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Professional Background

MM: Ed, give us a little bit of your background, your role at Aria Systems, and a short summation of your career?

ES: This is my fourth startup. I’m an engineer by background.

Prior to founding Aria, I founded a very large affiliate for a brandable virtual ISP called LaserLink. We managed the ISPs for Gateway, Compaq, Amway, IBM, and Univision Online. I sold that business to Covad Communications in 2000.

It was through that experience that I realized that billing is hard to do. There are a lot of things that people overlook when deciding to manage subscription-based services and distribution of digital content. Distribution of any content is painful if not done properly.

About Aria Systems

MM: Would you give us a background of Aria Systems, starting with the corporate name and story, and then the nature of its business.

ES: The name of the company is Aria Systems. We are incorporated in Delaware, but we reside just outside of Philadelphia, PA. Our website is www.AriaSystems.com.

We provide billing and customer management software. We deliver that software as a service. That means our customers don’t have to manage any of the data or infrastructure. We offer high-function software. Software that—prior to us—would cost hundreds of thousands or millions to purchase. And then, a similar range of costs to operate and maintain.

We offer our clients that high end billing functionality. We charge them on a pay-as-they-go model. That means that we charge them based on how much of the software they use.

MM: As software as a service firm, do you compete with enterprise software providers of similar high-function software? And if so, with whom do you compete?

ES: In terms of functionality, we see a range of competitors. The most direct competitor to us would be a telco-based subscription-management software company like Portal, Amdocs, Convergys. But we also see competitors like PayPal, for instance. Especially in the Web 2.0 world, where people are using PayPal to manage customers.

We also have seen merchant account providers and accounting systems. From our perspective, they only really solve one kind of component or one of the functions in the customer lifecycle. The key thing about us is that we uniquely address the needs of a recurring relationship throughout the customer lifecycle, versus just solving one problem.

A lot of times, we’ll see modified shopping carts that are homegrown and attached to a merchant account. In turn, they’re attached to an accounting system.

But a shopping cart at its core isn’t designed around managing a recurring, ongoing relationship—this is a much more difficult thing to do than a one-time transaction.

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Customer transaction lifecycle

MM: This gets into basically a transaction-management capability. Specifically, you’ve framed the notion of a customer lifecycle. Could you take us through the stages of a customer lifecycle?

ES: We basically break customer lifecycle into several buckets.

The first one is customer acquisition. When a customer comes in, most registration software or homegrown shopping carts allow you to take the basic demographic information, the credit card information and apply a charge to it.

Our system at that point is a little bit different. We have the ability to integrate with marketing software. For instance, Salesforce.com. Where did that lead come from? What sales person is it associated with? So at the other end of the lifecycle, you can feed the information back into sales force, resellers, partners or affiliates are

That’s a big part of customer acquisition that’s often ignored. How are they getting to you? What partners? What direct sales efforts? What things did you do to get that customer in?

The next thing that that Aria does is it allows you to offer plans or rates and services based on the product that you’re offering. We have a lot of customers in the software-as-a-service that sell based on the seat or based on a flat-rate subscription. But they might have a tiered offering, where they’re trying to maximize their revenue, yet also address several layers of the market segment, where they can get the small businesses and move their way up.

Our system also has the ability to allow our clients to differentiate on those flat-rate services. But also, to maximize monetization by enabling things like usage-based types of transactions. Our system has a pretty cool usage-based engine, which is like the second or third part of this 6-part thing. Usage tracking.

Under acquisitions, picking the plans, if you want to monetize on these micro transactions and micro payments, how do you want to do that? You need a metering and rating infrastructure there that’s flexible, definable, and not constrained by the telco paradigm of, “How much time are you connected to a service?” Or, “How many bytes of data are you using?”

We’re billing for things in digital entertainment. We’re in the gaming industry, where we’re billing for virtual items that are transacted real-time. We’re also, in software, billing for how many seats or how many transactions occur in a software. That’s the monetization. Through customer acquisition.

The next piece is after you acquire the customer, you need to be able to turn them off or provide the service to them. Shopping cart software, a lot of times, is built around managing an inventory, fulfilling and shipping things. In the digital rights, it’s basically your inventory is digital. You have to maintain entitlement and track entitlement to either one service or multiple services, appropriately—and enforce your business logic.

An example would be a popular hybrid model. Somebody might download a client for a software, but then also go to a server out on the Internet to update that data, refresh that data, or have access to data. There’s like a client server aspect of it—even if the client is just a web browser.

We need to maintain entitlement to that, through some kind of authentication. When the customer signs up, we would go out and turn that service on or turn multiple layers of services on, or even potentially mash-up of services from different providers, and bundle them together for our client. Then they could charge either on a flat rate, subscription-based or usage elements from each of those providers.

