Agreements-Based Billing (ABB) Driving Relationship Monetization in a New Frontier of Service Innovation for CSPs

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1 Agreements-Based Billing (ABB) Driving Relationship Monetization in a New Frontier of Service Innovation for CSPs Stratecast White Paper Stratecast Perspectives & Insight for Executives SPIE 2011 #38 October 14,

2 Stratecast Frost & Sullivan AGREEMENTS-BASED BILLING (ABB) DRIVING RELATIONSHIP MONETIZATION IN A NEW FRONTIER OF SERVICE INNOVATION FOR CSPS INTRODUCTION 1 The heart of the issue is that CSPs must differentiate at an unprecedented rate through organic and partner-based service innovation. This increases the need for sophisticated bundling and the ability to manage both the billed revenue stream and the compensation due to suppliers and channels. Over the past two years there has been increased attention directed by the media, the analyst community, regulators, enterprise customers and, most importantly, end-user consumers toward the communications service provider (CSP) community about billing. All want CSPs to make the customer billing process less complex and more accurate, while providing a web 2.0+ style online customer experience. The heart of the issue is that CSPs must differentiate at an unprecedented rate through organic and partner-based service innovation. This increases the need for sophisticated bundling and the ability to manage both the billed revenue stream and the compensation due to suppliers and channels. Often, customers are confused about what they think they paid for and what they get, tied to such factors as: the level of broadband upload and download speeds purchased and received; content consumed as either free, partially-subsidized or fully paid for by the customer; the level of data download volumes; and the amount of voice minutes or text messages available for use. This misunderstanding goes beyond a flat-rate bundle or even multi-service tier-based customer usage plans, to include significantly more sophisticated behind-the-scenes issues with content consumption and supplier/partner compensation. In more cases than not, this has everything to do with a CSP s billing solutions and associated business processes. 2 Meeting the financial reconciliation needs of customers (business customers or consumers), and to satisfy all process requirements, pushes for a major level of systems flexibility. This is important as customer service agreements become more involved in support of increased service offer complexity. Customer agreements boil down to what you will provide me and what price I must pay you to get it. Yes, there are certainly other components with regard to timing, penalties for non performance and failure to properly deliver, among others. Each of these, however, is an extension to the terms and conditions that the billing and partner compensation processes must address as customer needs and business conditions evolve. 2 October In preparing this report, Stratecast conducted interviews with several members of the MetraTech executive team. Agreements-based billing and ABB are trademarks of MetraTech Corporation. Please note that the insights and opinions expressed in this assessment are those of Stratecast and have been developed through the Stratecast research and analysis process. These expressed insights and opinions do not necessarily reflect the views of the company executives interviewed. 2 For more concerning the evolution of billing solutions and business processes, along with a look into the types of billing requirements that future services will need, see Stratecast report OSSCS 12-06, Global CSP Billing Part 1: Global Billing Megatrends, Market Share Analysis and Forecast, July For information on how to obtain this or any Stratecast or Frost & Sullivan report, contact your account executive or inquiries@stratecast.com Stratecast Frost & Sullivan. All Rights Reserved.

3 SPIE #38 - Agreements-Based Billing (ABB) This week s SPIE focuses on the concept of agreements-based billing (ABB TM ). Simple in definition but difficult to implement with legacy systems, mostly due to the complexity associated with the fluid negotiation of complex business agreements relative to: pricing, business models and multi-party business relationships; compensation of distribution channels and suppliers; and, certainly, seamless integration with CRM and online portals which are critical to a positive customer experience. The more sophisticated the user, generally the more complex the business agreement between the user and the CSP. In a growing number of cases, the agreements between the CSP and a large enterprise require billing solution flexibility that only a handful of suppliers can presently deliver. This report also describes how one billing and compensation supplier MetraTech used agreements-based billing to help its customers achieve differentiating capabilities in markets where fluid agreements, flexible pricing models and multi-party relationship monetization is essential for long-term business success. WHAT IS AGREEMENTS-BASED BILLING? In its simplest form, agreements-based billing recognizes that business models are relationship-driven and characterized by fluid, individualized and interrelated agreements across customers, suppliers and channels. For example, at the beginning of a business relationship, all parties involved define terms and conditions, along with the associated financial definitions for each part of an agreement. In essence, agreements are about the dance between the customer and the CSP, in which the customer is seeking customized services and discounts and the CSP is seeking financial commitments. Relationship definitions can be between an organization and its customers (B2C), between two work teams internally, or between one organization and others in a wholesale arrangement (B2B) that will eventually play out to end-user customers. Obviously, relationships can become quite complex, especially when the agreement requirements are extensive, terms are interconnected within and across participants, and monetary measures flow in multiple directions. At the beginning of a business relationship, all parties involved define terms and conditions, along with the associated financial definitions for each part of an agreement. In essence, agreements are about the dance between the customer and the CSP, in which the customer is seeking customized services and discounts and the CSP is seeking financial commitments. Software generally facilitated the customer selling and partner compensation processes. Over time, however, businesses became a slave to both the systems and the processes. This is from system design and process definitions aimed to satisfy a specific set of industry and technology conditions that were right for business at the time, but were created and installed with minimal thought to future needs that could rock the foundational assumptions that drove the initial design. As business needs evolve today, incumbent solutions that do not incorporate the potential for change in business models through the ability to quickly tailor sophisticated agreements and monetize interrelated multi-party agreements lose a level of effectiveness. Flexibility to support such change is sorely needed as technology advances, market conditions are redefined, business relationships evolve and organizational structures are transformed. Enter the world of agreements-based billing Stratecast Frost & Sullivan. All Rights Reserved. October

