Cloud Billing Software Vendors Share Market Trends and Predictions

 
The cloud billing software market has experienced dynamic changes in recent years. And the growth in subscription and recurring revenue models has greatly impacted the cloud billing space. In fact, the growth in subscription models has been driving cloud billing growth, so much so that Zuora, a public provider of cloud software solutions for companies with a subscription business model, has developed the Subscription Economy Index (SEI) that analyzes the growth of subscription-based organizations against the growth of the S&P 500.
 
Against this backdrop, cloud billing software provider experts share market trends and make their predictions for 2018 and beyond. They see continued growth and intensified change as two themes reshaping the market. Those cloud billing software providers that can quickly and effectively respond to evolving market dynamics will win market share. Let’s see how some of these players view their market in the future.  

Aria Systems’ Take

Aria Systems is a provider of a cloud-based billing and monetization platform for enterprise companies that wish to sell products via subscription, usage, and other recurring revenue business models. The company recently announced a press release on five trends to track in 2018. Those trends are as follows (see the infographic below):
 
1. March toward cloud services continues
2. Buyers demand more and better options
3. Billing  complexity increases
4. Billing becomes competitive differentiator
5. Cloud billing revenues jump



Aria believes that businesses should pay attention to agility in pricing and services models in the coming times:
 

• In late 2017, Amazon announced a move from per-hour to per-second pricing for its popular AWS cloud computing services, so that customers could, in the company’s words, “pay only for what you use, and . . . start or stop using a product at any time.” With $12 billion in annual revenue and an estimated 30.3% of the cloud infrastructure market using AWS services, Amazon’s actions drew the attention of Google, which quickly moved to per-second pricing as well. If Amazon makes up for this lost revenue in volume via customer satisfaction, one may see this micro-consumption–based pricing expanding to other categories.

 

• Delivering on a micro-pricing strategy is just one of the ways that companies can keep customers happier—longer. Companies will also be called upon to support “multidimensional customer choice”—the customization of services and billing based on customer needs. Agile billing will aid multidimensional customer choice by quickly enabling the delivery of complex pricing, packages, and plans that better meet customer needs. While the market will pressure vendors to adapt to the complexity of delivering a multitude of products and services (often in different regions and regulatory requirements), those vendors that rise up to the challenge will reap the benefits.

 
Aria also believes that customers will call for instantaneous turnaround and simple communications. Modern cloud billing software systems will thus need to reflect the kind of sophistication that consumers have come to expect from family phone plans—where members of the same family can choose different devices and services. In the end, this increased agility may do more than just serve customers—it may be the way companies avoid obsolescence.  

Zuora Chiming In

Zuora agrees with these predictions from Aria. However, the monetization software vendor wanted to call out a few more things it believes are worth considering.
 
For one, the impact of the new revenue accounting standards, ASC 606 and IFRS 15, is going to be pervasive and touch every industry, which represents a significant opportunity and challenge for cloud billing and subscription vendors. In the case of Zuora, it foresaw this impact and acquired Leeyo in the spring of 2017 to bolster its revenue recognition capabilities so that it could automate the process of addressing the new standards for its customers.
 
To measure subscription model growth, Zuora offers one SEI data point that really stands out from the crowd, noting:
 
"Looking only at revenue growth of subscription businesses from Q1 2015 to Q3 2017, the SEI growth was more than 20 times that of the S&P 500: The SEI grew 64% over this period, while the S&P Sales index posted only 3.1% growth after slumping in 2015 and only started growing again in mid-2016."
 
Companies are shifting to more flexible business models that align more closely with their experience or outcomes, thereby driving increases in the complexity of billing. Amy Konary, vice president (VP) of Customer Business Innovation at Zuora, surveyed North American companies when she was a renowned analyst at IDC and found that 56% of companies were developing more flexible business models.
 
These models require systems that can track and bill for usage and/or experience. Zuora also thinks that rising customer expectations is also driving some of the predictions. The vendor doesn’t currently offer a method to quantify this driver.  

SAP Hybris Has Much to Add

SAP Hybris, a provider of software for an end-to-end digital commerce experience, adds its viewpoint. It believes that growth in subscription models is only one of the factors driving the evolution of the cloud billing space. The billing paradigm has shifted from a static business model based on a fixed process in an industry value chain, to a highly dynamic business model cycle that both reacts to these customer behavior shifts and drives behavior change in a virtuous feedback loop.
 
