Ed Sullivan, CEO of Aria Systems, says SaaS companies could learn a thing or two from an unlikely source -- the video gaming industry. Only now, he says, are some SaaS providers realizing they may not want to build their own billing systems. Sullivan shared some comments about this concept with SaaS Week. (Aria is an on-demand billing provider that is a platinum sponsor of OpSource's SaaS Summit 2008 this week.)
What kind of technological challenges are involved in building a billing solution (why would companies need to outsource this?)
Sullivan: There are several technological challenges inherent in building a billing solution. Three particularly stubborn challenges include: flexibility, scale and security compliance.
When companies first perceive their need for a billing system, they typically have simple requirements which might be easily met with an accounting package and merchant account. As companies grow and begin to differentiate or expand their services, these cobbled together “back offices” rarely provide future flexibility to meet more complex requirements. Companies tend to get stuck when their pricing becomes more dynamic, they need to manage partners and resellers, support global expansion, or extend their product lines with new offerings.
Accurately predicting the scale requirements for a back office is a challenging technical problem that quickly bleeds into a financial problem if not handled appropriately. If underestimated, capacity issues lead to unhappy or abandoned customers driving up costs of support and acquisition. If overestimated, companies are burdened with a cost structure which at best negatively impacts their margins and at worst can be financially fatal. By outsourcing this with a scalable “on-demand” provider offering a “pay as you grow” model, companies are able to hedge their bets with both scenarios.
Security and compliance are particularly important when dealing with end user (consumer or business) information. They are broad technical and business process issues and can impact several parts of an organization. The certification processes alone can take several quarters to complete and be a drain on internal technical resources – not to mention the financial commitment to obtain such certifications. A company like Aria provides the required certifications and manages the ongoing compliance.
What limitations do companies typically have in their own billing systems that lead them to seek a better solution?
Sullivan: One issue that is cropping up frequently is a lack of flexibility with regards to dynamic monetization schemes. Most existing billing systems were designed to manage the requirements for the telecommunications industry and can only handle usage billing for calls or data services. They can’t easily support the full range of transaction management for software transactions, subscription based seat licenses or handle other business processes such as provisioning and account CRM which are still required even if the service is free. And, this problem is only complicated when a SaaS provider wants to change their pricing or subscription basis from, say, flat rate to usage based billing. In-house or traditional billing solutions are not built for dynamic pricing and monetization.
Why was the gaming industry ahead of the game in this area?
Sullivan: Gaming companies have certainly been leaders in creating new methods of monetization and responding to consumer demands. The emergence of business models where virtual goods and services are monetized in ways which cross the boundaries between the real and virtual has been pioneering and directly related to a player demand. I think business users of SaaS applications will demand similar flexibility in their acquisition and use of enterprise applications. SaaS companies will constrain their businesses if they rely on the capabilities of their back-office applications. Remember, tomorrow’s enterprise IT buyer/user is today’s gamer.
Do these trends have overall ramifications for SaaS?
Sullivan: I think SaaS companies could benefit by taking heed to the arrows the gaming and telecommunication pioneers have in their backs. Build for scale - but do it intelligently by outsourcing non-core capabilities. Assume that user requirements will be dynamic - and traditional billing will constrain the business. And, manage security and compliance by looking for external support and resources who are focused on protecting sensitive consumer and business information.