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Proactive outbound communication and long handle-time issues

MM: When you speak about proactive outbound communication, you’re talking not about your client, but your client’s customer?

ES: That’s right. It’s a combination of my clients’ customers, and even potentially third parties.

For instance, if my client’s customer hasn’t paid—whether they be a consumer customer in B2B2C, or a business customer in B2B2B—we need to make sure that we’re managing that entitlement, and making sure that those third parties understand what their next steps are, related to that service.

MM: So you were saying the second phase of customer control entails what?

ES: It entails user self-service. Allowing all classes of users to solve their own problems. In our system, for most service providers, we have what we call high-frequency issues and long-handle-time issues.

MM: High-frequency issues and what?

ES: Long-handle-time issues. For example, a high-frequency issue is that you want to change your user name or password. An example of a long-handle-time issue is that you’re calling in and you want to have a service upgrade or a service downgrade. Or a dispute on your invoice.

The functionality of our user self-service is in the second layer. Customer management is the module. The three layers are communication, user self-service and then customer service.

On the user self-service, it’s making sure that all of those high-frequency issues can be handled by the customers themselves. The next layer is, if they get through to a customer service representative or internal administrator. Making sure that that administrator can solve that problem quickly and right at the front level. Not have to escalate issues and not have to talk to the customer very long. It makes for a better customer experience and reduces operational costs.

MM: For the most part, solving customer issues—by the time they’ve escalated or triaged to a live operator—that’s more than just billing or transaction management. That oftentimes requires that the tell a service representative to turn on or off or reconfigure some capability of whatever they’re provisioning.

ES: Exactly. Being able to change a plan or service—and giving that power in an automated way to a low-level customer service representative is really one of the main keys of what our software does.

MM: That then puts a much greater emphasis on your ability to integrate with other systems of action.

ES: That’s right.

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Lead generation to offer management to provisioning

MM: If I understand you right so far, Ed, the first one was customer acquisition—with an emphasis on closing the feedback loop in terms of lead generation.

ES: Yes.

MM: The second one was really a dynamic processing or offer management. There you have the ability to offer digital services or capabilities in a lot of different configurations. Probably driven by some set of policies and rules, but ultimately for maximizing the profitability of any one transaction—given the nature of the buyer.

ES: That’s right. We kind of call that our “activation engine.” The first one is acquisitions. The next one is activation. So turning on plans and services, based on that business logic.

MM: Right. The third dimension that you’ve mentioned here—the customer lifecycle—is use-tracking. Use in terms of being able to keep track of what they’re consuming. That will correspond to some sort of micro payment capability.

Then the fourth, you’d indicated—I would characterize it as “provisioning.” That starts with authentication and then entitlement. Then a mash-up or a provisioning of whatever it is that they’re authorized to consume.

ES: Yes. The way I’d characterize is, I’d have that in the second bucket. Basically, there’s an acquisition activation that includes the provisioning and the plan creation. Then the third is the usage tracking and rating.

The fourth one would be the actual billing. As you can see, we call ourselves billing and customer management. But the billing’s only one real piece of what we do. We actually divide billing into several segments. As you can tell, I’m an engineer by training. I guess the way of thinking about things is, I break them down into smaller problems. That’s, in fact, how we build our software.

We divide billing into a couple of things. Billing, we define as calculation, presentment, collections, remittances and reconciliation. In order to have what I call a high-function billing system, you need to be able to do all of those things in an automated fashion, so that your clients can scale their businesses.

A lot of our competitors—and I gave a range of different competitors—may only do one of those things well. Even if they do it, they don’t automate it.

For instance, there are software companies and web-based companies out there that are invoicing companies. You calculate your invoice, you enter the amount into their web service and they will deliver that electronically to your customer. They do the presenting piece.

We think that in order to really scale businesses and totally automate, you need to do all of those things. Calculation, presentation, collections, remittance and reconciliation. And you need to do them well.

That’s Stage 4. Stage 5 is what we call “customer management,” or “customer control.” There are 3 layers to that. Layer Number 1 is communication.

Again, this is my experience as an operator coming out. If you think about my operator experience, I had 70 brands and 2.5 million subscribers. I saw the best way to minimize those costs of customers—of owning the customers—is by doing proactive outbound communication throughout the customer lifecycle. But making sure that you understood the good use cases and the not so good use cases.

An example of a good use case is, a customer comes in and I take their credit card and turn the service on and they never talk to me again.

An example of a less-good use case—but I guess there’s a silver lining… A customer comes in and they light the service. Midway in the cycle, they want to upgrade or buy more. How do you handle that?

It’s a good problem in that they want to give you more revenue. But the bad problem is that, depending on how it’s handled; it can be a very costly interaction.

Then the third set of use cases is when people have disputes. A lot of my competitors talk about how they can do micro transactions. Yes. We can do the micro payments. The problem is closing the loop on the backside.

