PRICING MODELS FOR SERVICE FULFILMENT: CHANGING TO MEET THE NEEDS OF NEXT-GENERATION SYSTEMS

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1 RESEARCH STRATEGY REPORT PRICING MODELS FOR SERVICE FULFILMENT: CHANGING TO MEET THE NEEDS OF NEXT-GENERATION SYSTEMS DEAN RAMSAY analysysmason.com

2 About this report This report analyses the way that software vendors price service fulfilment systems and how the ways in which that software is delivered to the customer affects that pricing mechanism. The report also provides recommendations for service fulfilment system vendors that are evolving their solution sets to prepare for the introduction of virtualised networks. It is based on several sources: Analysys Mason s ongoing internal research into network function virtualisation (NFV) and software-controlled networking (SCN) trends, and the service fulfilment market Analysys Mason s SaaS research interviews with more than 15 software vendors interviews with communications service providers (CSPs). KEY QUESTIONS ANSWERED IN THIS REPORT What are the pricing and delivery models in use for the licensing of service fulfilment software systems? Are the current methods ready to cope with the move to hybrid virtual/legacy networking? What are the best practices for pricing in the industry? What are the industry trends in alternative delivery models in service fulfilment? Are CSPs starting to prefer SaaS-based delivery of fulfilment systems? WHO SHOULD READ THIS REPORT Service fulfilment system vendors that are updating their solutions to prepare for virtual next-generation (vngn) technologies. Vendors that are adapting their portfolios to provide their CSP clients with a SaaS-based solution. CSPs that are exploring new service-led relationships with their software vendor partners. 2

3 CONTENTS EXECUTIVE SUMMARY PRICING MODELS USED BY SERVICE FULFILMENT VENDORS THE CASE FOR CHANGE BEST PRACTICES FOR PRICING IN SERVICE FULFILMENT APPENDIX ABOUT THE AUTHOR AND ANALYSYS MASON 3

4 Executive summary Pricing models for OSS systems have remained largely unchanged for decades but have become increasingly complex. However, changes in the industry will dictate an evolution in the way pricing models must function. Figure 1: What are the key questions facing a service fulfilment systems vendor looking to update its pricing mechanism? This report examines the strengthening case for vendors to look closely at their current pricing models. The introduction of virtualised network functions means that the concept of accurately quantifying the amount of elements and connections in a network is now outmoded, as virtual network elements (NEs) can be spun up and taken down automatically. Alternative software delivery methods, such as SaaS and managed services, are also disrupting the current model. Pricing models that track metrics based on the CSP client s subscriber numbers are in the best position to evolve with the changing market. Service fulfilment vendors need to change away from legacy pricing models and processes to correctly support nextgeneration systems. In addition to this, the complexity of pricing models must be simplified because the next generation of fulfilment ecosystems will be even more complex. Action now will lead to a series of benefits and will streamline the pre-sales consultation process. 4

5 The two-fold problem faced by service fulfilment vendors pricing schemes The evolution of the fulfilment market could cause vendors problems in their pricing mechanisms. We expect the evolution of the market to be driven by two major trends in the industry. Figure 2: New factors to be considered when pricing service fulfilment systems The first trend is the focus on virtualisation in the network and the evolution of service fulfilment systems ready for the hybrid virtual/legacy network environment. If vendors currently price their software products based on the number of NEs that are served by that software, how will they price hybrid network deployments where virtual CPEs are spun up and down dynamically? These usage-based pricing models will be extremely difficult to pursue in the hybrid legacy/virtual network environment of the next decade. The second trend is the growing popularity of SaaS and managed services in OSS. The SaaS trend is still small, but managed service bundles are growing in popularity, which requires vendors to reassess the way they offer their products and services, the way they deploy them and, most importantly, the way they approach the deal with operators in the future. Thus far, simplistic pricing models were fit for the task, but we are at the tipping point where these traditional models can no longer cope with the dynamic complexity of the next generation of service fulfilment software deals. 5

6 Pricing models must focus on CSP subscriber numbers the leastcomplex metric in an increasingly complicated network Historically, various metrics have been used to measure the usage levels of software solutions. However, a subscriber-based model must be adopted across much of the fulfilment stack to avoid problems when virtualised hybrid networks are introduced. The main alternative to pricing according to the number of subscribers served by the CSP, is pricing according to the number of NEs served by the OSS. Figure 3: CSP subscriber numbers as a primary pricing metric One of the main reasons that CSPs are looking to virtualise many network functions is so they can run the software on generalised IT hardware, which would cut their capex on specialist telecoms equipment and increase the flexibility of the whole network s assets. CSPs also expect to pay less for a virtualised NE than they do for a physical NE. Virtual NEs by their nature are multifunction entities, which are spun up or down to meet capacity requirements, and are therefore more ephemeral than physical NEs so the same business models cannot be adopted. The best way to bypass this complex problem is to switch to a pricing scheme that measures the number of subscribers served by the CSP. This is a simple metric that will not become any more complex as the network complexity increases. 6

7 Recommendations 1 Service fulfilment system vendors that are currently evolving their solutions to function in a hybrid virtual/legacy network should address their pricing mechanism and delivery model structure. The subscriber-based model seems to be the most sensible model to use for OSS products, certainly in the light of the industry s move towards NFV and SDN. Of the vendors that we have spoken to, the ones that were mostly satisfied with the way their pricing model worked, were the ones that had few or no modifiers beyond line of business (LoB). 2 Activation vendors should prepare their pricing models because this area is becoming an SaaS hotspot and leads the way for proving the concept of service-based software solutions within fulfilment. The transactional nature of activation has made it the perfect candidate for moving to an SaaS-based delivery and the successful vendors in the activation market are gaining many new customers and deals based on the outsourced, per-transaction nature of the offering. Subscription pricing of fulfilment systems, starting with activation, will alter the way that vendors receive revenue from their CSP clients and price those deals. 3 Vendors should simplify pricing plans. A subscription-based model with banded modifiers appears to be the right approach for reducing complexity while retaining accuracy. Vendors that are positioning for the next wave of networking techniques should move to pricing by subscriber numbers served. Many leading vendors are using this model, which ensures that neither a move to NFV-focused fulfilment systems, nor a move to alternative delivery methods, will disrupt their ability to price their current and future products and services. 7

8 CONTENTS EXECUTIVE SUMMARY PRICING MODELS USED BY SERVICE FULFILMENT VENDORS THE CASE FOR CHANGE BEST PRACTICES FOR PRICING IN SERVICE FULFILMENT APPENDIX ABOUT THE AUTHOR AND ANALYSYS MASON 27

9 About the author Dean Ramsay (Senior Analyst) is a member of Analysys Mason's Telecoms Software research team. He leads the Service Fulfilment, Telecoms Software Forecasts and Market Shares programmes, and project manages and contributes to the CSP IT Strategies programme. He has 15 years experience in the telecoms industry, working initially in network and inventory management with a major Tier 1 carrier and, subsequently, as a service delivery manager with Tier 2 carriers, focusing on order management, revenue management and service delivery systems. Dean joined Analysys Mason in 2011 following 2 years working as an analyst in the mobile sector. He holds a BA in English from Anglia Ruskin University. 28

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