Companies are shifting away from selling products and services to selling outcomes and experiences instead—and all this transcends the subscription model. The term “subscription economy” has in fact become too limiting. It fails to capture the essence of today’s economy and the consumption trend, which is more individually contextualized and “on-demand” driven than anything. Consumers are being empowered to define how and to what degree they engage with a brand and are even being asked to evaluate the overall outcome of their experience—whether that be one time, usage-based, or a subscription model. This evaluation is based on a variety of criteria specific to their individual user case and how closely the brand met their expectations and delivered a desirable outcome.
 
SAP Hybris will soon gain revenue recognition capabilities (and revenue accounting standards) via SAP’s recent CallidusCloud acquisition (and given CallidusCloud’s 2017 acquisition of RevSym).
 
The General Data Protection Regulation (GDPR) compliance is also of relevance here, and SAP is working on that in great part via the recently acquired Gigya customer identity and access management platform.  

SAP Hybris on AI and Big Data in Cloud Billing

Cloud solutions enable companies to rapidly monetize new and evolving business opportunities and this can be even more enhanced by the integration of artificial intelligence (AI) tools like SAP Leonardo. Incorporating machine learning into business systems allows companies to rapidly identify revenue opportunities and bring new monetization models to market that are highly personalized and responsive, driving growth through improved outcomes.
 
Customers expect a continuous flow of new, innovative, and personalized services that deliver ideal experiences. However, to enable this, the right technology innovations must be in place. How companies leverage customer data is paramount to managing the customer experience. The secret to driving intimacy and improved outcomes is placing the focus not only on, but also above and beyond and in-between the billing moment.
 
Data is the fuel of the connected company, and businesses must be capable of sensing changes to customer behavior patterns as they occur. Data gathered from across the entire customer ecosystem, including social networks, customer support, and real-time usage reports, serve to provide critical insight into trends, customer preferences, and issues. Companies can leverage all this data into opportunities for improving and personalizing services and products. Integrating machine learning into this process unleashes the unlimited potential of this intelligence for innovation, personalization, and growth.
 
A disruptive monetization feedback loop that is highly reliable and automated can run in short cycles. Newly conceived products, services, and subscription offers can thus be automatically available across all channels for customers to select, configure, personalize, quote, and order. What is ordered must then be delivered and provisioned across complex partner-based business networks—a process that is ideally supported by intelligent machine learning for achieving optimal outcomes.
 
Revenue must then be billed and shared as it flows throughout this ecosystem, all the way through to back-end financials. Trust in the rock-solid reliability of these automated recurring processes is critical—allowing businesses to focus on understanding customer behavior patterns and developing new business models. In addition, AI and machine learning could enable better predictability and automation, including via the Internet of Things (IoT) sensors, so as to improve customer service and enable more accurate and faster invoicing, among other benefits.  

Apttus Adds Its Kernels of Wisdom

Apttus, a provider of cloud quote-to-cash software, believes that growth in telecom billing is not necessarily the best indicator for subscription growth, as telcos have had subscription billing for a long time. Rather, the growth of micro-billing solutions is indicative of subscription growth across many industries. Apttus is seeing a lot of large global organizations innovating their business models to support solution selling (products, services, maintenance, etc.) and offering subscriptions to some of the most complex solutions. These new business models require more flexibility in billing options—one time, metered, usage based, subscriptions, etc.
 
Subscriptions are essentially contracts. These new business models require a holistic solution to quoting, contracts, billing, renewals, etc., requiring chief executive officers (CIOs) and other business stakeholders to rethink their information technology (IT) infrastructure. This situation is in turn promoting a greater IT investment in broader enterprise software suites.
 
The ASC 606 revenue recognition regulation moves the focus from billing (i.e., to recognize revenue only once you invoice the customer) to contracts (i.e., to discern about products and service). To that end, if one sells an on-premise software solution and charges for it monthly or annually—it’s not recognized as a cloud subscription, but it needs to be recognized now as a lump sum. 
 
