additional rapidly growing segments. As online businesses face the reality that the billing system is a key customer touch point, they will look with increasing care to the depth of features and the flexibility offered by their billing systems provider. C o m p a n y S t r a t e g y Aria Systems is positioned among a handful of start-up software/service firms targeting the growing market for on-demand, service-delivered billing solutions for subscription-based businesses. The company plans to bring its acquired expertise in large-scale Internet billing and customer monetization processes to businesses that are facing the need to ramp up their online operations to Web scale and that are looking to avoid the substantial up-front investments in hardware, software, customization, and expertise required to create a real-time online billing solution. Aria's basic go-to-market strategy is based on a mix of direct sales via an enterprise sales team, to customers with a Web presence for monetizing their products, and indirectly to transaction platforms like gaming and media, where they have an "Intel Inside" role of cross-sell and upsell. Aria and its customers can configure to bill for a variety of metrics and axes, and it currently has in excess of 8.5 million SKUs build on its platform. Its metric of choice is the total number of transactions per month, and at scale, Aria processes more than 6 # IDC

7 10 million transactions each month, some essentially micropayments and some larger, such that it sees transactions in the several millions each month, from about 3 million end users interacting with the system in various forms (e.g., as gamers, business applications users). Aria has found that its largest customers prefer to pay on the number of transactions fulfilled in the Aria system (versus a monthly fee, percentage of revenue earned, flatrate plan, or a usage-based plan) and with the ability to generate cross-sell and upsell; Aria presents its customers with new ways to monetize its transactions and create revenue-generating events. As an example of an indirect sale, on its client Gazillion's gaming platform, Aria enables Gazillion to cross-sell and upsell at multiple points in the gaming experience (e.g., between levels; to add skills, attributes and items to a game character; or at point of sale, like a customer presented with a warranty option at the time of buying a laptop from Dell). Enterprises and SMBs A foundation of the company's strategy is its recognition that it must serve the needs of two highly differentiated customer groups: the large enterprise customers and the small- to medium-sized business customers. Each of these groups has its own unique requirements related to the scale of their businesses, and Aria has to craft its own business model around these needs. For the enterprise segment, the SaaS alternative to on-premise software installation and licensing is a strong trend. While a number of large firms have been slowly experimenting with SaaS or cloud-delivered infrastructure services for some years, the move to cloud-provisioned applications and specific business process software is new. The economic downturn has accelerated the adoption rate for both infrastructure and application service delivered software, as reflected in growth rates in transaction volume for companies like Aria Systems in excess of 100% even through the economic climate of Aria's business model for enterprise customers enables them to progressively pay less per user transaction as volume increases. This approach differentiates the SaaS model from the on-premise software alternatives and provides a volume-sensitive basis for the enterprise relationship. Aria's platform design helps it differentiate and allows it to scale profitably. In general, providers' costs increase in a linear way proportionate to the number of new subscribers on their system, but SaaS-based firms like Aria with multitenant, sharedresource systems carry a lower infrastructure cost, and its cost per new end user stays relatively flat as its customer count and top-line revenue increase. SaaS also allows buyers to test services modules on a trial basis and allows providers to implement it quickly. For small- to medium-sized businesses, the initial cost of access to Aria billing is very low and also ramps predictably with volume metered by the amount of activity the SMB is generating through its online operations. This offers smaller companies the ability to "pay for what they use" in a way that is directly tied to their business volumes and very difficult to achieve with traditional software license arrangements. Both enterprises and SMB firms can benefit from an inherent characteristic of process-specific SaaS software in the implementation phase. In the typical installation 2010 IDC #