4 Stratecast Frost & Sullivan If the flexibility to support new business models and personalization options is limited, the business typically forgoes opportunities or creates workarounds which can result in issues with accuracy, auditability and scalability. At a time when business change is needed the most, to respond to new opportunities or to react to competitive pressures, inflexible systems cause the business to just get by. Because so much of the customer relationship process is billing and customer interaction oriented, the greatest level of flexibility needs to be within the billing and customer experience functions. This is necessary so that these functions can always address the present level of business focus. If the flexibility to support new business models and personalization options is limited, the business typically forgoes opportunities or creates workarounds which can result in issues with accuracy, auditability and scalability. At a time when business change is needed the most, to respond to new opportunities or to react to competitive pressures, inflexible systems cause the business to just get by. Such a scenario is unacceptable today, especially as the communications industry moves to greater levels of complexity, and at a time when the age of service personalization gathers momentum. THE AGE OF SERVICE PERSONALIZATION From a CSP perspective, improvements in network technology, mobile user devices and consumerization of enterprise software are pushing life changing services to the forefront of customer consciousness. 3 These are based on interactive functions supplied by: service delivery platforms; external content sources, including downloadable apps, certain types of advertising and social networking sites; and advanced business and operations support capabilities designed to deliver customer-enabled control functions. Such services allow customers to define what components constitute a service, the levels of control over how a service will work, when or where it will work, and under what sets of conditions financial or operational services are allowed to work. The push for more advanced interactive services also means that CSPs can implement business models directed at dynamic customer involvement, well beyond the traditional voice and data access service offers of the past. This breeds loyalty and increases customer confidence, even when many service options may not be available at the lowest market rate. 4 Such a level of interactive involvement requires a significant level of billing flexibility to manage all internal and external business relationships, especially those with the end-user customer and supplier partners. For example, in June 2007, mobile phones with touch screen technology become an overnight sensation for many consumers and, now, business customers. Since then, touch screen has greatly expanded customer control in all age groups, and in several different geographies, by simplifying the human-to-technology interface. This element of personalization accommodates customer attraction to certain apps and devices. It will 4 October Stratecast defines life changing services as any combination of: network access methods (broadband, mobile, fixed line); the services traditionally provided by network operators ( , VM, voice, SMS, MMS, VoIP, telepresence, and IP-X e.g. IP- VPN, IP-PBX, IPTV); IT functions (data storage, enterprise-specific applications, single sign-on security); interactive content (business media, informational content, cloud-based applications, video entertainment); user device features provided by smartphones and tablets; and advanced control features covering customer-defined financial restrictions or usability limits. These services are designed to address a variety of lifestyle preferences tied to business, social or personal interests. 4 For additional insight about consumer willingness to spend and survey findings that show price is much less important than simplicity and utility, see Stratecast reports CCS 4-21, Consumer Communication Services: Modeling the Consumer Decision to Buy, and CCS 5-1, Consumer Communication Preferences: Stratecast Frost & Sullivan. All Rights Reserved.

