A short while ago I referred readers to this article. It talks about start-ups, not established businesses, but the analysis of horizontals and verticals across the universe of data integrity applies equally well to every enterprise currently working in the realm of telecoms revenue assurance. Because of changes in the market, now is a good time to pause and to apply that analysis to where telecoms revenue assurance is today.
In recent years, we are seeing the ‘core’ revenue assurance market nearing saturation. First-time sales are dwindling and the annual revenues from upgrades and maintenance will not fully compensate. The sustainable market for telecoms revenue assurance is less than the peak market of the last few years. The RA market enjoyed a gold rush when the number of telcos with RA systems started to outnumber the ones without. That prompted the telcos without RA tools to play catch-up and go out and buy COTS solutions, for fear of being at a competitive disadvantage. However, any gold rush must come to an end when the gold is all mined. This is what drives the current waves of cost cutting and consolidation between RA vendors, which is far from over, as too few of the vendors are profitable. Apart from ruthlessly cutting costs and trying every trick to win new work ahead of rivals whilst discouraging existing customers from swapping, what can an RA business do to rejuvenate revenues and deliver increased growth to investors? They can expand their business to new markets. The really interesting comparison is the different strategies they now adopt to expansion.
The vendors in the telecoms RA niche have benefited from the effect of sharing a common definition of their product. It may sound counter-intuitive, but if your rivals sell similar products to you in a growing market, it can help you to sell yours. If five guys try to sell the same thing with the same, common, product definition, then you might buy from the fifth guy even though you first heard about the product from the first guy. There was a time when nobody used the phrase ‘revenue assurance’ or knew what it was. By concentrating their marketing efforts on a common solution set, the vendors created a common brand for revenue assurance and helped to define what it is. This enabled the revenue assurance market to grow more rapidly than if the vendors sold disperate solution sets with differing names and descriptions. The problem for the vendors is that now, as the market has plateaued, the commonality of the phrase ‘revenue assurance’ has stopped being an advantage and become a straightjacket.
The phrase ‘revenue assurance’ has been a misnomer for a long time already. In Europe, revenue assurance started with ensuring completeness of revenues for retail telecommunications products, and many other parts of the world had the same starting point. When selling products to ordinary people who receive a bill and pay it, or buy a voucher and top up their prepay account, the only concern is to get all the revenues due. As soon as you move sideways into wholesale and interconnect products, then you need to deal with costs as well as revenues. US vendor Connexn used to insist on the clunky TLA of CRA – cost and revenue assurance, but it was inelegant and thankfully Azure killed it when they bought them out. In regions like South America, revenue assurance has been instigated in an environment where wholesale and interconnect were given at least equal priority to retail, making costs a central part of the mission of RA from day one. Whilst the meaning of RA in Europe has been steadily stretched, North American telcos come at the challenge from a different direction. Their initial priority was cost management. Whilst Europe extended scope from revenues to costs, North America travelled in the opposite direction. As a result, the North American market continues to reserve the phrase ‘revenue assurance’ for activities that deal with revenues alone, and do not blur the edges of the scope of RA with that of cost management.
International vendors attempt to sell in all markets, and understanding nuances in what people expect from revenue assurance makes a difference to how successful they are. Many a vendor has lost a sale because they failed to repitch their product in terms that would have resonated with the potential customer. The technology for RA is far from unique; the main difference is packaging it as a solution for a certain kind of problem. The ability to diagnose, define and talk about the customer’s problem, and adapt the technology accordingly, makes a great difference to the potential to make a sale.
Revenue assurance for telcos is a well-defined solution space within the universe of data quality. The challenge for vendors in a market that has stopped growing is to lever themselves into new solution spaces without abandoning all of the advantages of the revenue assurance brand. A business that sells technology to interrogate and improve data – in essence, what all the RA vendors do – can find lots of possible applications. The trick is to create a compelling proposition based on using the technology whilst understanding the customer’s specific problems and giving them an efficient answer without reinventing the wheel each time. All vendors are pondering how to rebadge their current products to enter, or sometimes make, new markets. In the last couple of years, vendors have started making interesting decisions about how to move vertically or horizontally to offset the slow down of sales in core RA. A vertical expansion means selling more types of solution to the same type of customer, whilst a horizontal expansion means selling the same type of solution to more types of customer. A simple comparison should illustrate. When Subex bought Syndesis, they leapt into a new market: service activation. It is now more appropriate to describe Subex as an OSS vendor, although they started out selling solutions that fall under the BSS banner, because they deliver more revenue by stopping it leak from BSS. Expanding into service activation was a vertical expansion, because it meant Subex could sell a greater range of solutions to the same customers, namely communications providers. In contrast, WeDo have proudly reported their growth in revenues from outside of telecoms. As often noted on talkRA, there are analogies between RA in telecoms and sectors like transport or banking. WeDo has expanded horizontally, by repositioning its technology to provide solutions to other industries, moving outside of the telecoms vertical.
