Building The Business Case For Launching an App Store

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1 Building The Business Case For Launching an App Store Why Telcos and ISPs are perfectly positioned to become the SaaS channel for their SMB customers This paper is intended to help ISPs and Telcos realize the opportunity within their large customer base of Small and Medium Business (SMB) customers who are eager to move towards the Software as a Service (SaaS) IT model. First it examines the estimated adoption of SaaS and the reasons why Telcos and ISPs are perfectly positioned to become the channel for this opportunity within the SMB segment. It then explains the requirements and considerations with developing and launching an app store. copyright 2011

2 contents Introduction 3 Adoption Estimates 4 Maximizing Opportunity 5 The AppDirect Approach 7 Conclusion 8 References 8 Contact Information 9

3 introduction The adoption of Software as a Service (SaaS) continues to proliferate in Small and Medium Businesses (SMB) as they look for affordable solutions, rapid time-to-value, reduction of dependence on internal IT and global availability. In addition, cloud services reduce Capex, and provide an ability to match IT resources to real-life business needs. Cloud services are quickly evolving, offering Telcos and ISPs (from this point forward shortened to just Telcos ) a unique opportunity to deliver all types of new services, and going to market with creative bundling and packaging of these new services along with their traditional connectivity services. The current economic climate is forcing organizations to implement cost management initiatives, but which still allow them the flexibility to scale as business improves. Increased business efficiency, speed of deployment, and availability are the other driving factors for the increased adoption among organizations. Telcos are ripe to capitalize on this opportunity because they have the critical mass of SMB customers and a reputation for providing proven solutions that their customers require. In delivering cloud-based services, Telcos have an opportunity to extract two revenue streams from the same function. They can charge customers for the applications and at the same time for the bandwidth required to run them. The challenge for Telcos is that they are already behind. This is why they have to find fast and easy to deploy solutions in the exploding cloud services sector to seize the opportunity to gain new revenue streams in value added services. In the end, Telcos will likely decide that the best path forward is to work with partners to create a portfolio of service offerings. They need to find the right partners with which to work to create a mutually beneficial model and a service offering that will enable them to meet the new demands of their SMB customers. While they love the model, the challenge for many SMB customers is they aren t sure which SaaS applications are the right ones and they don t want to manage separate business relationships with each SaaS vendor. Security is one of the greatest challenges hampering cloud services adoption. Organizations are also concerned with the service providers ability to deliver consistent performance and application availability over the cloud and developing satisfactory service-level agreements (SLAs) for the services offered. This paper will provide detail on the size and scope of the SaaS opportunity within the SMB segment and suggest a strategy for the best way for Telcos to build significant new recurring revenue quickly, at the lowest cost and the least risk.

4 adoption estimates For the purposes of this paper, cloud services means that the organization subscribes to the software or service and typically pays for each employee who uses it. The software is hosted and managed by a hosting company or the Independent Software Vendor (ISV). The customer accesses the software online, either through a web browser or desktop access software (e.g. Outlook). Some cloud services may be free (e.g. Google Docs). Adoption Estimates 74% of SMBs plan to use at least one cloud service (paid or free) in 3 years an increase of 12% 39% of SMBs with employees expect to be paying for cloud services within three years an increase of 34% (n = 3258) SMB Cloud Adoption Study Global Report, Microsoft Edge Strategies, Dec Where Will SMBs Buy? 82% of SMBs think it is either critical or important to buy from a local provider (n = 3258). Buying from a provider with local personnel is important to most companies and critical for about 25% of companies. SMB Cloud Adoption Study Global Report, Microsoft Edge Strategies, Dec SMBs who say that local presence is important or critical are more likely to adopt paid cloud services than those who say it s not important.