5 SPIE #38 - Agreements-Based Billing (ABB) continue to play a prominent role in the drive by CSPs for market expansion through increased customer satisfaction. The longer-term implication, tied to the billing and customer management needs in an interactive environment, means that as customer services are consumed, all parts of the end-to-end service definition and supply chain process must be reconciled in shorter and shorter time intervals. To achieve future business success, it is imperative that new service offers and implementation of new business models not be saddled with the limitations of currently defined systems that can not show a high degree of flexibility and configurability along with the business processes they support. WHY AGREEMENTS-BASED BILLING IS SO IMPORTANT TODAY Consumers of communications services want intuitive online usage controls and accountlevel insights to reduce bill shock if their consumption minutes of use, mobile download volumes or text messages exceed bundled limits. They also want to pick-and-choose payment methods or pricing options on a self-service basis, when it is convenient for them. This level of customer control applies to not only postpaid customers but an increasing number of prepaid users as well. To achieve future business success, it is imperative that new service offers and implementation of new business models not be saddled with the limitations of currently defined systems that can not show a high degree of flexibility and configurability along with the business processes they support. Enterprise customers, on the other hand, want to negotiate tailored agreements that match their unique needs and consumption patterns, while rewarding them for their total spend across all regions and products. They also want to summarize usage by department or their corporate hierarchy in increasingly flexible ways. They also want to know when usage goes outside pre-determined limits outliers in the form of individual users or their volume commitments to certain products which could be tagged for more intense scrutiny by a business unit manager, the accounting department or even a security team, as the need might arise. 5 With these points in mind, it is easier to see that the age of service personalization is now here, with a growing list of new business support requirements. 6 As services are offered with more flexibility to set consumption limits and financial controls not to mention the large number of apps that can be purchased and downloaded to any mobile device regardless of operating system no two customer accounts look alike anymore. For consumers, such an environment is quickly becoming the norm. For enterprise customers, this takes on additional meaning as a mix of services from multiple sources now define the user profile of a device especially a mobile device. 7 These can include 5 For additional detail about the level of bill shock for both consumers and enterprise customers, along with Stratecast survey results of the amount of uncollectable revenue that is written off by CSPs to maintain key enterprise accounts, see Stratecast report SPIE , Real-Time Credit Control for Postpaid Subscribers, June 10, There are several new business support requirements that an end-to-end billing solution must address to keep customers satisfied and to address changing market conditions. For additional detail see Stratecast report OSSCS 12-09, Global CSP Billing Part 2: Key Market Requirements Analysis, September For more about consumer and enterprise billing service options and usage characteristics, see Stratecast report SPIE , Service Usage Personalization and the Role of Convergent Billing, December 3, Stratecast Frost & Sullivan. All Rights Reserved. October

6 Stratecast Frost & Sullivan As services are offered with more flexibility to set consumption limits and financial controls not to mention the large number of apps that can be purchased and downloaded to any mobile device regardless of operating system no two customer accounts look alike anymore. apps from behind the firewall of a large enterprise and its corresponding cloud-based software as a service (SaaS) applications, or from internally developed apps. It also includes those outside the corporate firewall, either as cloud-based business use apps or content designed for personal needs; especially if the user device is employee owned. 8 Similar requirements involving the same level of billing complexity are now evolving from other facets of the converging communications marketplace. A few examples include: Interactive Entertainment and Video The video and entertainment industry is getting very personal in its production and use of video, such as user-generated content or interactive gaming. It also provides a personalized means for content consumption, e.g. purchase and storage of music and studio-produced video via a cloud-based content locker (icloud) to be used at any time, at any location, with any device. Can the business model for video and entertainment consumption require a CSP to address the content revenue allocation hierarchy; e.g. pay the content aggregator, pay the producer, pay the creator, etc.? Should interactive content be priced differently if purchased as a subscription? What about offering gaming prices by the session, by the hour, by the level of completion, by the number of other players also engaged or even by the number of players that are recognized within the player s social network of friends? What about loyalty points? Social Networking Experience Social networking has become more sophisticated as it ubiquitously reaches all facets of both work and personal experiences. Examples include: social neighborhoods and circles; group-based idea exchange within an enterprise; crowd sourcing; social-driven purchases such that customers that want the same item can bring their collective forces together to order high-ticket retail goods in bulk at reduced pricing; and yet-to-be defined socialdriven services that involve CSP network functions including network access, presence and availability. From a billing perspective, multiple business models can be encouraged so that payment for network access is subsidized by advertising or other sources. In addition, usage accounting may include zero balance transactions for services such as IM, SMS and even voice, if done from within a social network site CSP subscription. Cloud-Based Services Moving beyond the hype of IaaS, PaaS and SaaS offerings is the more robust realm of customer solutions as a service (CSaS). These solutions are meant to address the end-to-end needs associated with specific customer problems rather than just the technology portion of such. They can include broadband access, on-line storage, on-demand computing capacity, single sign on security, and a variety of needs-specific applications to address various customer challenges within multiple industries. Customer service offers require fluid pricing schemes to address customer expectations of an on-demand solution environment. 8 The security aspects of corporate usage of personal user devices such as smartphones and tablets is addressed by Stratecast report SPIE , Invasion of the Data Snatchers: Tablets, August 19, October Stratecast Frost & Sullivan. All Rights Reserved.

