Digital services transformation are we there yet?

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1 Karl Whitelock, director for Global Strategy, and Troy Morley, strategy analyst, for Operations, Orchestration, Data Analytics & Monetization (ODAM) at Stratecast Frost & Sullivan Digital services transformation are we there yet? Before the phrase digital service provider (DSP) gained popularity and before digital transformation was touted as a crucial necessity to long-term business survival, a variety of market dynamics were causing communication service providers (CSPs) to make essential changes in the way they address evolving customer needs For example, shown in Figure 1, data usage volumes for mobile customers have steadily risen over the last ten years. Globally, the number of mobile customers consuming more than 2GB of data per month has risen from 13% at the end of 2012 to 65% by the end of As a result, CSPs designed tiered data service plans as a means to align customer usage and willingness to pay. Then, competitive forces in some regions caused CSPs to rethink their data strategies and revert back to unlimited usage offers. Figure 1: Rising consumer usage data volumes How long will it be before the current unlimited data plans, which all have capped usage limits, no longer bring customer satisfaction? If measured data usage offerings are eliminated as some prognostications imply through use of network technology that can support faster speeds, lower latency, and even higher data volumes what will the next wave of CSP business strategy involve? How will digital services play a role and what kinds of operations and monetisation support will digital services need for business success? From another perspective, Internet of Things (IoT) consumer devices high-end cameras, drones and connected cars now consume 500MB per hour or higher of data capacity. While some of this is over fixedline Wi-Fi networks, the volume of mobile video data created by these devices continues to grow. Adding to the equation is accelerated customer use of over the top (OTT) provided digital services. Source: Cisco Visual Network Index , Stratecast CSPs can no longer ignore the global change in customer attitudes and internet competitor focus on new digital services. These combined factors are especially challenging since digital services depend on ubiquitous broadband coverage and reliable network connectivity. Striking a balance between network services and the evolving digital services world is inevitable. But, what 26 VANILLAPLUS BLACKBOOK 2018

2 Figure 2: Global communications market is at the centre of new business strategy does this mean for CSPs today? More specifically: Will the market for network access services continue as presently defined? To remain competitive and attractive to their core customers, must CSPs offer network access combined with digital services from an ecosystem of partners? If so, is there a proven set of industry best practices that can be followed? How will digital services fit into the long-term strategies that CSPs are now creating? Can existing processes work in parallel with new business solutions? Is an economic approach to DSP enablement possible given today's regulatory restrictions, network technology evolution, competitive forces, and changing business models? IoT data and streaming video, combined with declining growth of voice services, places pressure on CSPs to operationalise network technology that better aligns usage demand with what the market is willing to pay for network access. Network connectivity: the centre of new business strategy Looking beyond the CSP industry, as noted by Figure 2, advances in communications technology are playing a major role in the transformation of every industry in the world: taking them from a something-to-sell model to a digital services-to-buy model also known as Anything-as-a-Service or XaaS. This change in business strategy is possible through near-ubiquitous connectivity supported by enhanced processes that enable new ways to track, ship, facilitate and monetise goods. These processes increase security, embrace adaptable configurability, and are embodied with an intense focus on wholesale/retail financial accountability. Examples of this level of transformational change can be found within industries such as healthcare, transportation logistics, agriculture, air travel, government services, hospitality, financial services, public transportation, product delivery, and even the retail labelling market using NFC (near field communications). At the centre of business change is a critical assumption; nearubiquitous network access and a reliable network connection. For people with a smartphone, survival in this digital age is defined by total dependence on a fast data connection with internet access, usually via a mobile device or some combination of mobile and a fixed-line connection. They expect 24 X 7 service availability, high throughput capacity, personal security, total reliability, and dependability of the apps used to keep their digital lifestyle current. Emerging market dynamics: customer demand is evolving and expanding Combined with the push of the market realities described above, emerging customer dynamics are providing the pull for business transformation. Shown in Figure 3, the traditional market segments addressed by CSPs include consumers, small-medium businesses (SMB), large businesses, and enterprises. CSPs sell services to these customer groups through retail business-to-consumer (B2C) and wholesale business-to-business (B2B) models. The opportunities for growth within each segment are significant but also require different tool sets for business success. While the details concerning each customer group cannot be addressed in an article such as this, there are some high points well worth considering, especially as virtual network functions (VNFs) go mainstream over the next 18 months. Large businesses and enterprises are using communication services, in particular mobile services, to enhance their previously delivered products and solution offerings. The addition of partner-provided capabilities is increasing the customer value proposition. The looming explosion of a connectedeverything world, with IoT services, is designed to address both business and consumer needs, and is applicable to an increasing number of opportunities in nearly every industry. The use of mobility services to help large businesses and enterprises offer traditional goods as XaaS offerings, are in full swing. Figure 3 also shows the two newest customer segments: Virtual Network Enablers (VNEs) and Virtual Business Enablers (VBEs). VNEs facilitate the provisioning, activation, operations and monetisation of VANILLAPLUS BLACKBOOK

