W o r l d w i d e C l o u d B i l l i n g F o r e c a s t

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1 M A R K E T A N A L Y S I S W o r l d w i d e C l o u d B i l l i n g F o r e c a s t Elisabeth Rainge I D C O P I N I O N Global Headquarters: 5 Speen Street Framingham, MA USA P F Investments in billing systems to enable cloud services are emerging as the visions turn into reality, especially for business operations. The worldwide cloud billing market will grow at a CAGR of 63.1% to reach $485 million in 2014 as operational know-how becomes increasingly important to the customers, suppliers, and partners. With this in mind, IDC highlights the following: Cloud billing is emerging, with significant contributions from the community of global telecommunications service providers, as a platform to be used by service providers and nontraditional telecommunications service providers to collect revenues from their customers for the computing resources and services used. Billing for cloud-based computing will be an attribute of both telecom billing and cloud operational platforms. The telecom billing solutions provide value to subscription-based service providers of many kinds, especially those with complex rate plans. Cloud billing solutions are business accelerators for those working to provide cloud services. While suppliers will continue to work to monetize the computing and network assets that underpin the cloud services, it is the operational expertise of billing systems that will empower cloud service providers to deliver winning solutions to customers and prospective customers. Supporting pricing strategies is the most visible point of expertise in today's market. Communications service providers have a key role to play in such on-demand computing models as the network system. As cloud computing and SaaS players take a look at their own businesses, some vendors of communications service providers, like billing vendors, are also becoming clearly relevant. During the period, the emergence of complex relationships among cloud services providers will prompt a look at the operational systems to support wholesale/retail pricing models and revenue sharing. Many of the current suppliers of cloud billing are positioned to address such requirements but keeping in step with customer requirements and payment preferences will be essential. Filing Information: December 2009, IDC #221358, Volume: 1, Tab: Markets NGN Operations: Market Analysis

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3 I N T H I S S T U D Y M e t h o d o l o g y This forecast is a segment of the worldwide telecom billing forecast published in Worldwide OSS and Billing Forecast (IDC #220950, December 2009). This IDC study is based on 2008 and first-half 2009 vendor revenue, service providers' billing and revenue assurance spending patterns, and strategic shifts in the billing market. The dollar value presented in this study represents the spending on commercially available billing software licenses, outsourced billing services, and related systems integration of billing systems by network service providers and resellers of network services. The market sizing and these forecast figures exclude service providers' in-house billing projects and associated systems development costs. Revenue includes both new billing system sales and ongoing maintenance revenue derived from service providers' existing systems. The information in this IDC study is derived from primary sources, including vendor briefings and service provider interviews. The analysis also includes secondary information resources such as press releases, publicly available financial data, white papers, vendor Web sites, and IDC's related research material. The IDC telecom billing forecast covers multiple functions within the billing system, including mediation, rating, charging, settlement, retail billing, interconnect billing, prepaid billing, and charging for both PSTN- and IP-based network services. The telecom billing market size and forecast figures exclude revenue derived from payment gateways, directory services, clearing, roaming, taxation, and delivery (e.g., printing) fees. The revenue assurance solutions and services are addressed separately from the billing solutions. IDC's definitions of cloud services (consumer and business products, services, and solutions delivered and consumed in real time over the Internet) and related cloud research are the foundation of this document. IDC's definition of cloud services and related cloud research are fully discussed in Cloud Computing An IDC Update (IDC #TB , September 2009). Historical Market Values and Exchange Rates Historical market values presented here are as published in prior IDC documents based on the market taxonomies and current U.S. dollar exchange rates existing at the time the data was originally published. For markets other than the United States, these as-published values are therefore based on a different exchange rate each year. Please refer to IDC's regional research studies containing historical forecasts for multiple countries for more accurate regional growth in local currencies. Note that this discussion applies only to historical values prior to and all future years are forecast at a constant exchange rate IDC #

