Vanillaplus Cloud. Will csps maximise their potential?

CLOUD Will CSPs maximise their potential?

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Introduction loud computing delivers a range of networking and computing products to organisations and end-users on demand and as a service.

This can provide its users the strategic benefits of providing significant additional capabilities quickly and with relatively low commercial and operational commitments

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These products or services are usually billed on a peruser, per-month, or per service basis, such as by CPU or disk space consumed, and this model can make planning and budgeting a relatively simple exercise.

Generally cloud services have little or no upfront capital expenditure requirements and paying for cloud services becomes a monthly operational expense.

Various estimates put the total enterprise cloud market – serving both large corporates and SMBs – as worth around $67bn in 2014, and our analysis suggests that communication service providers (CSPs) in aggregate have a share of just over 12% or $8.9bn.

However, while the cloud market might seem an attractive proposition to CSPs, it is currently dominated by two kinds of player: the web giants, such as Amazon, Google, and Salesforce.com, and the big tech players such as Microsoft, IBM and HP. Some CSPs, such as BT, Colt and Verizon Business, have a legacy of fixed line services used by a large enterprise customer base, and have chosen to develop infrastructure-as-a-service (See CSP opportunities in infrastructure-as-a-service (IaaS) section) or hosting type solutions. This is taking them towards head-on competition with the big tech vendors and web giants that have significant scale advantages in data centre capacity and advanced IP, software and technologies.

Because of this dominance the major players are effectively setting the price points, and hence margins that can be achieved by these CSPs unless they can provide significant additional differentiation or value add.

Other CSPs, such as Telefónica, Vodafone, Singtel, Swisscom, Belgacom and Telenor, are more mobilebiased, with a legacy customer base of consumers and SMBs. This group of CSPs are largely pursuing a software-as-a-service (see CSP opportunities in software-as-a-service (SaaS) section) strategy, mostly as a syndication partner for Microsoft, or as resellers of other software suites such as Google Apps, Zoho and others. However, this is typically a low-margin business

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compared to their traditional voice and messaging businesses, although the more traditional revenue streams are in decline so CSPs must seek alternative sources of revenue and seek to add value by integrating their core services.

Defining cloud Cloud services are typified by the following characteristics: • • • • •

Opex based – typically there are no upfront costs Scalable – in theory there are infinite resources Volume-billed – CPU, disk space, per user pricing or some form of measured pricing model Multi-tenant/virtualised – usually delivered on shared hardware/platforms Cloud services are often subdivided into ‘X as a service’ (XaaS) where the most common values for X are software (SaaS), infrastructure (IaaS) and platform (PaaS – see CSP opportunities in platform-as-a-service (PaaS) section).

The author, Bob Brace, is senior analyst at Telco 2.0/STL Partners

Using such services allows enterprise customers to take advantage of economies of scale relating to power supply and backup, cooling, virtualisation, and network connectivity. Virtualisation, explained in the next section, is a key technology used by data centres hosting cloud services.

An example of a company successfully using cloud services is Netflix, a US-based provider of video-ondemand, which runs the whole of its web applications in Amazon’s EC2 cloud (Elastic Compute Cloud). This permits it to scale up the resources it needs as demand increases when the evening viewers come on line, and down again as traffic tails off overnight and only pay for the resources it needs while it is using them. It also, very importantly, permits Netflix to test, deploy, or rollback new features very easily – to start deploying a new feature, it only needs to specify the new software image through the Amazon Web Services (AWS) admin interface.

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Cloud technology and terminology primer Virtualisation: The key technology of the cloud

As well as permitting one physical computer to appear to be several computers (as in shared hosting or virtual private server products), virtualisation logically permits several physical computers linked by a local area network to appear to be a single computer with multiple processors. This is shown in Figure 2.

Figure 2: Hypervisor sharing physical resources over a LAN

Source: STL Partners/Telco 2.0

Cloud is, at its most basic, a way of making vast computing resources in remote datacentres available to consumers, developers and enterprise IT departments in a highly efficient way.