3 Figure 3: The demand challenge, complexity is winning wholesale network capacity for enterprises. VBEs have been discussed by Stratecast for more than five years now. The VBE marketplace enables partners to sell goods and services in a B2B2X manner, through the concept of digital partner ecosystem management. VNEs are not new, as they supported the first generation of mobile virtual network operators (MVNOs) beginning more than ten years ago, with many successful MVNOs from this era remaining. However, a second generation of MVNO, including the occasional fixed-line virtual operator, is now rising. This new-generation of virtual network operator (VNO) focuses on connected business opportunities in multiple industries, rather than a branded package of voice and text services for end-user customers. In this light, the VNE can be the enabling mechanism for enterprise-based MVNO and IoT initiatives, rather than requiring enterprises to directly engage with the CSP via its traditional systems and processes. VNEs will continue to transform as virtual network functions gain prominence. A VBE allows ecosystem partners to sell goods and services to a global economy. This enablement applies to what each partner brings to the market individually; but also provides the means for partners to assemble their service contributions with those from other partners, to yield new, never before established, virtual services. The ultimate business scenario for a VBE comes forward in this environment as each partner begins to use its natural assets and capabilities to adapt and adopt platform-based business models that involve other partners in the creation of new services. These new services could incorporate the original offering, combined with added capabilities of one or more partners. To address the business needs of the rapidly-evolving VBE marketplace, a CSP must be well on the path to becoming a DSP. Perhaps this is why there are so many different views of a DSP and the role it must play to meet the needs of market change. CSP to DSP transformation filling a tall order Digital transformation is a tall order: asking companies, which in some cases have roots that go back decades, to now become more agile and change how they do business, especially when most remain profitable. Yet, the tides of change are here. For a CSP to transform to a DSP, the CSP needs to continue providing communications services the network connection and then provide added customer value to that connection in the form of digital services. Digital transformation is less about specific services, however, and more about how the DSP operates its business, and creates customer value. A DSP is a CSP that has transformed the way it does business, which can be characterized by a number of key traits as shown in Figure 4. Figure 4: Key traits of a digital service provider The key traits encompassed through digital transformation involve: Becoming data driven. Data, and more particularly data analytics, have become increasingly important. However, the road to becoming a DSP takes analytics to a new level. CSPs often use purpose-built analytics to improve specific functions, such as billing or service assurance, which will continue to be important. However, DSPs require more, including a view across functional areas, customer insights, and intelligence that span silos heretofore 28 VANILLAPLUS BLACKBOOK 2018

4 invisible to purpose-built applications. Perhaps most importantly, DSPs need to monetise this data to its fullest extent, which means providing insight to partners, at a price, as is now done for any other network asset. The DSP is a data-driven business, requiring high levels of automation, fuelled by the insights from both purpose-built and customer-level analytics. Addressing everything in human-level real-time. A real-time response to market demand is a reflection of the instant gratification culture that is today s business reality. In the past, a CSP s post-paid customers received an invoice at the end of each billing cycle. Today, with tiered plans, even post-paid customers demand visibility as to how their usage compares with their subscribed data tier commitment. In addition, part of the appeal of digital services is their immediacy. When purchasing a digital good or service, the expectation is that once the purchase is complete, the product or service is immediately enjoyed, and the price for it acknowledged Providing omni-channel customer interaction, with an eye on digital channels. Omni-channel has also become a popular concept. The term omni-channel refers to all customer contact and fulfilment channels looking, acting, and performing the same. This applies to a retail store visit, a web portal, an app on a mobile device, engagement with an authorised dealer, or a call to a customer service agent. Customers should be able to change between channels without losing information or needing to start a transaction again. While many CSPs are currently moving in this direction, for a DSP, the primary channel is digital. For example, 80% or more of the time, OTT providers engage