4 S I T U A T I O N O V E R V I E W As business operations of cloud and SaaS offerings have ramped up and matured during 2009, the requirement for billing methodologies and solutions has continued to emerge. Customers and prospective customers of cloud services value the payment model and the competitiveness of pricing offers, as IDC's survey research has shown (see Cloud Computing An IDC Update, IDC #TB , September 2009). To be able to respond to these customer interests, cloud service providers need the kind of billing system that fits with their business goals and operational capabilities. The telecommunications billing platforms are designed to allow for both the billing process and the customer care process. This is a significant attribute for young cloud computing infrastructures as much as it is for small telecommunications service providers, which may not be able to afford discrete customer care platform investments. Delivering reliable, acceptable bills for the use of a technology-based service is a hallmark of the telecommunications industry. Doing so in the context of shifting technologies is all the more important to both CIOs just stepping into cloud services and CIOs working to expand the deployment within their company. Adoption of cloud services is poised to meet buyer needs for flexibility. One strong driver of adoption is the need to provide a service that can meet the peaks and valleys of demand. This requirement is in step with telecom industry practices to design systems for peak busy hours. B i l l i n g T e c h n o l o g i e s Two billing technologies are increasingly relevant to the evolution of billing for cloud transactions: rating and enterprise telecom management. Rating At the heart of the billing system is a rating system that "rates" or puts a fee onto the transaction. The rating system in use within telecom SPs uses business rules and key contextual information about the call or data session to generate the amount to be charged to the end customer. Basic measures include when, how, where, and with what the call was made. For example, a fixed line subscriber calling a local number during weekend hours would typically be rated at a lower tariff rate than a roaming mobile user calling internationally during peak hours. Likewise, the kind of subscription prepaid, postpaid, business, or consumer suggests the kind of rate plan involved. These pieces of information are then put together with the rate plan for the specific customer to determine the actual charge. One hallmark of the telecom billing platform is the very high number and the complexity of the rate plans. In the early 2000s with the growth of the mobile industry, some billing implementations reached their limits and new services or rate plans could not be added. Since that time telecom billing platforms have matured further, through the understanding that support for high volumes of customized and combinational services is important to service providers. The flexibility of the rate plan in today's fixed, mobile, and 2 # IDC

5 broadband networks is typically due to the rating engine as well as the business processes of the service provider. Enterprise Telecommunications Management Another billing technology with potential use in cloud billing efforts lies within the enterprise telecommunications management requirements. ETM is not included in IDC's telecom billing research but is a related area of research. The ETM solutions, as detailed in Enterprise Telecommunications Management (IDC #206116, March 2007), are enterprise-class solutions for planning, procuring, deploying, and managing voice and high-speed data (including Internet-based) network infrastructures. Often referred to as chargeback, ETM is partly about managing the relationship with the telecom SP and partly about managing the enterprise's consumption of, usually, the voice service. The focus is usually on order management, bill reconciliation, and SLA compliance. Over 25 suppliers participate in the ETM marketplace, with those vendors, SPs, and consultancies offering ETM as a product and service. B i l l i n g C o m p l e x i t y As discussed above, subscription models and types of fee structures can make billing complex. As the discussions of cloud evolve, it is important to consider the ecosystem of the business, and therefore its billing system. Billing's Role in Brokering and Interrelationships From an operational point of view, the brokering process is a sophisticated mix of revenue maximization and information management. For cloud service providers and partners that are considering a means of enabling business partners and structuring the interrelationship of their solutions, billing needs to play a primary role, and communications industry solutions are well aligned for two particular reasons. First, a conversation to link two or more cloud services partners relies upon networked connectivity. At a minimum there will be a network data services charge associated with such a connection. It is also possible that the communications service provider will be providing additional services that will be billed for. In this case, including and working with the usually mature billing systems of the communications service provider is a natural part of the overall billing process. Second, the telecom experience is rich with real-time brokering work. Roaming is a particularly relevant example of real-time intercompany enablement of services, typically across national (and critically, taxation) borders. Examples of interconnection billing and settlement operations are also relevant, but are not as focused on realtime results. Based on the involvement of many cloud service providers with communications service providers for networked connections, the existing telecom billing models are appealing. More importantly, the long-term experience of communications service providers in price-based competition and complex pricing models and architecting operational and billing systems capable of supporting dynamic business goals for 2009 IDC #

6 pricing offers a similar and potentially useful model for cloud service providers to consider. F U T U R E O U T L O O K Overall the cloud billing market has a long way to go to become a standard type of investment decision and product offering. In 2009 we saw more real implementations and arrangements than expected, although small in scale. Key deals included wins by both telecom-based suppliers, such as Oracle and SAP's HighDeal, and SaaS/cloud focused players such as Aria. In , both billing suppliers and cloud/saas vendors will work opportunistically to drive billing for cloud and SaaS services, primarily on an as-needed basis. A key influence on the shape of the market is the embrace of cloud by the operations infrastructure consortium, TeleManagement Forum. Along with other industry associations, TMF's involvement is fueling a practical approach to define the operations of cloud and SaaS services. In doing so, the realities of cloud and SaaS implementations and operations are being positively influenced by the experiences of other industries, in this case communications service providers already experienced in dynamic subscription billing at scale. F o r e c a s t a n d A s s u m p t i o n s The telecom cloud billing market will reach $485 million in 2014, up by a compound annual growth rate of 78.5% from $15 million in Table 1 presents the key assumptions and Table 2 presents the market size and forecast, as a percentage of the total telecom billing market. 4 # IDC