In addition to connectivity with the data centres, virtualisation technologies are needed to: Make users’ access to the data centre (or network of data centres) look like the computing environments they need.

Optimise and control the operation of many individual computing units – servers, processors, storage and so forth – to both create individual user environments and maximise overall performance.

Virtual Machines (VMs) A programme emulating the identity of a physical computer is termed a virtual machine (VM). VMs are used in many different applications, notably when cross-platform capability is required, when a process must be isolated for security reasons, or when multiple users are sharing the same physical computer.

Virtualisation is the process of encapsulating a computer operating system and its applications into a software “container” which permits it to execute as a virtual machine.

Figure 1 illustrates how a programme called a hypervisor shares a PC hardware platform between multiple operating systems giving each operating system and the applications it supports shared access to the same PC hardware thus capitalising on the fact that most computers are never fully utilised by a single user and reducing costs through lower hardware costs which in turn includes power and cooling needs.

Figure 1: Hypervisor sharing hardware between multiple operating systems

The two scenarios described above are not mutually exclusive, as a sufficiently advanced virtualisation system can provide multiple virtual machines, running on multiple physical machines. In such an environment, the configuration of the virtual machine provided to any given user or application is entirely software-defined, and is determined by the settings of the hypervisor.

Major cloud providers invest extraordinary engineering efforts to optimise the virtualisation process, for example, by routing processing jobs between computers or even data centres on the basis of the current CPU temperature. It is now the case that a network of data centres, not just one data centre, can be considered to be a single computer.

As a result, the key technical battlegrounds are the data centre, the virtualisation system and the tools through which users interact with it. Key virtualisation technologies are Amazon’s and Google’s proprietary solutions, Microsoft’s Hyper-V, VMWare’s vCloud, several open-source Linux options, such as Xen, KVM, LLVM, and LXC, and the OpenStack project. At least in theory, these are general purpose solutions, although Google’s and Amazon’s are presumably designed to also meet their own corporate requirements.

Source: STL Partners/Telco 2.0

Types of cloud

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Different types of cloud have been developed or have evolved to meet specific needs, for example; private clouds, public clouds, hybrid clouds or virtual private clouds. We give a brief explanation of some of the more popular definitions below.

Public clouds Public clouds typically offer services accessed via the public Internet using PCs, tablets or smartphones. Figure 3 shows a typical public cloud with users and devices connected to services

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via the internet. Access to services may be via a dedicated client or via a web browser, and both mechanisms can use encryption to ensure data travelling over the internet is secured.

Figure 3: Examples of public clouds

What differentiates this from a public cloud is that the services are operated exclusively for a specific customer - it is not a multitenanted system. In this model the infrastructure is virtualised and the system is managed through a web portal or desktop application on a semi-automated basis, thus fulfilling basic definitions of cloud.

Source: STL Partners/Telco 2.0

As the computing infrastructure is not multi-tenanted, it has an ongoing cost and may be more expensive to operate than shared cloud computing models, but the customer retains a greater degree of control over the system and the overall costs are much lower - potentially 30% lower - than a traditional IT solution where each application has its own server.

Hybrid clouds

Typical enterprise examples are Microsoft Office 365, which is a charged for business utility service (email, intranet, instant messaging), Salesforce – another charged for CRM solution, and Google Apps which provides a similar service to Office 365.

Figure 5: A hybrid cloud combines a public and private cloud

Source: STL Partners/Telco 2.0

Services may seemingly be offered for free (Gmail, Hotmail), but in fact the service provider is using the service to gather information (data or analytics) in order to market products to individuals, as is the case with Gmail. This is typical of many consumer-facing SaaS offerings.

In a hybrid cloud, part of the system is outsourced to a public cloud, while other elements, perhaps more critical, more privacysensitive are retained in a private cloud. This is essentially a combination of the first two options outlined above. The private cloud element could be on the company’s premise or provided by a third party. An example would be a company using a private cloud to run SAP applications for internal systems, and using Salesforce for CRM and Microsoft Office 365 for email and collaboration.