in digital channel interaction with their customers. In addition, self-service is a concept that is affecting many industries. For a DSP, the entire shopping, ordering, delivery, installation, turn-up, and billing process must be automated and must be customer-driven. Service focused. CSPs have long been focused on the network connection, often to the detriment of what is delivered over that connection. However, DSPs focus on the content or services that ride across a network connection while their customers assume that the connection just works. Integrated platform that combines key strengths with the strengths of others. A DSP must provide an integrated platform that combines its key strengths with others, to create more value for whatever customer it chooses to serve. This, is the key lesson that CSPs can take from their OTT competitors. For example, Google was a search engine company that transformed into an advertising platform provider. Facebook was a social network that dramatically increased its value by morphing into a platform for launching other applications. Apple is a consumer electronics device company; but without its application and digital store platforms, it would be far less successful. And, much of Microsoft s success stems from the ecosystem surrounding the programs that now run on its Windows platform. CSPs already have the main ingredients to become platform providers. They have established relationships with various customer segments. They provide highly-needed connectivity. They have established systems to operate and monetise their customer relationships. They just need to engage with the right partner enablement platform to orchestrate these multiple relationships in their move to becoming a DSP. A business model and framework that is flexible, agile, and fast. The OTT suppliers are agile and willing to try fast, fail fast and change fast. CSPs, in general, are not known for any of these traits which makes this the hardest piece of the puzzle, and one that will take the longest to transform. The move by CSPs toward virtual networks, utilising some combination of network function virtualisation (NFV) and software defined networks (SDN) has largely been driven with the goal of making CSP networks more flexible and agile. So, if a CSP moves to incorporate virtual network functionality, is it immediately a DSP? VANILLAPLUS BLACKBOOK

5 Stratecast believes that virtual networks will be an important tool to assist CSPs on their journey towards becoming DSPs, but by themselves are not sufficient. In fact, some CSPs will continue to be the best CSPs they can be, and utilise virtual networks with no goal of becoming a DSP. In addition, some CSPs may make the transition to becoming a DSP prior to enabling any level of network virtualisation. Putting the customer first. With an eye on selling network connections and basic services in the past, it is not surprising that CSPs have focused more on the network than on the customer. While the network remains essential, in general, network connectivity is assumed in the DSP value proposition. To provide advanced services that deliver high customer value, DSPs must move from a network-centric to a customer-centric business focus. The customer will be different for different DSPs. The customer may be a consumer, an enterprise, another CSP, a different DSP, a supplier partner, or something else entirely. To be effective, the DSP must understand who its customers are and focus on providing value to those customers. resell different services, and/or bundle them with its own. So, this model offers multi-sided opportunities to all parties. The platform model recognises the importance of B2B activities such as repackaging, re-pricing, and reselling as part of co-innovation and co-investment. Hence, the supporting digital business enablement platform must be able to account for each partner s contributions to the service offering and keep track of the revenue split, based on contract-defined agreements, going to each partner. Survey on the importance of monetisation to CSP digital transformation Stratecast annually assesses the global CSP monetisation supplier marketplace. Due to the ubiquity of digital transformation discussions in marketing, and industry coverage, we included questions in our recently conducted 2017 survey concerning digital transformation strategy. The survey partitioned the ten largest suppliers of monetisation solutions, by revenue, from the rest of the supplier field. By inference, Stratecast believes that the CSP customers of these suppliers constitute the larger CSPs throughout the global marketplace, which are noted as the leaders category within the following discussion. An extensive partner ecosystem, which can provide a constantly changing array of digital services. Different vertical skill sets are required to offer a spectrum of quality digital services. In most cases, digital services involve an ecosystem of partners, which take on many forms. The key aspect of a partner ecosystem is an understanding by each participating organisation that no single group can do it all. Also, there must be a commitment that usage and customer revenue allocation will be managed effectively. A platform approach is the only way in which retail and wholesale transactions can simultaneously receive the right level of attention and accountability. The digital business enablement platform creates a dynamic marketplace that enables the role of producer, provider, owner, and customer to be interchangeable. For example, a producer could supply its own services, but also use the ecosystem to buy and Is digital transformation necessary? Questions were asked to the global monetisation supplier market. Each respondent was asked to reply representing a composite view of their service provider customers. The first two questions to this audience were: How important is support for digital transformation? How important is the role of the monetisation functions in the digital transformation process? Every respondent agreed the largest CSPs to the smallest that support for digital transformation is essential today, and that the monetisation functions play an essential role in this process. A unanimous response, as noted for each of the questions is rare. In fact, of the 105 requirements asked within the 2017 Stratecast monetisation market survey, only these two garnered the same answer from every respondent. 30 VANILLAPLUS BLACKBOOK 2018