8 of process-specific on-premise software, the acquiring company has traditionally incurred implementation consulting or customization services fees, which are multiple times the cost of the software. In the SaaS implementation, these services fees are many times lower, while the time to value associated with deploying online billing is much shorter. Direct-to-Customer Versus Embedded Service The Aria Billing Platform software can be accessed as a service by an online business to enhance its online operations directly, as in the case of a media site selling content access on a subscription basis or a SaaS software supplier selling software access by subscription. This application is relatively straightforward and should continue to be the primary business model as Aria's customer base develops. At the same time, the Aria Billing Platform software can be embedded as a white label solution within a third-party software platform that offers an expanded set of SaaS or cloud services tailored to a specific group of end customers. In this case, the billing process is transparently offered within the larger platform and supported through multitier configurations as necessary. This embedded service aggregation approach will become a staple of the SaaS/cloud software market as it evolves and captures an increasingly large share of the overall business software market. Aria has already targeted a number of these white label arrangements, and these could become a major source of revenue leverage in the years to come. These arrangements create a channel through which Aria gets delivered as an onboard billing and monetization engine and distributed through its third-party aggregator business partners. Force Multipliers Partnership strategy is an important part of Aria's development model. In an emerging space like the online billing segment, critical mass is a condition of survival, and strong partnership relationships not only provide visibility and buzz but also can offer product placement, promotion, and deployment resources that can be leveraged for competitive advantage. Aria has created an important relationship with salesforce.com, the center of energy in the SaaS movement. This relationship is built not just in the catalog of applications where Aria is a prominent billing solution but, more importantly, in product integration between Aria's billing operations and the CRM offering from salesforce.com. There are many instances in the customer acquisition and retention life cycle where events in the billing process should trigger data updates in the CRM system and vice versa. Aria has engineered advanced support for these interactions, which provide significant value to salesforce.com customers over and above the strength of the billing functionality itself. In late 2009, Aria also announced a partnership relationship with NetSuite, under which Aria has become NetSuite's preferred partner for high-volume usage-based billing. In this model for billing process, Aria's billing complements the accounting and other business service software that NetSuite aggregates and delivers to a very large base of enterprise and SMB customers. With a midsize business target customer base and a large footprint, the NetSuite relationship promises to add important leverage to Aria's market reach and volume growth. 8 # IDC

9 Aria has also established partnerships with professional services firms specializing in assisting businesses deploy or streamline online business operations. These services organizations serve both as a channel for broader distribution of Aria products and as a key resource with deep knowledge of the details of on-demand billing. The services partnerships provide a growth engine for Aria and a foundation for delivering rapid time to value to the customer base. F U T U R E O U T L O O K C h a l l e n g e s a n d O p p o r t u n i t i e s IDC has projected that the cloud billing market will grow at a CAGR of 63% for This emerging market is building strongly from a small base of $42 million in revenue in IDC is forecasting that market revenue will more than double from 2009 to 2010 and increase by another 84% between 2010 and 2014 (see Worldwide Cloud Billing Forecast, IDC #221358, December 2009). Aria Systems is operating in an emergent but rapidly growing market segment. As such, it has the opportunity to help shape the development of the SaaS billing software market. Challenges Multitier billing. Providers need to be able to bill directly to customers and also between the service provisioner and its customers (e.g., for ISVs building commercial applications on salesforce.com and OpSource). Mapping provisioning to revenue assurance. Customers may realize they have a billing problem, but the provisioning problem can be even more daunting, with recurring sales an ecosystem of partners, each of which wants to monetize its portion of the total offering with great flexibility. Provisioning is also a revenue-recognition problem for indirect partners, because the point of revenue recognition is when the service is turned on, not when the bill is presented, and not lining up the two events (billing starts early before service provisioning or starts after service has been provisioned) impacts sales and channel compensation and earned income booking so it becomes a revenue assurance problem. Complex configurations. In a rush for best-of-breed billing, provisioning and fulfillment capabilities are often overlooked. The myriad of real-time service offerings can be dizzying even a very contained scenario such as a single SKU, in five-product configurations, in four different currencies, sold to three different tiers of customer, each with three types of volume discount, illustrates the problem: 240 different configurations, which must be available for buyers, often embedded in a reseller platform whose parameters are constantly being updated. Salesforce.com has about 200,000 possible combinations based on a single SKU (Force.com), and some larger ecommerce sites like ebay are in the hundreds of millions IDC #