7 SPIE #38 - Agreements-Based Billing (ABB) Conferencing and Collaboration (C&C) This market is rapidly evolving with a more direct linkage between audio conferencing, web conferencing, telepresence, social networking, unified communications and meeting collaboration tools such as virtual whiteboards and real-time presentation sharing. It is also experiencing rapid innovation in bundling schemes and distribution strategies, thereby requiring flexible and extensible billing capabilities to address the monetization challenges such innovation involves. Machine-to-Machine (M2M) M2M is a major enterprise play within which CSPs may be quickly passed over as others provide attention to this sector such as content aggregation companies and virtual network enablers (VNEs). Transactions from devices in a number of industry verticals continue to have an agreements-based billing requirement. These include: medical device monitoring; vehicle telematics (both consumer and fleet management); insurance in partnership with transportation suppliers or direct to customers; and remote environment gauge monitoring. Enterprise Customers and Suppliers The business relationship management needs of several different enterprise customers, represented by many industries, are moving to the same level of complexity as CSPs. Examples include: electric utilities; retail, especially on-line retail; banking and financial services; cloud application suppliers (SaaS) and cloud infrastructure suppliers (IaaS, PaaS). Each of these industries will have unique customer data collection, allocation and charging models that will need to be followed. Companies will also need to define creative business options to keep customer attention in a manner similar to addressing the needs of CSPs and the other elements of the communications marketplace, as just described. Central to the success of personalization services are billing solutions that can address the needs of different business models and be able to rapidly evolve to meet market demand. This means addressing the retail side of a customer initiated transaction and following through on all parts of the behind-the-scenes processes with internal work groups, partners and industry suppliers. It also means addressing change at the speed of retail, in minutes and hours, not days or weeks Stratecast Frost & Sullivan. All Rights Reserved. October

8 Stratecast Frost & Sullivan METRATECH AGREEMENTS-BASED BILLING Agreements-based billing and compensation means that each customer transaction may result in multiple interrelated partner transactions. The age of service personalization has arrived in most services industries. For the converging communications marketplace, the ingredients are in place to provide service plans with flexible billing constructs for consumers in an expanded role beyond what business customers now enjoy. Once deployed, such models create differentiation in competitive environments. The key is deploying a monetization solution that can address both the retail and wholesale aspects of every business agreement. For example, using the MetraTech agreements-based billing platform, independent conference and collaboration service providers are successfully beating much larger CSPs with conferencing lines of business, through differentiated billing and distribution approaches. They allow each of their customers to negotiate a tailored agreement for their audio, video and data services offerings. One service operator has built a differentiating brand in a very competitive field based on its ability to monetize complex B2B agreements and provide an intuitive on-line billing experience. For its enterprise and consumer-level customers, this operator has helped them overcome a significant level of bill shock each month because customers can see the billing details per collaboration session, at any point in time. This includes items such as rate per minute costs for each connection and any international long-distance dial fees associated with a collaboration call. In addition, it shows all associated fees, including: add-on fees, participant fees, non-show fees, add-new-user fees, re-issue fees and wallet card fees. The service differentiator for this operator is in intuitively providing billing details after a collaboration session has ended, which allows the company s IT resources to dynamically control and model its business, as it helps its customers to better manage their collaboration session costs. Agreements-based billing, as demonstrated in the above example, defines the what, how, when and where services are supplied, along with how much the supplier expects to be compensated. For the CSP marketplace, the agreements-based billing approach means offering customers an understanding of billing charges, compared to their discount tiers and volume commitments, at any time. From a supplier perspective, this approach means delivering a cloud service operator with a snapshot of billing status and a compensation status for associated partners and suppliers on frequent time intervals. Agreements-based billing and compensation means that each customer transaction may result in multiple interrelated partner transactions. To illustrate the agreements-based billing and compensation approach further, a second example is shown in Figure 1 below. Here, agreement terms governing what, how and for what level of payment the service components associated with supply management are defined. The key is that every customer transaction is governed by a billing agreement that is interrelated with a supplier and a channel compensation agreement, all of which 8 October Stratecast Frost & Sullivan. All Rights Reserved.