6 Figure 5: Importance of the monetisation functions in digital transformation Figure 6: Importance of solution approach to digital transformation strategy Stratecast views these findings as a confirmation that digital transformation is real, and not just continued marketing hype. We also believe this is a global movement though there will be regions that will advance faster than others and that digital transformation is not confined to a particular size of service provider. What monetisation functions are the most important for CSP digital transformation? Stratecast next asked the survey respondents about the importance of various monetisation functions pertaining to digital transformation. The survey specifically asked about the importance of such functions as: billing mediation, rating and charging, customer notifications, self-care, policy management, partner management and analytics as noted in Figure 5. The leading suppliers, which represent the largest CSPs, reported rating & charging, customer self-care, customer notification, analytics, and partner management as Essential monetisation functions for enabling digital transformation. Suppliers in the Others category stated that their customers also place a high level of importance on these same functions. Stratecast believes two additional functions are essential regarding digital transformation: policy management and billing mediation. Policy management is currently a key enabler of a range of services; and Stratecast believes this will continue in the DSP world. Also, in this era of ever-increasing data volumes in all industries mediation has become a key tool in managing and utilising the flood of data that all organisations face. In the CSP monetisation world, mediation plays a major role; and within a DSP, Stratecast believes mediation will continue to be critically important. What is the best solution approach to achieve digital transformation? Stratecast next asked the four-option question: What monetisation solution approach(s) are your customers engaging in to address their needs for digital transformation? Cloud-enabled software, private cloud model Traditional on-premises software licence model Managed services model Cloud-enabled software, public cloud model, Software-as-a-Service (SaaS) While there was complete agreement on the importance of digital transformation for CSPs, and on the role of monetisation in that transformation, Figure 6 illustrates that there is much less agreement when assessing the solution approach to digital transformation. All respondents agreed that solutions need to be cloud-enabled; but the leading suppliers/large CSPs are not convinced that engaging with the needed operations and monetisation solutions for digital transformation using a public cloud SaaS model is the right approach. These industry leaders believe that managed services are as important as private cloud, but also believe that traditional on-premises software licensing models are equally important to at least a substantial number of service providers. Stratecast believes cloud-enabled business management and monetisation solutions are critical for any digital transformation strategy. From our perspective, public versus private is a choice that is dictated by preference, by the size of the CSP/DSP, and even sometimes by regulation. If a business management or monetisation solution is truly cloud-enabled, then the application software could be delivered through a more economical public cloud option, while customer and process logic data is placed in a private cloud environment. Stratecast believes that this hybrid cloud approach to solution deployment is quickly becoming the preferred means for digital transformation solutions. We expect the results of our next industry survey to reflect this line of positioning. VANILLAPLUS BLACKBOOK

7 Figure 7: Strategic focus of CSPs transformation strategies Strategically, where are CSPs focusing in their transformation? Finally, Stratecast asked: Digital Transformation, or the transformation from CSP to DSP, has different meanings to different organisations. What is most important in your digital transformation strategy? Support for partner ecosystems (horizontal orchestration) Enterprise business enablement Monetizing IoT service offerings Enable and charge for virtualised network functions (VNFs) Figure 7 shows that partner ecosystems, enterprise business enablement, and monetising IoT offerings are all reasonably important to the transformation strategies of both large and small CSPs. Stratecast believes the CSP priority focus for each of these strategy components is as follows: Partner ecosystems. To provide the most value to both consumer and business customers, a DSP will need to engage with a large ecosystem of partners. A DSP will need to be agile; with the ability to fail fast as business needs evolve. Digital services need to be offered quickly; and if they do not resonate with the customer base, they need to be removed quickly. DSPs will not have the luxury of months or years to roll out new services; hence, the need for partners. New digital services in the not-too-distant future will need to be introduced in hours or days, at worst. Enterprise business enablement. Enterprise business enablement has multiple flavours. These may be new digital services, perhaps from a new partner ecosystem that serves the enterprise market in