Private clouds An organisation with a private cloud has its own infrastructure, virtualisation services, and software licences - all of which it may have developed or bought from a third party such as an IaaS or hosting provider - and runs its cloud behind a firewall.

Figure 4: A private cloud is protected by a firewall

Numerous other types of cloud exist such as virtual private clouds which make part of a public cloud private and community clouds, where the infrastructure is jointly owned by a group of companies, but with no public access. This is like a private cloud with group ownership.

Source: STL Partners/Telco 2.0

Key criticisms of cloud – security and sovereignty Security The recent revelations by Edward Snowden regarding the USA snooping activities and the discovery of security flaws in SSL exploited by the Heartbleed bug have done little to reinforce public confidence regarding the use of cloud services. However, cloud services are generally more secure than most enterprise systems

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and most public data centres comply with some form of security management audit or certification scheme.

Consideration of physical building security has to be paramount for data centres. Every aspect needs to be considered, so not just physical access methods, but also bomb and weapon detection, airlock/mantrap doors, perimeter security and anti-ram raid mechanisms are required. Getting into a data centre should be more difficult than taking an international flight without a ticket if that were possible.

What are the key opportunities for CSPs in cloud?

Distinctions between the most popular definitions of cloud are shown in Figure 6.

Figure 6: Cloud definitions

For many CSPs, this means moving from security systems that are adequate for voice, to systems that are secure enough to ensure that stored data is not lost through server/disk failure, while providing physical security worthy of the stored data that is entrusted to them. Existing data centres and data centre locations may therefore be inadequate, for example, to resist an armed attack. There has already been a case in the UK in which thieves cut through the roof of a Verizon Business facility in order to bypass the access control and steal equipment.

Data sovereignty Security arrangements for both physical access and data resilience may all be in place with appropriate audits and certifications.

However, when data is stored in another jurisdiction, an organisation may be unknowingly opening itself up to scrutiny of its records and emails, and to different legislation on data protection.

In fact, there are a number of strict national regulations in place that forbid certain classes of organisation from storing data outside their national boundaries and certain types of data from leaving the country, whoever stores them.

Equally, organisations are becoming increasingly concerned about who has access to that data via a court of law. For example, if your data is stored in Amazon or Google’s clouds, then it is entirely possible that US government could subpoena that data to gain access and analyse it, opening up the organisation to potential legal issues and security concerns that wouldn’t have happened if it had stored the data inside its own national boundaries.

Such considerations should create opportunities for CSPs to deliver cloud services to their national markets although this is an issue that needs careful management by multinational CSPs who have data centres in different geographies. The French government, for example, is subsidising the development of two national cloud providers, one as a partnership with SFR and Bull, one with Orange and Thales, specifically in order to keep this option open.

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Source: STL Partners/Telco 2.0

But physical security is just one aspect; security of data, backup/restore, confidentiality and privacy all have to be taken into account. Once an enterprise starts storing data in publicly accessible systems, they are effectively handing over security to the cloud services provider, and need to be assured that appropriate measures are in place.

Inevitably, there is quite a lot of variation in how different vendors, customers, CSPs and analysts use these terms, and the boundaries between them are not necessarily well defined.

Typically, a product will include more than one of the elements on the left of the chart in Figure 6.

What are CSPs doing today?

As mentioned earlier in this report, through our research we found a fairly clear delineation between fixed CSPs and mobile CSPs. Fixed operators, such as Verizon, BT and others, generally address larger enterprise customers and, therefore, have offerings in the hosting, IaaS and VPC segments, which are also the simplest for them to implement and bill. In 2012 Verizon Business paid approximately $1.7bn to acquire Terremark, a US based IaaS provider in order to deliver a range of products and services to its large enterprise accounts which include IaaS type solutions along with core CSP services such as voice and connectivity.

Many, but by no means all, fixed operators also have SaaS offerings, but few are present in the PaaS space and so have minimal share.

In contrast, even converged CSPs that also have fixed offerings tend to be seen by enterprise users as mobile-only providers, and all mobile and converged CSPs seem to be biased towards SaaS products as these nicely address the SMB segment and fit quite closely with their existing channels to market.