9 SPIE #38 - Agreements-Based Billing (ABB) must be accounted for and reconciled with each party. Each party will look to negotiate discounts, incentives, commitments or penalties to suit their business objectives. Since the CSP is monetizing all of the agreements, they have the ability to shape how the agreements interact. Keep in mind that this is a simple example of one customer, consuming one service, from one supplier, sold by a single channel. Agreements-based billing and compensation handle the fluid negotiation of complex service bundles that span multiple suppliers, sold to multi-national enterprise customers with tens of thousands of users, who consume services billed in multiple currencies, yet want a discount based on their total global spend. Monetization becomes the key compensation tool in such relationships; but in nearly all cases it is much more than a simple agreement between a customer and supplier providing a service for a fee. The relationship management challenge isn t just about end-user customers. It must include all concerns with suppliers, distribution channels and resellers, as applicable. The relationship management challenge isn t just about end-user customers. It must include all concerns with suppliers, distribution channels and resellers, as applicable. Figure 1 Agreements-Based Billing and Compensation Source: MetraTech Agreements-based billing and compensation, as MetraTech explained to Stratecast, is designed to be a center of knowledge for all financial relationships, regardless of industry focus. It is designed specifically for: 2011 Stratecast Frost & Sullivan. All Rights Reserved. October

10 Stratecast Frost & Sullivan Fluid, Personalized Multi-Party Agreements. This includes the ability to negotiate and dynamically set parameters for complex agreements using modifiers such as rates, promotions, discounts, commitments and accelerators. Book of Business Service Monetization. This includes corporate hierarchies, services, regions, or volume of period. It supports new service and new pricing / business models. IT and Business Term Integration. Metadata configuration of profiles, supporting agreements and usage detail records (UDRs). It should synchronize with external account structures and product catalogs. Online Customer and Partner Experience. This provides an accurate, auditable and understandable view of all contract-defined details. It should also incorporate chargeback modeling such as bundle proration. 10 October Stratecast Frost & Sullivan. All Rights Reserved.

11 SPIE #38 - Agreements-Based Billing (ABB) Stratecast The Last Word There is no question that the complexity of the communications industry is increasing, not only with multiple layers of network and user device technology, but also with the silos of systems and processes in force to monetize everything in a profitable manner. Similarly, the service personalization movement has changed the course of direction for nearly all CSPs throughout the world. Many now seek better ways to create services that fit in with the cool stuff that customers want and buy. Unfortunately for many organizations, installed systems and existing business processes do not allow them to react to changing market conditions quickly enough to take full advantage of the opportunities available to them. However, there are a few companies that show significant progress; albeit their ranks are slowly growing. The rate of change in most industries that are seeking ways to bring mobile communications into the goods and services they provide, as a means for improving their customers experience, is accelerating. However, the ability of most service providers to flexibly monetize each of these situations is limited by the same installed systems and processes that were never designed to address business concerns outside the direct communications technology sales process. Stratecast believes that future business success, for not just the changing communications marketplace, rests with an agreements-based billing strategy; but the success of business in all industries depends on how quickly the end-toend monetization and partner compensation processes can be addressed whenever business change occurs. For those companies that have billing and partner compensation systems that work collectively to meet the needs of multiple business models and change within those models the evolving communications marketplace holds a high level of promise tied to new business opportunity. Using flexible solutions that support the agreementsbased billing concept can propel a lesser known market label to significance, as noted by on operator that has built its entire business on billing for its services in a much more market-sensitive and customer-friendly manner. Stratecast believes that future business success, for not just the changing communications marketplace, rests with an agreements-based billing strategy; but the success of business in all industries depends on how quickly the end-toend monetization and partner compensation processes can be addressed whenever business change occurs. MetraTech is one of the few software suppliers that have grasped the business monetization concept. The company has moved ABB to a solution reality for not just the communications industry, but a host of others including the financial services, conferencing & collaboration, cloud services, and transportation services industries. Agreements-based commerce is the new reality. Karl Whitelock Director OSS BSS Strategy Stratecast Frost & Sullivan kwhitelock@stratecast.com 2011 Stratecast Frost & Sullivan. All Rights Reserved. October

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