ASPnews.com -- Trends : ASPs Fall Flat on Billing

www.aspnews.com/trends/article.php/750311

ASPs Fall Flat on Billing
By Allen Bernard
April 23, 2001

Any businessperson will tell you that timely and efficient billing is critical. After all, that's how companies keep cash flowing in a positive direction. But for ASPs in the process of defining a business model that works, implementing the proper billing solution can mean the difference between long-term success and inevitable failure.

Speak Out on Billing

A flurry of billing solutions is hitting the ASP market. What issues do you think face ASPs when it comes to effectively billing customers? Tell us in the ASPnews Discussion Forum
"People think of billing as just generating an invoice," Michel Floreani, director of North American business development for billing solutions provider Inovaware, told ASPnews. "It's the whole process of how you get to the invoice. There's a lot of work to be done beforehand."
This is because billing solutions go far beyond invoicing. A complete billing solution incorporates customer-lifecycle administration, business process and modeling support, accounts for the needs of sales and marketing teams, and allows pricing structure flexibility, to name a few core functions.
Practically anything and everything that aids a company with the development and marketing of services is part of a "billing" solution.
"Long-term, if you're going to be a player and going to be successful, (billing) is going to be key," Paul Hoff, senior manager of market development for hosting at enterprise billing solutions provider Portal Software, told ASPnews.
Account for Incremental and Unexpected Costs
Currently, most ASPs bill based on some type of flat fee. This is fine for a startup looking to add customers quickly. But a flat-fee model makes charging for incremental services, like printing reports, more difficult. The cost of such usage has to be factored in before a price is set; as do all the other costs associated with supplying its solutions, Scott Swartz, CEO of billing solution provider and ASP MetraTech, told ASPnews. Those costs are difficult to predict accurately, Swartz added..
"Without something flexible to do your billing you're really forced to leverage yourself into a (business model) that does not necessarily take into account your underlying costs for delivering that service," agreed Hoff.
Unanticipated costs, such as the addition of new servers to test applications before product rollout, for example, may slip by corporate planners and be unrecoupable after the fact. Also, to increase revenue, new users must be continually added thus diminishing the capacity of the ASP to up sell its current customer base or develop value-added services.
When Marketing Meets Billing
Another problem that flat rate billing ignores is marketing flexibility. It is much harder to design customized marketing with a one-size-fits-all billing package.
Take, for example, conferencing provider eYak. When the company first started out it wanted to entice customers by offering the first three months free. This is fine from a marketing perspective, said Swartz, but it ignores the realities of generating revenue.
"You are now five months out before you figure out if that customer is going to pay you for anything, which is an enormous amount of time," Swartz said.
This is because eYak wouldn't have invoiced anyone until the fourth month and that bill would have had Net 30-day terms attached.
MetraTech's solution was to structure the offer so customers got the first, sixth and 12th months free — allowing revenue to flow with weeks instead of months. MetraTech also enabled eYak to bill customers that signed up with credit cards immediately after services were rendered. This eliminated the cost and time of sending out invoices.
MetraTech also set up a real-time, online, self-administration module so eYak's customers could take care of themselves. "What we really provide is business model agility," said Swartz. "The billing model is all about what the CFO, and sales and marketing invent."
It is this agility that will ultimately allow an ASP, initially hooking customers with an offering of MS Exchange, for example, to differentiate itself from all other ASPs offering Exchange, agreed Portal Software's Hoff.
"It gives your marketing group a whole lot more flexibility on the way they go out and bring your entire offer to market," he said.
Another important aspect of billing software is managing the customer lifecycle, Inovaware's Floreani said.
A properly designed billing solution will do everything from automated application configuration to allowing self-administration by end users. A good billing package will also provision for third-party customer sign-ups, credit card billing enabling, and user authorization based on metrics such as whether a customer has paid his or her bill.
"At a lot of ASPs, (configuration) is still a manual process," said Hoff. "If you're going to scale your business, you've got to get rid of all these manual processes."
Managing the Revenue Stream
Another wrinkle in the business model fabric is managing the upstream and downstream revenue sharing that has become an integral part of ASP life, Itay Arad, director of marketing at billing solutions provider TeleKnowledge, told ASPnews.
One of the myriad challenges facing independent software vendors (ISVs) that provide ASPs with software is calculating usage. Correctly accounting for end users is important because an ISV determines its licensing revenue based, in part, on usage.
"The ISVs have no control over that," Arad said. "So there are a lot of ISVs that are trying to build some kind of billing based on usage that will allow the ASPs to bill more creatively their customers, but also allow (the ASP) to report back to the ISV the usage of the software."
For the moment, ISVs rely on the honor system.
VARs also play an important role in any successful ASP's life and managing revenue-sharing agreements with downstream resellers is becoming increasingly important, Arad said.
Ultimately, most agree, the billing model most widely adopted by ASPs will be combination of a flat fee that incorporates value-added and incremental revenue generating services — similar to the model employed by telcos.
Until then, many ASPs will need to heed the motto of MetraTech: "Without billing it's just a hobby."