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CSP opportunities in Infrastructure-as-a-Service (IaaS) IaaS consists of cloud-based, usually virtualised servers, networking, and storage, which the customer is free to manage as they need. Billing is typically on a utility computing model: the more of each that you use, the more you pay. The market leader in IaaS is Amazon, and there is a price war underway between Amazon, Google and Microsoft with each matching the others pricing as soon as one or the other drops its pricing. CSPs currently have about 20 % of this market in aggregate, with Qwest/Savvis and Verizon/Terremark being notable players.

CSP opportunities in Software-as-a-Service (SaaS) SaaS is the biggest segment and is the most familiar to the enterprise, being similar to the outsourcing model that has been in use for some years. Aimed at the end user, it consists of ondemand software, typically accessed via a browser. Billing is typically on the basis of the number of seats per month. The market leader is Salesforce.com and other players include Intuit, WebEx, Microsoft and Oracle. CSPs currently have minimal share in this market. Although many of them participate as resellers, the great bulk of revenue goes to the software sector.

CSP opportunities in Platform-as-a-Service (PaaS)

advantages of lower cost through economies of scale. It will also be the case that many, if not most, organisations will never move entirely to the public cloud, preferring for a number of reasons security and compliance chief among them - to retain some of their data processing in-house.

For example, enterprises are more likely to want to outsource backoffice processes, such as HR or accounts, while retaining in-house real-time control systems, proprietary processes and highthroughput transactional databases. Straddling the divide between the two or more clouds creates complexity: Hybrid clouds will need systems integration and highly-skilled expertise to provide a seamless experience for end users. Hybrid Clouds have created a need for standards which have yet to solidify in the market to enable virtual machines to move between the two domains seamlessly. In addition, the market for tools that can manage such environments remains immature, although initiatives such as OpenStack and CloudStack are moving in that direction.

CSP opportunities in virtual private cloud (VPC) A VPC is an isolated section of a cloud provider's facility that the customer manages as if it were a stand-alone datacentre effectively, a cloud within a cloud. Amazon was among the pioneers of this market, allowing customers to connect to its Elastic Compute Cloud (EC2) services through a VPN. This approach offers greater security and integration with existing management tools than would be the case with access to a shared area, where customers' data may be co-mingling on the same server.

PaaS is the smallest of the three main segments, but the fastest growing. From a technology standpoint, PaaS is midway between IaaS and SaaS. Essentially, you get SaaS, but without the end-user applications on top. Aimed at developers, who need a consistent platform on which to build applications, it consists of the combination of a computing platform and middleware that allows the customer to develop their own applications and services.

CSPs such as Orange Business, Verizon and T-Systems have also developed virtual private cloud services. Orange, along with its integration partner Cisco, argues that this should be the first market for CSPs to address as it allows them to use their strong trust credentials and to build on their managed services sales and delivery capabilities.

Use cases include multinational organisations where several teams may be working on a project across geographical boundaries. In this example, PaaS allows those developers to build database-based applications using a central set of systems without having to invest in the hardware and other resources. In practical terms, this will include the operating system and, more often than not, a development platform such as Microsoft Azure, Java, or MySQL. It might also include elements that could be considered SaaS, such as Google Docs or Microsoft Office 365. In other words, PaaS supplies the wherewithal to deliver services, but not the services themselves.

CSP opportunities in cloud service brokerage

CSP opportunities in hybrid cloud Hybrid clouds are seen as the long term future by many large organisations. A private cloud, while offering more complete control than a public cloud, also loses many of the public cloud's

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There are many routes for CSPs to deliver on the longer term vision of a hybrid cloud. The one most likely to achieve results quickly is the one that satisfies customers’ needs now while giving them a roadmap for the future, as they 'cloudify' further.

Evaluating a single service and its fitness for purpose - both functionality and cost - in a large organisation is not a quick and easy process. Evaluating a range of services to ensure that they also integrate well together or integrate with connectivity to provide and acceptable service such as video or telephony adds complexity upon complexity.