The shareholder value generated from subscription business is far greater than that from traditional business models. This brings into play new metrics, which organizations need to watch, track, improve, and report. Three metrics have been very important:
 

• Churn: the percentage of subscribers to a service who discontinue their subscriptions to that service within a given time period
• Churn Risk: the percentage of customers who have reduced their subscriptions in a time period
• Net Churn: lost money after taking into consideration new, reactivated, or expansion revenue for the same time period

 
The use of such metrics creates a strategic imperative for chief executive officers (CEOs) and chief financial officers (CFOs) to drive customer success—adopt products and services, deliver on the promise, and then expand (upsell and cross-sell).
 
Apttus also believes that upsell and cross-sell are not reflected in billing apps, but they are in the quoting, contacts, and install-base information. Based on the payment history (on time, no disputes, etc.), AI tools could be used to recommend a change to the billing terms. Namely, for good customers—to give them better terms, whereas for those customers that are always behind and contentious—to demand payment ahead of service delivered.  

Oracle NetSuite Tops the Discussion Off

William Schonbrun, senior director of product marketing at Oracle NetSuite, a provider of unified cloud business management software suite, concurs with the prediction of the march toward cloud services. He also agrees that billing can be a strategic differentiator, but there’s always the question of whether it’s sustainable. Think Dollar Shave Club and Gillette—the first brought subscription for blades to the market, and then Gillette followed suit. So yes, it was a strategic differentiator, but not for long.
 
Cloud billing is now a must-have and not a nice-to-have—specifically the ability to support recurring and subscription type business models. Thus, cloud billing needs to be both central to a company’s business system and tightly coupled with revenue recognition. Cloud billing and revenue recognition are really one large process, rather than two separate processes that need to work together. If these two processes would get out of sync, the situation would get awfully ugly, awfully fast.
 
The business-to-business (B2B) experience will follow the business-to-customer (B2C) experience. B2C is moving away from complexity and choice and toward simplicity. Look at the price models that T-Mobile brings to market. Family plans. Shared data. Shared lines. All you can eat … no longer about price per text, or MB, or minute, or line—it’s much simpler now. It’s becoming much easier for a wider set of users to understand and buy these services, rather than those with only a PhD in data science being able to understand their family mobile bill.
 
I believe B2B will follow that trend as we “jump the shark (or chasm)” and move from early adopters working with these models to there being a mainstream option for businesses to consume services. So we would expect not just software-as-a-service (SaaS), platform-as-a-service (PaaS), or infrastructure-as-a-service (IaaS) software companies using these models, but any B2B sale offering a subscription for their products and/or services to other businesses. Cisco has been using subscription models for years across all their products—customers consume (rather than purchase) not only services such as WebEx, but also telepresence suites and switches.
 
The place where billing can get really interesting with AI is around product or plan optimization. Say you’re on the 10 GB plan, but you always use 12GB and more text than you’re allowed . . . Those extras cost you x amount each month, but the 15 GB plan might cost the same and you get more for the same price. Such AI recommendation would be ideally drive loyalty and retention, while reducing the potential add-on charges that annoy customers.
 
As cloud billing engines mature and can do “what if” type analysis using actual data and product options, we might get into some really interesting places. This is where NetSuite thinks one will see some serious competitive differentiation based on how businesses embrace and use that data. Will they maximize profits or customer satisfaction (or some other metric)?  

Final Thoughts

Companies need to reinvent their monetization systems and incorporate new tools and processes to remain competitive. However, there is no point in changing the front-end systems unless the business is equally prepared to put in place systems that support deeper engagement and can deliver (feature, promote, sell, etc.) on that promise via commerce, sales, service, and marketing channels.
 
This is where broader cloud enterprise platforms such as NetSuite or SAP Hybris could really excel, given that they have lots of rich data on their customers (and their customers’ customers) via the omnichannel approach. Such platforms can then apply that big data for intelligence and provide a well-rounded, data-driven set of suggested actions. Worth checking out are the vendors featured in this article, and others with cloud billing capabilities such as FinancialForce, Recurly, Salesforce CPQ, Zoho Subscriptions, Bill.com, Timesheets, Sage Intacct, Xero, IFS Field Service Management, Blulogix, Binary Stream Software, Vindicia, Pegasystems, and jBilling.  

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