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Revenue Assurance in the ERA of Subscription Economy

  • 1.  Revenue Assurance in the ERA of Subscription Economy

    Posted Feb 06, 2019 06:40
    The business model is changing now to the subscription-based economy and growth is phenomenal with a plethora of services and models.
    The customer is able to now subscribe to any service or group of service at his or her free will and get a customized quote for the products he or she chooses and be a subscriber at his/her will.  The IT process is no longer linear from CRM to ERP, rather extremely dynamic between from CRM-> Quote-Order-Fulfill- Invoice-Collect-Recognize->ERP allowing customer subscribe, unsubscribe, upgrade or even leave at will.
    Unlike traditional way, Revenue is now Tracked based on ARR (Annual Recurring Revenue) every quarter.  Not to mention Usage from Rating perspective may or may not be significant or even generated at all.
    My question is what will be the role of Revenue Assurance now?
    How will it break the barrier of traditional RA and which all controls will be of utmost importance to manage for a subscription economy based service provider?
    Is it the time now to look for a change to GB941?

    sahasrangshu Pal Choudhury

  • 2.  RE: Revenue Assurance in the ERA of Subscription Economy

    TM Forum Member
    Posted Feb 08, 2019 05:52

    Indeed subscription-based economy is growing significantly, and "Digital" greatly impacts the traditional CRM to ERP cycle. Next week we will discuss at the TM Forum action week the impacts of this on RA and on #BusinessAssurance in general.

    Saying that, subscription-based economy is not something new, and many services have been mostly subscription based for many years, e.g., DSL. The actual version of GB941 considers subscription-based services, an proposes many best practices how to apply RA on these services. So, I do not think that a revolution of GB941 is needed, but some adaptations are certainly desired.

    Regarding ARR, I think that it is an important metric, but as far as I can see it is an addition, and not a substitution for CSPs traditional way of measuring revenues. Do you agree with this?

    Gadi Solotorevsky
    Amdocs Management Limited

  • 3.  RE: Revenue Assurance in the ERA of Subscription Economy

    TM Forum Member
    Posted Feb 11, 2019 09:33
    sahasrangshu Pal Choudhury, I think the topic and the questions you raise are very relevant and long over due (possibly 5 to 8 years). Personally I am of the opinion that revenue models and cost structures need to be worked out as or during business model design. Also, I think, given the speed and disruptive innovations that generalisation will be wrong. Telcos have followed an industry business model, to the extend it is impossible to distinguish one CSP from another on anything but price, for too long.

    Telcos need to take more responsibility of where they want to go and free themselves from traditional vendor and consulting views. Hence, design their own inside out business models, extract the needed business capabilities and require vendors to deliver to what they need as opposed to benchmark against the Hurd.

    To Gadi's response, it makes me feel a bit wary. I may read it wrong, please correct me if I di. But it seems that the starting point is GB941. To me, we are now at a stage where GB 941 should be put aside, take a fresh view and imagine possibilities, test them and move. Having done that, go back back and determine if GB941 is relevant or not.

    Lastly, revenue models are changing, so should cost structures i.e. creating an environment where 3rd party participating developing new products and services (for free) as opposed to 6 engineer, for 200 man days at a day rate per person of up to $1,000 per day.

    As they say: revenue is vanity, profit is sanity:-)

    Cato Rasmussen

  • 4.  RE: Revenue Assurance in the ERA of Subscription Economy

    Posted Feb 12, 2019 02:40
    Edited by sahasrangshu Pal Choudhury Feb 12, 2019 04:21
    Dear Gadi,
    Thank you for your response.
    The idea is RA should no longer be quarantined within CSP only, this is a very pertinent paradigm we at TMF have to think through.  I know Radio, Movie, SAAS, Healthcare and other big organizations are following the same order to cash process in the subscription industry.   So why only have to think RA as  CSP Assurance.  Overall now I am working with CSP's who are going to Cloud Business on their existing backbone but using the same systems and control point to give SAAS or even IoT.

    I beg to differ with your point that the subscription industry is not new. The amount of flexibility and innovation that today's subscription industry demands was never a cup of tea in DSL days and there was no concept of CHAOS in CRM to ERP process or Quote to Cash or even ARR/MRR or mid-month subscription cancellation along with refund/credit process impacting revenue recognition.

    ARR is not only an important metric but unlike traditional backwards-looking Revenue, it's forward-looking accounting  ARRn + New Contract  - CHURN- Cost of Sales =  ARRn+1 . So where the entire revenue recognition process is changing how GB941 or standard revenue recognition will suffice as usual? Then again MRR, Trail, Churn etc has to be taken into account.

    Another very important point was missed in your address was Revenue Recognition based on ASC606 compliance, where transaction price has to be determined by the performance obligation of the contract and then only allocate and recognize revenue.

    Hence, I think we need to relook to our standards and finetune them quickly to keep RA more business and industry trend aligned than a defined standard which then regulates the industry business model. It should be another way around.

    Let me know your specific thoughts if with an example would be academically empirical for this forum as well.

    sahasrangshu Pal Choudhury

  • 5.  RE: Revenue Assurance in the ERA of Subscription Economy

    Posted Feb 12, 2019 14:16

    Subscription priced single service offerings have been provided by CSPs for a good while now, sometimes as a necessity where usage-based pricing was desired but not available. Usage based pricing is a useful price differentiator easily understood by customers. In reality there may be little incremental cost associated with increased usage, but customers have an expectation of a price differential between high and low service users and are prepared to pay on that basis.

    The growing complexity of multi service bundles is new and does raise the issue of how and when its appropriate to recognise revenue. This may actually become easier for individual services. Traditionally there is a usage-based component to revenue recognition, not recognising revenue until the service is used. If the service is only based on subscription, revenue recognition for each service should only be tied into calendar entries, not customer behaviour. The bigger issue comes where individual services are provided from separate cost centres and how a single bundled price allocates revenue to each service.

    CSPs do already split bundled revenues to a limited extent, mobile plans include voice, data and messaging services, each may have a separate P&L and each requiring individual revenue allocation. To continue this process successfully to more complex multiservice bundles, a much better understanding of cost of delivery will be needed. An organisation getting this right can target bundled discounts in line with individual service costs, keeping each service profitable to gain a real competitive advantage.

    Dan Maynard
    Revenue Assurance Analyst