Cloud services brokerage is an opportunity to bring together a range of services along with CSP core services such as connectivity and to offer existing customers who are moving to the

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cloud a single point of contact for support, billing and with set of Service Level Agreements from a trusted supplier such as a CSP. CSPs already possess many of the relationships required with vendors to deliver and integrate these services and could enable swift service selection and deployment while at the same time increasing average revenue per user (ARPU) and customer satisfaction.

solutions integrated with BT’s telephony platforms. It has also been developing an extensive Wi-Fi network, acquiring LTE spectrum and providing mobility and VoIP to fixed and mobile enterprise users. By tying these offerings together, BT are able to offer an enterprise customer a full suite of cloud-based UC solutions with integrated telephony and mobility.

Telco 2.0 believes there is a good opportunity for CSPs to become effective cloud service brokers by combining their core products and services with third party or their own cloud services and offering their customers a complete solution. While there is a market for off-the-shelf bundles of common solutions, such as Office 365 with Lync/CSP telephony integration, or solutions such as desk.com with CLI and telephony integration, there will also be enterprise customers who will require customised solutions and CSPs should plan to support these scenarios.

Innovator or follower?

Other CSP opportunities in the cloud CSPs have an essential role to play in the cloud ecosystem and could do more to integrate their legacy services with their cloud offerings, such as delivering guaranteed quality of service (QoS) and exploiting their latency advantages to support streaming cloud services and VoIP. Private cloud deployments can make significant savings over traditional IT systems because of the more efficient use of servers and reduced power and cooling needs. There is an opportunity for CSPs to start building private cloud-based and virtualised Microsoft and Cisco Unified Communications (UC) deployments that integrate with their own telephony and mobility platforms. This approach could deliver a complete suite of cloud-based solutions, including telephony, mobile device management, and user management, on an international basis for multinational organisations and nationally for SMBs or smaller national enterprises.

Bundling core services versus integration - what’s in it for the CSP? There are a number of approaches that CSPs could explore, including bundling and integration. Bundling usually means working with third party suppliers to deliver a solution that contains the key elements of a solution a customer is looking for and is commercially-attractive. Generally, there is little if any integration and relatively low margins. When the telephony contract is due for renewal, there is also little to keep the customer with the CSP other than attractive commercial terms and the inconvenience of switching supplier.

An integrated approach ties the CSP to the cloud solutions by using APIs or proprietary integration points. Integrated solutions are generally more attractive to enterprise customers because features like telephony can be integrated with the user’s desktop and mobile devices, improving the user experience and lowering costs.

Integration usually involves billing, support and service delivery, weaving the CSPs’ products much more tightly into the overall cloud solution. This reduces costs, increases the attractiveness of the solution, and usually ties the customer into the service offering, as it becomes difficult and risky for them to move suppliers.

In the UK, BT is offering VPC based-Lync telephony and UC

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Is it best to innovate or follow the pack? Traditionally, CSPs have been followers, and some, fast followers. The few innovators are usually the smaller national players, such as Elisa in the Finnish market, but occasionally larger organisations, such as Deutsche Telekom or Telefónica. There is a lot to be said for being a follower in markets that develop quite slowly with little innovation. This has been the traditional CSP market and approach. However, cloud and mobile technology for which read apps and OTT have been developing at a much faster pace, threatening CSPs’ position and eroding their business. We believe that it is no longer adequate for CSPs to be followers, and that they must adapt their organisations and business practices in order to innovate and be competitive in the rapidly-developing cloud services market.

Innovation comes at a cost. Moreover, compared with CSPs, all of the leading technology players have leaner organisations, operate in a different regulatory environment, and are at the forefront of the innovation curve. CSPs could do well to emulate these organisations by implementing agile product development techniques, looking to lower cost open source or proprietary solutions, and creating a culture of hunger and innovation.

CSPs must adapt and start to move at Internet speed and they must reduce their cost base.