7 T A B L E 1 K e y F o r e c a s t A s s u m p t i o n s f o r t h e W o r l d w i d e T e l e c o m C l o u d B i l l i n g M a r k e t, Market Force IDC Assumption Impact Accelerator/ Inhibitor/ Neutral Certainty of Assumption Macroeconomics Service provider investment SPs are investing in back-office systems to fully monetize their communications and computing assets. High. Billing systems capabilities are being extended to computing as well as content, applications, and networks. Market characteristics Next-generation applications and services Telecom service providers will upgrade their billing systems to support their next-generation network applications and services. Moderate. Telecom service providers and cloud providers will drive common enhancements to billing for next-generation applications and services Customer-centric focus Business customers will demand billing cycles and attributes to suit their business processes. High. This will require billing systems that can support flexible billing and rating. Mobile As mobile penetration begins to slow in many markets, service providers are looking to increase their ARPU through new data and content services. High. Mobile service providers will require highly flexible rating and charging systems, including support for business computing applications. Market ecosystem In-house solutions Some service providers, particularly early stage cloud and SaaS players, will prefer the price point and simplicity of spreadsheets or in-house solutions but will ultimately tire of the maintenance costs and operations burden. High. The nascent cloud billing requirements will pass through a period of trial and error and shift to commercial billing platforms during the forecast period IDC #

8 T A B L E 1 K e y F o r e c a s t A s s u m p t i o n s f o r t h e W o r l d w i d e T e l e c o m C l o u d B i l l i n g M a r k e t, Market Force IDC Assumption Impact Accelerator/ Inhibitor/ Neutral Certainty of Assumption Operational focus Cloud and SaaS players will delay investments in billing, along with other business operations systems, until they feel their business can bear the cost of such investments. Moderate. Inefficiency in operations will affect the competitiveness of the cloud and SaaS vendors over the long term, while greater efficiency will drive larger billing projects when investments begin. Subscription model billing Billing will be based on usage within a subscription relationship as well as a complex set of rating models and business rules for resource consumption. Moderate. Sophisticated, proven billing solutions will be significantly more attractive than simplistic solutions, in part due to vendor packaging flexibility. Legend: very low, low, moderate, high, very high Source: IDC, 2009 T A B L E 2 W o r l d w i d e T e l e c o m C l o u d B i l l i n g R e v e n u e, CAGR (%) Revenue ($M) Growth (%) NA Share of telecom billing market (%) Note: See Table 1 for key forecast assumptions. Source: IDC, 2009 Over the long term, cloud billing will become a key competence of the communications service providers, which, along with their suppliers, will partner with both enterprises and IT industry vendors to enable cloud services and infrastructure. Accordingly, we have projected the market compound annual growth rate to be 63.1% for the period. The cloud billing market as a percentage of the overall telecom billing market remains very small (refer back to Table 2). Cloud will remain a 6 # IDC

9 small portion of the overall spend on telecom billing solutions, growing from 0.3% of 2008 telecom billing spend to 7.5% of 2014 telecom billing spend in this forecast. M a r k e t C o n t e x t At a CAGR of 63.1% (see Table 3 and Figure 1), the current forecast for growth (though slightly higher) is in line with the previous cloud billing growth forecast (see Worldwide Telecom Cloud Billing Forecast, IDC #217313, May 2009). IDC is predicting that cloud vendors will invest in billing systems as a way to support flexibility in service offerings and internal operations. However, the market is characterized by relatively fewer, larger deals, while the later period of includes spending by medium-sized players as well as large cloud players. Overall, the relatively small size of the market at this stage means that the forecast update is very modest in real numbers IDC #

10 T A B L E 3 W o r l d w i d e T e l e c o m C l o u d B i l l i n g R e v e n u e, : C o m p a r i s o n o f M a y a n d D e c e m b e r F o r e c a s t s ( $ M ) CAGR (%) CAGR (%) December 2009 forecast Growth (%) NA May 2009 forecast NA 87.8 Growth (%) NA NA Notes: See Worldwide Telecom Cloud Billing Forecast (IDC #217313, May 2009) for prior forecast. Historical market values presented here are as published in prior IDC documents based on the market taxonomies and current U.S. dollar exchange rates existing at the time the data was originally published. For more details, see the Methodology in the In This Study section. Source: IDC, 2009 F I G U R E 1 W o r l d w i d e T e l e c o m C l o u d B i l l i n g R e v e n u e, : C o m p a r i s o n o f M a y a n d D e c e m b e r F o r e c a s t s ($M) December 2009 forecast May 2009 forecast Source: IDC, # IDC