5 maximizing the opportunity Now we know that the market opportunity is big and growing and that SMB customers prefer to purchase from what they see as a local provider. What are the major considerations a Telco should be thinking about with respect to this opportunity? The remainder of this paper will examine the things that a Telco needs to consider when building, launching and managing a successful app store. One of the most challenging and strategic decisions Telcos need to make is the selection of the actual applications offered in the store. It is extremely difficult to figure out which applications are robust, valuable and properly integrated with other applications that SMB customers want and need. The ultimate success of any app store depends on the quality of the applications and the Telco s endorsement that they are right for their customer. Each SaaS application requires a business relationship with the SaaS vendor to negotiate contracts, reseller agreements, etc. The effort required to engage each of the application vendors in successful partnerships is very time consuming and detracts from the effort to market and promote the store. The platform itself is a critical component of a successful app store because it provides the framework for all the interaction that SMB customers have with the store. The Telco needs to provide a platform from which their SMB customers can directly purchase the applications and a launch point for access and integration between applications. It must provide access to those applications on the mobile device of choice through the web. It must be completely secure and include things like Single SignOn (SSO) so the customer experience is as seamless as possible and so the Telco can maintain control of its customers rather than sending them off to other vendors. The store needs to control access to all the applications and needs to allow the customer to easily add, change or delete access to the applications within the store. Finally the app store needs to aggregate all the billing information and provide a single unified bill to each customer. While users of multiple applications greatly benefit from SSO, it also provides a valuable benefit to the Telco. By providing a single point for a user to access all their applications through a platform, they can control their customers by keeping them in their walled garden when they are accessing their apps. This approach not only creates more control, but also a place to market other applications and add-on services, thereby ensuring customers rely on their Telco for more value added services rather than going to each SaaS vendor s site to manage the service. The same value the Telco gets from having all the apps aggregated into one app store is realized by their SMB customers as well. The key objective should be to monetize the customers attention by providing all the services they need in one place. The app store must also control the access to the applications purchased by the Telco s customers. Customers must be able to add or delete users for a single application or a suite of applications with just the click of a button. It is also important that SMB customers are able to segment users roles and be able to control access to applications by role or by group. In addition to controlling the access of specific applications, the app store must be able to manage subscriptions, which becomes more and more difficult as the number of applications continues to increase. The key is to get the right products to the right users within the Telco s customers. The app store must provide the ability for SMB customers to create accounts and make purchases for subscriptions from within the store. In addition to facilitating the purchase of applications directly, the platform must aggregate information to allow the Telco to make informed decisions about how to improve the app store over time. The Telco needs visibility to metrics such as churn and Monthly Recurring Revenue (MRR) in order to assess the health of the business and manage it effectively. This data also provides the foundation for customer segmentation and an understanding about where to apply resources to manage scalability and growth. The Telco can provide a recommendation engine that allows their small and medium business customers to see relevant apps based on their demographic data as well as billing data. One of the huge advantages that an app store platform provider has is the information about customer traffic and purchase history data. The platform should be able to organize this data and present it in a digestible and actionable manner to the right audiences. Billing is obviously a critical function within any app store as it is the mechanism that the Telco uses to monetize the service. Developing and maintaining the moving parts of an e-commerce infrastructure is time-consuming and expensive. What s more, it is important that the billing functionality be integrated into the platform rather than being a separate service that the Telco has to bolt in. Billing should also be comprehensive and flexible enough to allow for any bundle the Telco chooses to create including bundles of applications with traditional services. The billing engine needs to be able to integrate with the existing customer billing engine if that is seen as necessary and important. The app store must be able to handle all the varying billing models (per user, per use, etc.). In addition, it must be able to deal with the dynamic environment of a SaaS offering including things like overage charges, adding/deleting users, etc. In short, the platform needs to make it simple and fast to offer subscription-based services and provide an easy-to-use system with a nice user interface and thorough analytics. Today s app store must be able to accommodate the ubiquity of devices that users leverage to consume applications. Whether the user wants to leverage a smart phone, tablet, laptop or desktop PC, the platform must support these devices and deliver the applications anywhere in the world at any time. The platform should be a conduit to the applications, rather than the applications being tied to specific devices. This allows the Telco to provide the ability for the applications to be available via the web on all the devices that are popular with their customers and many users may have several devices they use in different situations. The user should be able to leverage a laptop, tablet and smart phone, with access to the app store and their suite of applications in a format that is appropriate for each device. >

