Guest Post: How can CSPs become Cloud Services Brokers?
Following on from our EMEA brainstorm findings that telcos can increase cloud revenues nine-fold by 2014, Verecloud describe the benefits of the ‘cloud services brokerage model’ aggregating and integrating ICT solutions and bundling them with traditional telecoms services for enterprise customers. This is a guest post by Bill Perkins, CTO, Verecloud.
Communication Service Providers (CSPs) have a significant investment in their network infrastructure and Operations Support Systems (OSS)/Business Support Systems (BSS). This investment of billions of dollars is seen as the key asset of the CSP and their strategies are primarily focused monetizing this asset. Examples of these strategies include special pricing in market areas where the network is under-utilized, and wholesale arrangements to increase network utilization by “white-labeling” the assets in a mobile virtual network operator model (MVNO).
While monetizing the network assets is an important part of a CSP revenue strategy, it is not a strong growth strategy because network connectivity is being commoditized. The CSP’s greatest asset is their customer base. Growth strategies must start with monetizing the customer. This includes strategies focused on increasing the average revenue per user (ARPU), reducing churn and providing complete solutions that address all of the information and communication technology (ICT) needs of their customers.
According to Gartner, the single biggest revenue opportunity for CSPs is as a Cloud Service Brokerage.
This concept is beyond product bundles, it is creating an aggregation and integration of ICT solutions from a single source. The cloud application marketplace is loaded with solutions, creating confusion and challenges for the cloud service providers and consumers alike. The CSP is in a unique position to act as the trusted technology intermediary to broker cloud services to their channel segments with solutions that are simple to understand and use, integrated and centrally managed. It is only a matter of time before the majority of cloud services move to the brokerage model. It is a matter of strategy for the CSPs to monetize the opportunity.
The Problem with Trying to Monetize the Network
CSPs are in the middle of a perfect storm. The business performance pressures are increasing and the attacks on their business model are coming from multiple fronts. The industry expects a 25% reduction in ARPU by 2014 in traditional telecom services. This reduction in revenue coincides with a huge increase in data demand. The forecast calls for more than 1 trillion connected devices, each with high data throughput requirements. This explosion of bandwidth consumption combined with a reduction of ARPU creates a large reduction in the price that is chargeable to the customer per unit of data traffic. This represents a strong erosion of the traditional business model of CSPs: charging for moving bits around.
It’s easy to realize that an industry with 25% reduced ARPU, and reduced price per unit has to have cost reductions to keep pace with the cost of delivering its goods, or re-invent itself and change its ARPU and price per unit equation. The re-invention of the CSP business model must include a fundamental shift in thinking towards monetizing the customer.
This fundamental shift in thinking towards monetizing the customer is not new to telecommunications companies. Increased competition and churn of the customer base has forced CSPs to re-focus on the customer experience. However this is only a portion of the approach that is needed to monetize the customer. It fails to focus on all the possible solutions that a CSP could offer that are not inside their current operations environment, but are within their distribution environment - the internet. The best examples of these new revenue opportunities are cloud services.
What is a Revenue Strategy of Monetizing the Customer?
Monetizing the customer is not upselling. It is simply using the trusted intermediary status of the CSP to provide the ability to integrate services the customer already wants.
Monetizing the customer is a strategy that recognizes three key assertions:
- 1. The customer is the key asset of a CSP, and managing the customer experience is a key business process.
- 2. SMB customers are spending an exponentially-increasing amount of money on services that utilize the networks provided by the CSP, and less money on the services provided by the CSP.
- a. XaaS revenue is growing
- b. CSP ARPU is decreasing
- 3. CSPs should sell their customers what they need and become better long-term partners.
Businesses currently follow the model in Figure 1, where they consume many different types of services in different ways from many different types of vendors, VARS, and, providers. This fragmentation in cloud services delivery for small businesses is an opportunity for CSPs to act as a trusted provider by brokering all of the voice, data, and cloud services.
What is the CSP response to the Gartner Research?
CSPs are looking to increase ARPU and reduce churn now. Looking back on the last decade, we see many companies selling other services to increase the stickiness of their customers through strategic partnerships and reseller agreements. Voice and data services are bundled with video or network security services provided by another vendor, but the support and billing relationship is managed by the CSP.
Given this example, and many similar examples of packaging and bundling services, why are CSPs slow to bring on the bevy of cloud services that are being purchased by their customers? The industry average for adding a new telecom service is 12 months and greater than $10M US. The number of cloud services available to the broad market and to niche markets is exploding. Considering the historical cost to on-board and operationalize a new service, it is no wonder CSPs are slow to jump on board. This is due to both the cost and internal difficulties in determining the demand and ROI of any particular cloud service.
How can a CSP become a cloud service broker?
Becoming a cloud service brokerage, and bundling those services with their existing traditional telecom services has many advantages. One of the main benefits is service velocity, as XaaS services (Software-as-a-Service, Infrastructure-as-a-Service, etc.) can be on-boarded for pricing, fulfillment and billing in weeks, as opposed to the typical months-to-years timeframe. In addition, the costs to implement the services are dramatically reduced as well.
The Cloud Brokerage Model is good for the CSP’s customers as well. In addition to the convenience of receiving one bill for a variety of ICT solutions, businesses now have the ability to integrate these services. For example, their CRM solution can be integrated into their accounting software, where before middleware or other third party services and relationships were required.
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