What are the challenges for CSPs? Skill and market awareness needs to be increased across CSP organisations including senior management teams. Cloud is either a focus or a distraction to CSPs. For example, at a recent Vodafone Analyst Meeting, Vodafone’s chief executive, Vittorio Colao brushed off cloud as something that needed further research by the Vodafone team, this despite the recent acquisition of Cable & Wireless and the Enterprise Division’s focus on the needs of some of the world’s largest enterprise customers.

Other than senior management, critical factors are likely to be the balance between access network and data centre skill sets, plus virtualisation and web development capability.

We also expect that the key underlying cloud technology, the virtualised data centre, will continue to exhibit considerable economies of scale well into the future. As a result, bigger players will hold a cost advantage and we can see this being played out in the battleground between Amazon, Google and Microsoft, leaving CSPs who try to compete on a like for like basis high and dry.

Therefore CSPs will need to either find means of leaping direct to scale comparable with the existing players – for example, via an acquisition, or by on-boarding all their own services, or else seek niches that differentiate them from the big generic clouds. In fact, differentiation sums up our advice to CSPs in one word.

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Key CSP issues •

How to shorten development cycles to keep up with market pace, for example by adopting agile methodologies and architectures that are appropriate to the service being delivered.

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To develop and migrate to an organisational structure and finance model that supports innovation

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How to work at internet speed rather than CSP speed

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Senior management buy-in and understanding. Most senior managers are primarily focused on running the existing business and that means voice and data services. Education is required, as is making the time available to stay current with market trends.

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Channels to market: CSP channels typically consist of retail stores, resellers, and direct sales teams focused on selling traditional CSP products. Significant re-engineering is needed, both from a skills and an incentive perspective, in order to deliver success with new products such as cloud.

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Go to market strategies: it is important to get the balance right between personal and online sales and delivery. Many operators rely on direct sales, but some SMB customers would prefer to buy services online, but very few operators offer a sales portal for their customers as the web giants do. Illustrating the importance of direct sales, Vodafone sells OneNet, its PBX in the cloud offering for SMBs, direct and through resellers, and both Google and Amazon are building up networks of Value Added Resellers (VARs). However, there may be a risk that CSPs’ channels are too high-touch and too dependent on the sales force as opposed to the web portal. They are also too centralised and remote and the sales force is not readily accessible to SMB customers.

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Own use of Cloud: CSPs should also look to the expertise they will gain by their own use of cloud products both in their day-today IT functions and importantly in the operation of their core networks. Dramatic cost savings could be achieved in the core network by utilising VPC technologies, reducing energy consumption and the number of server or hardware required.

What should CSPs be doing?

The only CSPs who can expect to reach scale, quickly enough, to cross the chasm and challenge the big tech and web giants in generic enterprise IaaS, are ones that are very dominant in their own markets and who benefit from structural factors such as data centre development, partnerships (size has an impact on the likely partners) and are already offering cloud products or are entering the market.

This is really a special case of a wider point: in order to compete with the giant general-purpose IaaS platforms, differentiation and exploiting various structural factors and product niches – notably data sovereignty, geo-distribution, specialised clouds and industry clustering is absolutely vital for success.

Differentiation also requires control of technology, which implies looking at open platforms like OpenStack or working with vendors like VMWare to develop products that fit a specific product or market need.

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Control of technology also requires competence, which is acquired through learning-by-doing, something we see lacking in many current CSP activities. Further, the cloud value proposition is all about saving by moving many systems into a common platform.

Operators who want to do cloud should do cloud internally both for the learnings and to take advantage of the economies that virtualisation brings to the core network, this though may mean moving further towards open platforms and away from closed vendor specific solutions where the entire stack must run in a dedicated environment.

A key CSP strength could be access to capital but justifying a business case can be difficult. Using capital to jump to scale via acquisition is a possibility, but is inherently risky. As big tech shareholders are surprisingly risk tolerant in practice, this may not be as big an advantage as it seems. The minimum investment buyin for IaaS is very large. If a CSP is not specialising in cloud, we recommend CSPs should partner rather than build or acquire.