6 Maximizing the Opportunity (continued) SMB customers are nervous about business-critical and sensitive information sitting in the cloud outside of the company firewalls because it increases the vulnerability of their organization. The app store needs to address this issue head on and ensure there are processes to increase security of their services and minimize risk. The following survey sponsored by Microsoft shows that security remains an important decision-making factor. Trying to tackle the security issue internally is a huge technical hurdle for most companies. Historically user names and passwords have been stored within the app store which makes them a target for phishing attacks and security breaches. The Telco needs to be able to control access to specific applications through an intuitive interface without storing application level passwords. The app store also needs to be able to handle the transactions for application purchases. PCI compliance is a complicated, expensive and critical requirement for an app store that is responsible for credit card transactions. Another important consideration in delivering a viable app store is understanding how to create and meet all the necessary Service Level Agreements (SLAs). Telcos must perform diligence on the application providers to ensure that the application architecture and delivery is sufficient to meet performance requirements. An SMB customer doesn t really care whether the whole system is available. What they care about is whether they can use the system or not. This is because many service SLAs are technology-centric rather than business-centric or process-centric. The SLAs need to be constructed with the customer s perspective in mind. In addition, Telcos must monitor the connection between the various application vendors and the platform itself. Telcos that plan on handling billing and provisioning for the applications offered on their app store must ensure those functions are operational so that customers can make changes as necessary and so that the Telco can invoice its customers in a timely manner. If there are problems, the Telco must be able to quickly recognize them and provide the necessary operational support to fix them. This will enable the Telco to meet the uptime requirements of their customers. Concerns about adopting cloud applications? Perceived lack of control over applications and data is the top concern regarding cloud services. SMB Cloud Adoption Study Global Report, Microsoft Edge Strategies, Dec The last S in SaaS is Service and support is a crucial component of any service offering. In fact, support often means the difference between customer retention and churn. Unfortunately most Telcos do not know enough about providing support for an app store to be able to ensure success. Trying to provide support can also be a huge distraction from the effort of building their core business. Telcos need to be able to respond to questions, concerns, and problems from users on everything from implementation to payment processing. Many Telcos are simply not capable of providing this support so they need to identify a partner who can deliver the best possible support. This list highlights many areas that are critical to the success of launching and delivering an app store, but at the same time are often very difficult for a company to provide in-house based on lack of expertise and resources. A final area of importance is the effort and expertise necessary to market the app store. As discussed in the support section above, the focus needs to be on the service and not just the applications offered. The app store needs to be a complete offering that integrates all the important components including application provisioning, user management, subscription management, billing, integration, etc. Telcos should promote the entire end-to-end customer experience. By focusing on the customer, Telcos can explain how an integrated suite of applications will make the SMB customers more productive with lower cost than alternative strategies.

7 the AppDirect approach AppDirect, a San Francisco-based company, has developed an alternative approach for Telcos looking to launch an app store to provide SaaS applications to their customers. Using a Marketplace-as-a-Service (MaaS) business model, AppDirect has taken the cost and time associated with portal and delivery platform development, helpdesk staffing/training and app syndication and transformed them into a MaaS. This allows Telcos to immediately leverage the benefits of cloud computing internally. The AppDirect model allows Telcos to go to market quickly with a high-end customer portal and delivery platform that can be branded to suit the unique needs of the Telco. The AppDirect marketplace solution also includes a syndication process, which means that Telcos can launch their branded site with a large and growing selection of the most popular cloud applications on day one, rather than spending 12 to 24 months building up their application inventory on their own. Telcos benefit from a branded website with state-of-the-art user functionality and administration features. As a MaaS solution, ISPs pay monthly for the service no Capex investment is required. Costs are 70-90% variable based on success. The AppDirect marketplace features state-of-the-art functionality for the best user and admin experience possible. AppDirect provides a consistent template for each app developer to ensure application descriptions, pricing, free trials, fact sheets, videos and comparisons are all consistent for the Telco s store. In addition, each ISP marketplace comes equipped with a feedback engine to allow users to rate and comment on apps they have purchased within publishing guidelines defined by the Telco. Probably the most important aspects of the AppDirect MaaS model is the payment structure. Like other cloud computing services, the AppDirect marketplace has a monthly licensing fee schedule. There are no upfront Capex costs as there is no development work on the part of the Telco. Better still, the costs to run the marketplace are variable based on user and subscription volume. Costs to the ISP remain relatively low should marketplace transaction volume take longer to ramp up than forecast. Because syndication is included in the AppDirect solution, a minimal number of marketing staff are required. This allows Telcos to stay focused on generating traffic and sales rather than interfacing with SaaS vendors. The monthly model not only reduces project risk but facilitates faster implementation as it allows product management to avoid the traditionally lengthy capital governance process typical at most Telcos.

8 conclusion Small and medium business are adopting cloud services and more specifically migrating to the SaaS model because it provides more direct value for their investment. At the same time SMBs are looking for a trusted partner to help select the right suite of applications for their business and to help support them as they migrate to this new model. Telcos are perfectly positioned to become the channel for SaaS applications because of their existing customer base and the long-term relationships they have with those customers. Telcos are in the best position to offer the value added services in addition to their traditional services their customers buy today. The challenge is that most Telcos do not have the resources or expertise to successfully build a business around this opportunity on their own. Everything from selecting the right applications, providing a robust and secure platform for handling user management, subscriptions, billing and SLA management are reasons why Telcos need to find a partner to help them succeed. What they need is a partner with a proven history of success, who understands these challenges and has a platform that allows them to quickly deliver an app store that includes the right portfolio of applications with all the security, user management, functionality and support required. references 1) SMB Cloud Adoption Study Global Report, Microsoft, Edge Strategies, Dec ) Small Businesses Ride the Cloud: SMB Cloud Watch, Cisco, Feb ) IDC Technology Assessment, Cloud Services/SaaS: What Telcos Are Doing, Aug. 2009

9 For more information on how AppDirect can help you launch a successful app store, please contact us: corporate headquarters 650 California Street, Floor 4 San Francisco, CA (877)

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