Virtual Pricing for Virtual Networks
As the ‘softwarization’ of the networking industry progresses, it brings with it some interesting concepts. Some which promise to make our customer's life better, others make ours (vendors) lives more… interesting. So similar to network slicing, the holy grail of the 5G networks to come, it seems that also pricing can be sliced, with interesting effects on business relationships and models. Of course slicing a vendor’s offer into little pieces to negotiate them one by one has always been a basic tool for every purchasing department, but applying new concepts to slice prices in a dynamic way takes it to a new level… and that’s where we will stop referring to the analogy the writer of this blog is so proud of.
Unlike in the good, old days, where vendors and service providers met at the beginning of the year to agree on volumes, features and prices, the networking market has turned into an ongoing battle zone. The business models of many service providers are severely challenged, so their willingness to pay the prices we vendors think our kit is worth isn’t overly high. Bad for us vendors. But every once in a while even we have to acknowledge that our destiny is directly tied to the success of our customers. This might not make their attempts to make us part of the solution less painful, but at least more understandable.
So, how can we help?
Apart from charity inspired concepts none of our owners or shareholders would enjoy, risk-sharing and pay-per-use models seem to be the flavor of the month. You think that classic pay-as-you-grow models are too high a risk? They might actually be ‘gold’ compared to the idea of charging your customer (the service provider) for every 1G equivalent per deployed service across the network. Besides severe cash flow impact, it won’t work at all for the vendor if the service provider’s sales force doesn’t cut it… in this case, the vendor may have ‘given away’ a network, while the service provider can still continue selling other services. That’s not risk sharing, that’s betting the farm. At the very least a vendor can expect the customer to understand his own business model, where the expected profit dictates the cost of the infrastructure which is rolled out and paid, otherwise the whole system might collapse.
But is there a middle ground, a system that ensures that the vendors keep on breathing but couples the price, in some way, to customers’ success? Some say that this can only be achieved through the addition of value added features, those that are not required to get the basic network (or services) running, but either make the carriers life much easier or their offering more competitive.
Sounds like software, doesn’t it? While selling 100 cards of the same type requires 100 times the necessary components, selling a software module 100 times is a completely different game. A challenging idea for an industry still trying to escape the accepted practice of giving software away for selling hardware. However, in times of hardware commoditization, charging for software is the only way to ensure long term survival.
We’ve just accepted that we need to charge for software only to immediately make it part of a risk-sharing model. A bit depressing at first glance, but progress sometimes happens in strange ways. And it’s a good way to get closer to your customers, the better a vendor understands customer needs, the better solutions he will deliver. True for both HW and SW. But this really makes a difference when the software adds an ‘edge’ to an end-customer service or helps carriers to run their network more efficiently.
So now all we need is to re-write the software in a way that the usage can actually be tracked. Oh and find a way to get this information in real time through the service providers’ firewalls into our billing systems (which need to be upgraded as well 😀 ). Well as I wrote above, nobody said it would be easy.
Now if you’d like to look at the world through pink glasses, we suggest you read our most popular white paper: Real Revenues from Virtual Services.