CSPs should also be talking to experts and seeking impartial advice. Equipment vendors clearly have an agenda, and for CSPs that lack appropriate expertise, they should seek to acquire the relevant skills because hiring is faster than retraining. Talking to experts who have the knowledge and market perspectives that they need is critical.

About Telco 2.0 Research/ STL Partners Telco 2.0 Research is created by STL Partners, leading international specialists in business model innovation at the intersection of the Telecoms-Media-Technology sectors, providing highly creative consulting, research and event services.

What makes us different?

We actively design and broker solutions to commercial problems, leveraging our global network of innovators.

We specialise in next generation business models for the Digital Economy We believe that the best innovation comes from appropriate collaboration at a company, industry and cross-industry level.

We work best with visionary leaders who are looking to make breakthroughs with their businesses.

Visit www.telco2research.com for our research or visit www.onfuture.com for our event series.

Email contact@stlpartners.com or call +44 (0) 207 243 5003 to find out more.

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Company summary Today’s communication service provider services are very different from those that predominated just a few years ago.

Then, business models were based mainly on a fixed fee that was determined by a limited number of variables such as zones, distance and time. In order to make sense of the increasing business model diversity offered by service providers now, DigitalRoute offers a mediation platform that can be deployed horizontally to address a growing number of use cases, in so doing collecting data from a broad array of different sources and then pre-processing it prior to passing output back to downstream systems such as billing. analytics, CEM, CRM, and others. This mass data processing is done highly effectively in part due to the platform’s ability to scale to extreme levels with functionality that enables users to quickly enable new services, tap information previously hidden in data, and quickly monetise new business models without being constrained by the functional limitations of legacy BSS components providing additional advantages.

Founded in 2000 in Stockholm, DigitalRoute employs close to 200 employees and is a venture-backed, privately held company which had a turnover of around €40m in 2013. DigitalRoute is an ISV delivering mediation and data integration solutions to customers such as Vodafone, T-Systems, Sky and Verizon.

DigitalRoute sells directly as well as through a comprehensive partner programme that includes companies like SAP, NSN, Accenture, Cap Gemini and others. It has over 300 customers globally 70% of which are supported by partners.

Its MediationZone software platform offers high throughput and provides a unique degree of user configurability, processing all usage and statistical data extracted from relevant networks, including both billable and non-billable events. A number of different, pre-configured solutions can be deployed in areas including billing mediation, online control – which includes service control, policy control, and routing control, mass data processing and service assurance mediation. In this last case the focus is on processing data from network-related rather than business-related sources, typically at much higher volumes – installations running three million events per second is not uncommon.

Cloud credentials The DigitalRoute platform can support CSPs in a number of ways, both those who wish to provide their own cloud services and those who want to partner with other OTT providers, helping to integrate and bundle offerings as necessary. A key function within the platform is tokenization functionality through

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which customer data can be anonymised before being sent to an external cloud for analysis, then de-tokenized on its return.

This step addresses a number of critical and common privacy and security concerns and puts the CSP in a particularly strong position to successfully offer services over a local cloud, within national borders.

The platform can also provide policy and service control functionality, together enabling service providers to rapidly create, test and deploy new services and then monitor and modify these as required without lengthy vendor delays or costs. On the latter score, the platform enables the user to quickly become as self-sufficient as is desired.

Key differentiation The MediationZone platform integrates with a wide variety of external systems via a range of plug-ins, which implement the interfaces and protocols required when communicating with these. A large number of protocols are supported off-the-shelf, both for interfacing as well as for secure and consistent operation.

Support for additional protocols is added continuously as part of roadmap development, and also on an on-demand basis. A development toolkit is available for adding standard as well as proprietary interfaces. All APIs in the development toolkit have been designed from the outset to minimise programming overhead, and to enable third parties to extend the platform.

This capability extends the appeal of its platform making it very attractive to vendors occupying other parts of the value chain and probably going some way to explain the quality of partners that DigitalRoute has on board.

Competitive pressures DigitalRoute faces competition from large NEP vendors such as Ericsson and Huawei, which also offer mediation products.

