Today, we rarely disconnect from the digital world — there are currently more active mobile devices, including smartphones, feature phones, tablets, and hotspots, than there are people in the United States, according to the CTIA.1 At work, school, and home, online connectivity is ubiquitous and our mobile devices never seem to leave our hands. Away from the office? The office comes to you with emails and enterprise applications easily accessible on a phone or tablet. Need to share a critical document with your colleagues? Access your enterprise environment to post the document and send a notification from any device or location. Not sure who was president in 1834? A quick smartphone search instantly finds the answer. Delayed at the airport? Download a game to pass the time while receiving flight updates via text.
These are the conveniences consumers have come to expect, and businesses must evolve — and in many instances are evolving — to keep up with this new digital lifestyle. Digitized delivery of assets creating recurring revenue and subscription-based services are becoming the norm. From offering streaming music instead of CDs or distributing a TV show via Hulu instead of partnering with a cable network, to offering a cloud-based software service instead of shipping a boxed CD-ROM.
Digital delivery, however, raises many new questions and challenges — primarily, how do companies maintain customer visibility, as well as financial and regulatory compliance? For example, if a customer downloads a digital asset or service, which state or country is owed taxes — the buyer’s billing location, where the buyer pays for the purchased good, or the location the good is being used? Real-time visibility of your customer is another example. Do you have the capability to view and record the real time usage of a service your customer has consumed or access the status of revenue recognition, which is critical for generally accepted accounting principles (GAAP) compliance?
It can be extremely expensive and difficult for companies with transaction-based billing systems to add new, flexible functionality to enable discounting — particularly on bundled goods and services — rerating, rebilling, corrective invoicing, and proactive data limit notifications. This complexity can significantly impact customer experience and brand perception, while limiting companies’ ability to create new and recurring revenue streams.
Further, financial compliance issues related to GAAP and Sarbanes-Oxley have driven some of the most expensive challenges for enterprises. Millions in fines have been levied against companies that have been unable to match physical locations to online accounts used to buy goods and services. Old models dictated that sellers shipped goods to a physical location and based taxes on that address. More transient mobile devices, however, make this process more difficult.
But the biggest challenge facing business is the impact the digital revolution has on revenue. Start-ups have clear direction and a path to build a subscription-based business, while most traditional businesses are often replacing existing revenues with new assets and a new subscription-based business model. The digital versions of physical goods do not automatically pack the same punch to the bottom line, largely because the tried-and-true business models are not necessarily optimized for the digital market. Fortunately, advances in cloud technology provide traditional businesses with the means to modernize and monetize products and offerings to meet consumers’ digital lifestyle demands.
New Business Models, New Billing Paradigms
Purpose-built cloud billing services enable enterprises that offer digital services — from financial services and high tech organizations to media and entertainment providers — to rapidly deploy a comprehensive revenue management system with predictable monthly operational costs and minimal capital expenses.
A flexible cloud billing solution facilitates rapid creation and validation of new products, bundles, and offers, helping to make it fast, simple, and low-cost to define new products and make post-launch adjustments to offerings. It can also offer robust functionality to support globalization of digital commerce across new and existing lines of business from both a technology and regulatory compliance perspective. A streamlined functionality for tax computation and financial accounting — either via built-in support or easy integration with third-party tools — can help ensure businesses comply with local regulations and do not risk high fines and fees.
The biggest benefit of a cloud billing solution built for the new digital lifestyle is that it will not limit innovation — enterprises will have rich and comprehensive support for billing and invoicing functions, including trial offers, rebilling, bill corrections, and flexible bill cycles. The capability to measure and bill customers for their service usage across multiple metrics — such as volume, time, transactions, events, and downloads — becomes critical in this new world.
A Cross-Industry Conundrum
Customers are demanding the power to purchase the products that they want, when they want them, at a price point that they can afford. This leads to a marketplace with a massive increase in the complexity of product mixes. While companies should encourage consumer uptake, they must make sure they can grow revenue as they grow demand.
Unfortunately, this transition is not as simple as shifting a product to a digital format. Monetization is the key to any business, and, as many newspapers and Blockbuster have demonstrated, the old revenue models simply will not work. Therefore, as companies shift goods to a digital format, they must develop a billing and revenue management model to support the new consumption medium. In short, to optimize the new digital business model — reduce cost of goods sold, simplify product delivery, and grow revenue — while also remaining competitive, businesses must manage and monetize increasingly complex service and subscription bundles.
Companies across various industries are already taking steps in this direction. The print industry is moving to digital content with freemium and paywall models — readers can view a set amount of articles for free, but then are required to pay for a subscription to continue viewing content or unlocking more in-depth content. The music industry, for example, has two main models: the pay-per-song model offered by Amazon and iTunes, or the free streaming model deployed by companies such as Pandora and Spotify. In the latter, content is free to stream, as long as you are willing to listen to ads, while a monthly subscription fee gives you a more comprehensive platform with an ad-free experience.
In gaming, the revenue model becomes a bit more complex, as consumers can use real dollars to buy virtual goods, or even virtual dollars to buy real goods. Even science is not immune from the digital world, as thousands of clinical trials run through the cloud to help create efficiencies and better capture data.
These new digital business models are often cloud-based and are becoming increasingly common, as they provide the flexibility to manage the more sophisticated revenue streams associated with digital goods. In many cases, traditional transaction-based billing systems — even those re-positioned in the cloud to support more real-time digital service billing demands — are just not equipped to handle the complexity driven by today’s digital lifestyles.
It is very challenging to offer more sophisticated billing options with these older transaction-based systems because the capability to measure and discount across digital assets or a combination of digital and physical assets would require a great deal of customization, making new offer creation cumbersome and time-consuming. Further, they are not built to support subscription commerce’s new billing and accounting paradigms, meaning businesses that stick with the old model for their new lines of business could limit their product innovation and opportunity to spur competitive advantage.
Businesses must stop extending existing systems to complete tasks they were not built to support. Instead, they should implement a flexible and functional cloud billing solution that is specifically designed to implement new and complex billing models through simple system configuration instead of custom coding. It is also important that any cloud billing system selected offers the functionality and interoperability to work seamlessly with existing transactional systems — so that companies can protect the extensive investments they have already made in older systems and avoid cost-prohibitive “rip and replace” scenarios.
The possibilities are endless, and innovation is not limited by complex coding or technology that cannot be easily upgraded to take advantage of the latest trends and consumer demands. As the digital age evolves, intrepid enterprises will position themselves to move beyond the tried and true business models and embrace the cloud to innovate and monetize the next wave of goods and services.
- CTIA. U.S. Wireless Quick Facts. http://www.ctia.org/advocacy/research/index.cfm/aid/10323.