11 E S S E N T I A L G U I D A N C E The cloud billing market is evolving rapidly. Billing is a critical attribute and operational system for cloud service providers. From the initial phase of subscription-based billing models in 2009, the discussion is turning firmly toward operational processes for complex supplier relationships as well as pricing flexibility. The technology intensity of cloud service providers remains similar to that of the communications service providers. Likewise, the system scalability and subscriber numbers continue to suggest that cloud services operations will be most in step with the operations of communications services. But communications is sometimes understood as a component of a cloud service. In this context, the billing challenge applies to both infrastructure relations and business operations. On looking ahead to early 2010, the deals to supply billing systems to cloud service providers are set to remain dominated by suppliers from the communications industry. We do not expect this to change significantly during the forecast period. The operational expertise to monetize technology assets as part of a service to business and consumers is a core expertise of the communications industry. With the arrival of cloud computing and SaaS, the IT industry and its customers are becoming aware of the benefits of a long-term relationship with their users and customers for the supply of computing services. Related systems for product catalog management, customer care, and service creation will emerge during the forecast period. Cloud billing solutions are business accelerators for those working to provide cloud services. While suppliers will continue to work to monetize the computing and network assets that underpin the cloud services, it is the operational expertise of billing systems that will empower cloud service providers to deliver winning solutions to customers and prospective customers. Supporting pricing strategies is the most visible point of expertise in today's market. A key billing challenge for partners of cloud service providers, as well as cloud service providers themselves, is mobility. For the communications service providers that sell mobile services today, communications services are a separate sale. But, as mobility and, potentially, other services are associated cloud services, the value of the connectivity will become a pricing and billing challenge for industry players. Keeping in step with customer requirements and payment preferences will be essential. The vendors of newer billing systems continue to show flexibility in data management and implementations. While the low end market competition from payment gateway providers, which lack billing engines, will prompt customers to focus on the price of billing systems, the business value in terms of customer satisfaction will continue to distinguish the heart of the cloud billing community. Just as few successful communications service providers have retained simplistic billing systems, so too we believe will committed cloud service providers increasingly value operational and business process expertise over financial transaction technology IDC #

12 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 OSS and Billing Forecast (IDC #220950, December 2009) Managing and Securing Information In the Cloud: IDC Cloud Computing Forum (IDC #220690, November 2009) Cloud Computing An IDC Update (IDC #TB , September 2009) Worldwide Telecom Cloud Billing Forecast (IDC #217313, May 2009) D e f i n i t i o n s Billing is the processing and compiling of charges and the enabling of revenue collection for network usage, feature transactions, and access charges of the services. Most subprocesses are included in the monolithic billing systems, but adjunct functional markets include billing mediation and rating. The billing processes include bill data mediation, rating, interconnect and partner management, postpaid and prepaid invoicing, and revenue assurance. Services such as bill printing and mailing are not included in this definition. Rating is the process of calculating the charge for an individual call, IP event, and/or transaction by measuring usage records generated by network elements and/or mediation systems. The main functions performed by rating engines include charging based on predetermined service pricing rules, application of discounts, treatment of rebates (e.g., for service-level agreements [SLAs]), addition of promotions, identification of fraudulent usage, and processing of incomplete call detail records (CDRs). Mediation is the process by which network usage data is collected, validated, aggregated, corrected, and converted into (billable) business statistics. Even though the most common application of mediation information remains retail and wholesale billing, mediation output can feed other downstream support systems, including fraud management, traffic management, churn management, and customer care. Settlement processes cover intercarrier partner agreements, operator/partner invoicing, and carrier-to-carrier accounting. Revenue assurance solutions are offered in both retail and wholesale telecom services. Revenue leakage problems exist in both PSTN-based and IP-based networks even though pure IP-based solutions currently represent a very small portion of the market. For example, carrier access billing systems (CABSs) for intercarrier billing require revenue assurance as does the enterprise bill for telecom services. Statistical tools, revenue enhancement solutions, and specific software platforms for call testing and fraud detection may be included in products, features, or services. The revenue assurance market excludes a large portion of SP bad debt write-off cases or revenue leakage sources, which are not related to telecom service usage, provisioning system failures, network abuse, and/or fraud. One example falling 10 # IDC

13 into this category is telecom service users intentionally not paying their debts to SPs. Moreover, IDC generally excludes organizational opportunity costs and nonoperational errors occurring in other functions such as sales and marketing. Churn management is also not a part of our analysis because customer churn may be associated with other nonleakage-related factors such as consumer confidence, service pricing, bundling, and competition. S y n o p s i s This IDC study presents the worldwide market size and forecast for telecom cloud billing, which is a segment of the telecom billing market. It assesses the suitability of telecom billing solutions for nascent cloud requirements as well as customer and vendor interests in addressing cloud billing requirements from the telecom billing context. "Over the long term, cloud billing will become a key competence of the communications service providers, which, along with their suppliers, will partner with both enterprises and IT industry vendors to enable cloud services and infrastructure," says Elisabeth Rainge, director, NGN Operations at IDC. 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 2009 IDC. Reproduction is forbidden unless authorized. All rights reserved IDC #