10 Opportunities As billing-as-a-service delivery models become increasingly popular as alternatives to in-house dedicated infrastructure, Aria Systems has the opportunity to bring its expertise in large-scale Internet billing and customer monetization processes to the emerging markets dependent on sophisticated online billing operations. Many online businesses are critically dependent on replacing manual or hybrid billing practices to scale their online operations. Aria can take advantage of its ability to provide fully automated operations that will be attractive to companies across industries and geographies. Aria can also benefit on the budget side by potentially rendering obsolete many existing license costs for previous generations of onpremise billing software. To the extent that Aria succeeds in building a leading brand in the online billing space, the company has the opportunity to become "baked in" to the monetization process for an industry. This identification of a software brand with a best business practice is perhaps the most powerful market position to acquire, and as an early entrant, Aria is in a position to achieve this advantage if it can build such a position in its target markets. In the emerging online billing services space, Aria is part of a race to achieve critical mass and dominate the market as a whole or a specific segment within it. There are already multiple new start-up firms targeting this application, and Aria must consider the potential entrance of large enterprise application software brands as the cloud trend accelerates (e.g., salesforce.com itself, SAP, Oracle, or Microsoft). In addition, telecom providers, long leaders in on-demand billing, could potentially offer cloud solutions that might compete with Aria's. In this gathering competitive environment, the challenge for Aria will be to create a well-recognized brand and a leadership position as quickly as possible. As the popularity of subscription billing grows, Aria will also face the challenge of providing a full-service resource for its direct customers or special-situation third-party aggregators that require deployment assistance. In this area, the company's alliances with professional services firms must play an active and competent role, and the company should leverage these relationships to help build a leadership position. E S S E N T I A L G U I D A N C E A d v i c e f o r B i l l i n g S e r v i c e S p e c i a l i s t s Both Aria Systems' history and experience in the industry and its present size and growth rate create the opportunity to become a leading supplier for billing process systems in the SaaS environment. In this emerging field, one of the company's biggest challenges will be to carve a defendable position in the midst of a very broad opportunity. A very tight focus on a specific customer set, for example, might restrict growth potential while providing the chance to dominate that market segment. Conversely, a very broad focus can retard feature development and open competitive liabilities relative to more specialized 10 # IDC

11 offers. To date, Aria has been steering a middle ground between these extremes. The company should continue to put focus on several most advanced segments among online operations to advance its feature set, while working through channels and partners to broaden its reach to other emerging markets. It will continue to be true in the SaaS and cloud services space that product innovation is the only sustainable competitive advantage. As well-funded new entrants target the online billing process space, Aria must continue to enhance its feature set and flexibility ahead of the development cycle of the start-ups and new entrants. We expect larger enterprise software firms and telecom industry service providers, as well as new start-ups, to enter the online billing segment; only continued innovation and a very strong feature set will allow Aria to differentiate within the increasing level of competition. Aria already understands the importance of billing as a customer touch point online both in the acquisition and in the retention processes, as well as in overall customer satisfaction. The company should seek to add features that enhance the ability of its customers to leverage the billing experience for additional marketing engagement with the end user. The central character of billing in the customer relationship lends itself to Aria providing added value to closed-loop marketing strategies and innovations. L E A R N M O R E R e l a t e d R e s e a r c h Worldwide Cloud Billing Forecast (IDC #221358, December 2009) IDC Predictions 2010: Recovery and Transformation (IDC #220987, December 2009) Data Protection & Cloud Computing (IDC #SSE2009_03, October 2009) Enterprise Mobility in the Cloud (IDC #220192, October 2009) Policy Management: Optimizing the Customer Experience (IDC #220433, October 2009) Cloud Computing 2010 An IDC Update (IDC #IDC_P20476, September 2009) Cloud Computing 2010 An IDC Update (IDC #TB , September 2009) Worldwide Telecom Cloud Billing Forecast (IDC #217313, May 2009) IDC Spring 2009 SaaS Summit: SaaS, PaaS, and Cloud: Choices for Success (IDC #217935, April 2009) Worldwide Software on Demand Forecast and 2007 Vendor Shares: Moving Toward an On-Demand World (IDC #213197, July 2008) 2010 IDC #

12 C o p y r i g h t N o t i c e This IDC research document was published as part of an IDC continuous intelligence service, providing written research, analyst interactions, telebriefings, and conferences. Visit to learn more about IDC subscription and consulting services. To view a list of IDC offices worldwide, visit Please contact the IDC Hotline at , ext (or ) or sales@idc.com for information on applying the price of this document toward the purchase of an IDC service or for information on additional copies or Web rights. Copyright 2010 IDC. Reproduction is forbidden unless authorized. All rights reserved. 12 # IDC