There are also a number of software companies such as CSG Systems, Oracle and Comptel that offer point solutions, Comptel being of a similar size to DigitalRoute. However, with over 300 customers using MediationZone, DigitalRoute holds a leading position in the market, and is the only one taking the full “horizontal mediation” approach. Other platforms seem to lack the breadth of the MediationZone, for example its ability to anonymise data on the fly, and its simple graphical user interface, which is used to establish workflows between different systems and processes. With DigitalRoute’s MediationZone platform customers are enabled to become as self-sufficient as is desired, and at least be in full control of the business logic configuration.

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Company summary Aria Systems provides an advanced cloud based billing platform that can easily be adapted to different needs, has a robust process and a data integration architecture that integrates well with existing systems and the power to be used

by CSPs as well as large business users who have complex products to be billed. The team that founded Aria Systems had their roots in the online ISP world of the early 2000’s which helped them take a unique perspective on the needs of billing systems in the post dotcom/telecom world. They realised that existing systems used old models and ideas preventing them from being adapted to new emerging business models such as software-as-a-service and infrastructure-as-a-service which have very different billing requirements to systems that required an annual licence fee moreover, modern businesses operate in highly dynamic markets which require frequent and rapid responses to changing market conditions bringing the need for agility from a billing platforms allowing them to adapt to the needs of products such as cloud services which are usually billed by subscription, by consumption (usage) or combined subscription/consumption.

Aria Systems is headquartered in San Francisco, California, USA and employs just under 200 people. 2013 has been Aria Systems most successful year to date with over 40 organisations deploying Aria’s solutions. Companies that deployed on Aria include AAA NCNU, Pitney Bowes, Experian, Telekom Denmark, Progress Software, Red Hat and Verizon. In Q4, Aria also announced the close of a $40 million fourth round of funding led by Bain Capital Ventures, which brings the total capital raised to date to $82m.

Cloud credentials The Aria Systems solution can be used to support and bill for a variety of recurring revenue requirements including; subscription services, metered usage, tiered services, on-demand, pay-asyou-go, subscriptions plus some form of volume based usage.

The platform itself is cloud based making it easy to acquire and use. It runs in a multi-tenant environment allowing it to scale to the needs of large enterprises and CSPs. CSPs are finding that their existing platforms can’t easily or economically accommodate billing for recurring revenue services such as IP Centrex (PBX in the cloud) solutions or video on demand. Aria’s platform can act as a go between, managing the needs of the new cloud based services and feeding back to the existing

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revenue management platforms. For many CSPs this seems to be a much faster and more economical approach than reworking their existing billing platforms.

Key differentiation Compared to many traditional billing companies, Aria Systems is fast and flexible, its solution is also cloud based making it scalable and cost effective. Typically Aria’s solutions take about one third of the time to deploy and are about 90% less costly than traditional billing platforms. Aria also has a set of pre-built connectors, APIs, an implementation team and a partner network to ensure that its solutions tightly integrate with the cloud product or service and are available globally. Paying for the solution is also typically cloud in that you are billed either a percentage of total revenue through the system or by volume of transactions.

Other key differentiators are: The ability to make quick changes to product pricing, create bundles, introduce new products and services Drive upsell/cross sell with the ability to create coupons and offer discounts combined with the ability to set triggers on specific events that are meaningful to the business, for example downgrading a service, which might trigger an offer to receive some free service to retain the customer.

Competitive pressures Aria Systems face competition from traditional telco/CSP class solutions such as those from Oracle, Comverse and SAP. Their products are already very scalable, but lack agility and are not a true cloud offering.

Typically these companies are focused on deployments requiring a lot of custom work to support advanced usage and rating scenarios, whereas the Aria Systems solution is a much more off the shelf solution. However, we are seeing companies like Comverse and Oracle marketing to enterprise customers in an attempt to expand their markets and it also faces competition more directly from companies like Metratech and Zuora who have similar cloud based billing platforms but are less capable and are focused on different market segments such as SMB.

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