a business-to-business (B2B) model. These may be a combination of digital services from multiple sources in a B2B2X model. Or perhaps this may be a DSP helping an enterprise to offer its products in a service model (XaaS). All forms of enterprise business enablement will be essential in the future DSP landscape. Monetising IoT. Most agree that the IoT will have a significant impact in the coming years. However, there is currently not a lot of discussion about how to monetise the millions or billions of devices that will someday soon make up the IoT. If a future DSP wants to benefit from this quickly growing market, its digital transformation strategy must tackle IoT monetisation. Charging for VNFs. As virtual networks move from the planning stages into reality, network functions that are now a dedicated piece of hardware will become virtual, or VNFs. These VNFs are software that can come from multiple sources. Software that can be spun up and spun down. This creates new ways to compensate the creators of the VNF, new licensing challenges, and new usage to monitor and monetise. Monetising VNFs will become an interesting proposition in the next few years. Stratecast is impressed that the leading suppliers/large CSPs/DSPs (where this will first become an issue) are thinking about how to address this challenge now. The last word CSPs have been at a crossroads of sorts many times over the last two decades, as they have decided how to face down one form of competition after another. They mostly learned a few technology tricks that helped them win the day, and then went back to business as usual. Now, we are again at a crossroads; only, this time, the surrounding fields have sprouted enormous new competitors armed with lots of cash, better business models, more flexible and responsive technologies, and even more recognizable and might we say hipper company brands. Some CSPs may indeed sell their souls this time in order to transform into the one thing that will help them compete in the new internetinspired communications marketplace: a digital services provider. Every industry experiences occasional flurries of marketing hype. Often these squalls are short-lived and do not amount to much. There is lots of wind, but little accumulation. Digital transformation in the 32 VANILLAPLUS BLACKBOOK 2018

8 communications industry has moved beyond the marketing department and is now a global storm, affecting every region of the world and every size of CSP. Every monetisation supplier reports that its customers view digital transformation, and the role of monetisation within that transformation, as essential. The road to becoming a DSP is not necessarily long. However, it is paved with persistent operational obstacles tied to agility, which CSPs have been trying to overcome for decades. The problem all along has been the measured, or tempered, approach to clearing those obstacles taken by both CSPs, and their hardware and software suppliers. Transformation efforts so far have been qualified, curtailed by somewhat understandable protectionist tendencies, and an unwillingness to tamper with a working, profitable business model. So, it appears that to move ahead with the journey toward becoming a profitable DSP, CSPs simply have to do wholeheartedly what they have been doing half-heartedly all along. They must commit to going all in by opening their networks and systems, and enabling agile, real-time support systems. Only then can they form ecosystems with new market players that were born that way, and operate from the perspective of equal partners. About ODAM The processes and tools that communications service providers (CSPs) have utilised to run their businesses have changed over time. More than a half-century ago, CSP network and business management processes were manual (OAM&P). As CSPs evolved over the years, so did the operations support systems (OSS) and business support systems (BSS) that address CSP business and network management needs. In recent years, the lines between OSS and BSS have become less clear, with much overlap. In addition, the roles in which OSS and BSS operate have expanded beyond traditional boundaries. As such, Stratecast now uses the term Operations, Orchestration, Data Analytics & Monetization (ODAM) to encompass both the traditional OSS and BSS functions and the new areas in which business and operations management must now work together, including virtualised networks and telecom data analysis. About Stratecast Stratecast collaborates with our clients to reach smart business decisions in the rapidly evolving and hyper-competitive Information and Communications Technology markets. Utilising a mix of action-oriented subscription research and customised consulting engagements, Stratecast delivers knowledge and perspective that is only attainable through years of real-world experience in an industry where customers are collaborators; today s partners are tomorrow s competitors; and agility and innovation are essential elements for success. Contact your Stratecast account executive to engage our experience to assist you in attaining your growth objectives. For more information, visit or inquiries@stratecast.com. About Frost & Sullivan Frost & Sullivan, the Growth Partnership Company, works in collaboration with clients to use visionary innovation that addresses the global challenges and related growth opportunities that will make or break today s market participants. For more than 50 years, we have been developing growth strategies for the Global 1,000, emerging businesses, the public sector and the investment community. Is your organisation prepared for the next profound wave of industry convergence, disruptive technologies, increasing competitive intensity, Mega Trends, breakthrough best practices, changing customer dynamics and emerging economies? For more information about Frost & Sullivan s Growth Partnership Services, visit VANILLAPLUS BLACKBOOK