Having read the recent article on new business for transformed telcos by my colleague Fergus O’Reilly, chief solution expert, Consume to Cash, SAP, I was interested in hearing more. So I sat down with him to learn more about consume to cash solutions and why telcos can be exemplary of business transformation across many different industries. I also learned why product-based businesses are increasingly moving to become service businesses, and the importance of direct customer relationships, flexible pricing models and running multi-sided markets.
You work in the SAP Consume to Cash group. Could you let us know what consume to cash means and what your role is within the organization?
I work as solution owner for our Consume to Cash solutions across different industries. Consume to Cash is what we at SAP call the set of business processes that allow companies to charge, bill, collect payment and share revenue for services delivered to customers. These business processes are very familiar to companies like telecoms operators who provide communications services to consumers and businesses and have to aggregate all those calls, texts and Internet activity onto a single bill or prepaid account for their subscribers.
Increasingly many traditional product-based manufacturers are also starting to offer value-added connected services. In today’s hyper-connected world, smart devices such as smartphones, tablets, connected cars, office equipment, industrial machinery and consumer electronics now come with Internet connectivity. This allows manufacturers to deliver and charge for services directly to the end customer and over the entire life cycle of the product. This is often called the move into “XaaS” or “anything as a service.” So selling a product is no longer just a single revenue opportunity, instead it opens the door to recurring subscriptions and usage-based revenues over time.
You have just published an article on telcos as exemplars of business transformation and their opportunity to extend their business models accordingly. Can you share some of the key aspects of the article?
Telecoms operators have gone through a lot of change in a short period of time. Twenty or 30 years ago telecoms made the majority of their revenues from a single service: selling voice calling on fixed landline phones in our homes and offices. Since then, operators have added many new services for many more subscribers, notably getting Internet access and mobile phones into the hands of about three quarters of the world’s population. They have also gotten into the business of reselling content such as music and filmed entertainment from media companies and distributing smartphone applications from third-party developers.
In the process, they have transformed how they manage, operate and measure their business. You simply cannot successfully go through such rapid change without evolving your processes, people and systems. Telecoms are constantly trying to improve their nimbleness and automated operations for processes such as new service introduction, service delivery, customer management, billing and analytics. And they are reliably running these processes 24×7 at massive scale for tens or hundreds of millions of customers.
Those within the telecoms industry will frequently berate themselves that they are not yet sufficiently nimble and automated. But they fail to give themselves credit for just how far they have come and how they are now starting to be seen as a model for other industries.
This leads to the opportunity for telecoms: today they run these business processes for their own internal business needs, tomorrow they can run them on behalf of companies in other industries who need to launch new services, manage direct customers, bill them and analyze their behavior. This fits perfectly with the move to on demand and cloud-based operations that we are seeing across the IT landscape and the larger telecoms operator groups see this opportunity and are starting to figure out how to go after it.
You mention that product-based businesses are moving to become a service business. What does that mean?
Let’s take a simple example: your TV set. In the past, consumers bought a new TV every five or 10 years. They bought the TV from a local retailer and had little direct relationship with the manufacturer.
Now TVs come with Internet connectivity. The manufacturer is now in the business of selling you entertainment with video and music downloads or streaming. You can also augment your TV with little applications or widgets that allow you to do things like get detailed player stats while watching a sports game, interact on social networks while watching your favorite shows, manage the TV viewing habits of your children, or control your home security and energy efficiency systems from your TV.
So you now have a direct relationship with the TV manufacturer, they have your credit card details on file or maybe they send you a bill at the end of the month.
Another example in the business world would be in the printing and document management industry. Manufacturers used to sell printers, copiers and supplies through distributors and resellers.
Now enterprise customers want to get a handle on their costs for document management and are turning to the manufacturers to deliver managed print services. Essentially the enterprise is asking the manufacturer to provide outsourced management of their on-site printers, copiers and scanners. The manufacturer will remotely monitor usage on each device, proactively order supplies and perform preventive maintenance. They can even examine usage patterns and recommend optimization of the infrastructure to lower energy usage costs. The business models for this can get very fine-grained with enterprise customers paying based on percentage toner coverage on a page.
Are industry customers prepared to transform their business?
If we think about the TV and printer manufacturer examples given above it is clear that traditional product manufacturers have a lot of learning to do before they will be successful in the new world of hyperconnected services.
Probably the most significant change is the direct and ongoing customer relationship that comes with a service-based business model. Any outage or hiccup in the service delivery or billing process will immediately have a negative impact on the provider’s brand. And because there is less up-front investment, the switching cost for services is lower than that for products. So customers can defect to the competition more easily.
This means that the customer management, service setup, delivery and billing processes must be rock-solid reliable. Companies must also be ready to digest and analyze the mountains of customer behavior data that they can see as they deliver direct services. And all these processes have to be designed to scale from small initial trial deployments up to tens of thousands of direct enterprise customers or hundreds of millions of direct consumers.
Second, the pricing model for services is more complex than that for products. Services are often sold in bundles with many options and cross-service discounts. And revenues can be realized when services are started, as they are used based on metered usage, with recurring subscription fees or with “freemium” models. This complexity exists because it allows offers and pricing to be rapidly tailored to different groups of customers to exploit shifting market opportunities.
Finally, it is our experience that service-based business models quickly evolve into so-called multi-sided business models where the service provider runs a marketplace for third-party providers who add value to the core service. The service provider bills the customer on their behalf and shares revenue with them. In the TV manufacturer example above, the manufacturer needs to share revenues with the media companies and the widget developers.
For a lot of industries who are just starting to launch hyperconnected services one or more of these three things are new challenges: direct customer relationships, flexible pricing models and running multi-sided markets.
How can SAP help customers to drive or enable business transformation? What role do SAP innovative technologies in the areas of in memory, mobility, analytics and on demand play within this context?
SAP has a long experience in helping companies transform themselves and their industries. We are the leader in delivering industry-specific solutions to dozens of different industries and in making connections across industry value chains to help each customer become a best run business. We know that when industries and business models transform then change needs to happen in people, processes and IT systems. Thus we have a broad-based value management program that can help customers structure and sequence their transformation, delivering incremental value at each step.
Our solutions for the Consume to Cash business process work within the overall portfolio of innovative on premise, on device and on demand solutions and technologies from SAP and take advantage of in-memory processing to ensure scaling from small to massive deployments while helping ensure low TCO.
Our customers frequently combine our Consume to Cash applications with our analytics solutions since it is essential to rapidly get a solid understanding of customer behavior and preference and use this to design new service offers and bundles.
We are also innovating in the area of on device mobility around Consume to Cash because we recognize the proliferation of smart devices as a huge opportunity to engage with customers in new ways and to enable for new forms of service monetization and smart commerce.
If you’re interested in learning more, read my recent article “Transformed telcos can build business as other enterprises face transformation” mentioned above and the IDC vendor spotlight “Gearing Up for Rapid Telecom Innovation with Flexible Billing and Services.”