In many ways it can be easier for a smaller business to expand vertically rather than horizontally. A good business builds up a reputation in one sector, but is unknown in others. If you expand your offerings vertically, you can sell more to your existing customers. If a customer likes a current vendor, they may be the one to instigate the vendor’s expansion by asking for new solutions from the vendor they already trust. When expanding horizontally, it is difficult to translate the reputation in one industry to credibility in another, and it is challenging to make the new contacts needed. There are good reasons why WeDo is unusual in successfully expanding horizontally: they utilize home field advantage by concentrating on Portugal and levering common contacts, language and culture.
For most players in the RA sphere, vertical expansion has been the order of business. A vendor that only offered switch-to-bill would also develop a network-to-bill product. A vendor that focused on FMS would expand into RA, and vice versa. Retail revenue assurance offerings have been joined by solutions better geared to wholesale and interconnect. Instead of just analysing what went wrong, analytics can be used to highlight weak margins or model what might happen if prices are changed. As time passes, there are fewer and fewer safe ways to expand vertically, and vendors are taking different strategies. The riskiest was Subex’s move into service activation, but there are other examples. cVidya has repositioned itself as covering dealer management in addition to RA. More and more vendors are playing down the niche that helped them for so long – revenue assurance – and are devising new names to cover their expanded field of interest. Increasingly we hear more and more talk of ‘business assurance’ or ‘profit maximization’. The idea is to create a new brand that encompasses the old brand of revenue assurance, whilst allowing the vendor opportunity to move into areas of potentially higher growth. One problem is that the new brands are fragmented, losing much of the value that came from the commonality of revenue assurance. If only one vendor uses a phrase, it has no recognition value beyond that vendor and few outside the vendor will repeat it. Instead of the unconcious team effort that grew revenue assurance, we see disparate marketing pulling customers in different directions, and hence leaving them less convinced than if every vendor pulled the same way. At present, there is no dominant market leader in RA, or we would see a pattern of one business deciding to expand in a specific direction and others following it. We nearly saw Subex attain the necessary dominance. Some other companies have cautiously echoed Subex’s talk of a ‘Revenue Operations Centre’, but Subex never gained critical mass and many rivals simply went their own way. The result is a fragmentation of revenue assurance, with disparate interests taking the idea in different directions. As time passes, the fragmentation will get worse. It will only stop if one player adopts the mantle of consolidator and can convincingly position itself as both a thought and market leader. If this happens, they will be able to influence the thinking of a large enough share of customers and hence set the mould for rival vendors to copy.
A final observation is that the revenue assurance space does not exist in a vacuum. Even if you have no knowledge of the rest of the world, it still exists. Whilst RA vendors want to expand out of the telecoms RA niche, other businesses want to expand into it. Because RA is a subset of the data quality world, there are plenty of businesses that could move into RA based on their existing skills and reputation at handling data. We see this already with some of the alliances announced between RA firms and data appliance and warehouse businesses. The RA firm brings vertical expertise and their partners augment the technology thanks to the strengths they generate from horizontal scale. Some of the RA vendors must be hoping to find a buyer that wants to move into telecoms RA without going to the trouble to do it organically. They will not be hoping that bigger businesses try to grow organically into RA, as that would mean even tougher competition. Nevertheless, companies like ACL have made organic inroads into telecoms RA and the risk remains that others will do the same.
When a market is growing, it is easy to get consensus on what to do. Look to see if the next guy is successful, and if he is, then do what he did. That is why we had so many vendors describing themselves as selling revenue assurance. It also explains why, at the tail end of the gold rush, individuals now want to sign-up and be certified to work in the field. Meanwhile, the world keeps on turning. Now the RA market has reached the top, and will settle on smaller ongoing revenues, it gets harder to decide what to do next. Success is less likely. At the same time, you have to make decisions because you cannot afford to stand still whilst rivals innovate and experiment by moving into new fields. For a long time, I tried to tell people what revenue assurance is. Now that they know, it is nearing the end of the life of revenue assurance, or at least the end of this phase of its life, as it prepares to transform like a caterpillar turns into a butterfly, or to give birth to new business propositions. Vendors need to make tough decisions about their business direction and future. We will not know which decisions were important, until we can look back on them and see what the results were. We we do know is that now is the time for making those important decisions.