It’s one thing to be able to do them. It’s another thing to be able to handle the disputes around micro transactions.

If somebody gets through and talks to you for 30 seconds on a dispute on a line item on an invoice, you basically lose any margin you had on that micro transaction.

Proactive outbound communication is the first layer. Making sure that your system can automate those communication events throughout that customer’s lifecycle. Understanding all of the positive use cases, but also understanding all of the not so positive use cases, as well.

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Reporting and analytics

MM: Let’s go to the sixth phase of your customer lifecycle model.

ES: The sixth phase is reporting and analytics. Tying all of this stuff together. Being able to see what plans or services are coming in. How many USD did I do in transactions through my payment processor? Or how many Euros? How many Rubles? How many Yen?

We’re getting financial information out of there and we’re getting marketing information out of the system. Where are these leads coming from? What promo codes are they entering in? What plans are they buying? What’s most effective? What are my usage statistics?

We had one game launched where it was a free-to-play, but they would pay for items. Some customers were spending $150 a day buying items in the game. Getting that data out.

Then some of the stuff that’s on our roadmap that we don’t offer today, but we have it in beta right now. Looking at metadata around the service.

For instance, I was talking about the efficiency of our tool to solve problems quickly. One of the things we do is to track views and clicks of CSRs.

Imagine you’re a software provider and you have a call center in India and a call center in the Philippines. The call center in India might be to solve a problem. Let’s say the problem is service upgrade. They want to buy more seats.

If you see that the call center in India is solving that problem in 10 views and 3 clicks, whereas the call center in the Philippines is doing it in 2 views and 2 clicks, you might want to do some training for the call center in India to increase their efficiency.

MM: What else along those lines do you see in terms of emerging as applications for this customer lifecycle management?

ES: One other piece at the end that we’re integrating with is, we’re integrating with the accounting system. We’re taking the data and putting it into SAP, in one case. NetSuite in another case. Oracle Financials in another case.

It’s the ability to interchange financial data seamlessly. I think there’s kind of a gap in the SOA world. There are well known protocols for us to exchange information on the PCP-IP stack that we can use for financial information. But it would be cool if there were a standardized way to send general ledger information and inventory information to accounting systems.

There’ve been a couple of attempts, but its not very well used or adopted or very well thought out.

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Three market segments

MM: As you bring this capability to market, what are the major market segments that you’re addressing, initially?

ES: There are three segments, initially. Then we plan to go very horizontal. We think we can be the Salesforce.com of billing. If you look at the publicly traded large software companies, I think there are 30-ish software companies that have reached over a billion in revenue. And 2 or 3 of them are billing companies. I think that 4 of them are CRM companies.

So you have Salesforce in the CRM space. We think that we’re positioned to be the Salesforce in the billing space. One of the Salesforce equivalents in the billing software space.

We’re focusing our outbound efforts in three key areas, right now. They are software as a service… We are also SaaS. But we’re additionally focusing on other SaaS providers.

MM: Makes total sense.

ES: The second is entertainment and media. We have online gaming, content and things like that.

Then the third is telecommunications. We’re making great strides in telecom and some of the other unique telecom kinds of services. Where they’re mashing together GPS and infrastructure, to provide cool services.

For instance, we have a client called Zoombak that tracks your kids. You give them a little device, and you can track where your kids or pets are. That states who we’re integrated with. And we’re using Vodafone’s infrastructure in the UK. That’s who we’re also integrated with.

Those are the three focus areas for us, right now. SaaS, media-and-entertainment, and then telecom.

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Monetization Maturity Model

MM: So your primary point of entry into the companies in those areas would be probably at the business development or product side of their house, that are looking for specific capabilities. Is that correct?

ES: Yes. We’re finding that it really depends on what stage they are in their development. We have this model that we use to decide where we go. We call it the monetization-maturity model.

Monetization Maturity Model

At the lowest level, all they care about is getting the money and getting customers. We solve that problem for them. Typically, those issues come up in the product-development stage. When they’re first launching the product. If they’re early on in their cycle, that’s when we talk to them. We try to go in on the barking side or the product-development side.

The next level up is security and compliance. That’s usually the CFO or CIO or CTO. After something’s launched or is about to launch and they’re looking to get scale, they’re beginning to worry about their compliance and taking credit cards. They’re beginning to worry about their European Safe Harbor Compliance, and managing multi-continent transactions.

Then at the next level, they’re starting to think about things like SAS70 and Sarbanes-Oxley. Well, some of our clients are publicly traded companies. But even companies that aren’t publicly traded and have it in their goals to be acquired by a publicly traded company, or VC or some kind of other private equity—they need to make sure that they’re compliant with the issues.

Then the next layer up is extending that product. Coming out with new price and plans. Having flexibility. A lot of billing systems—once you put them out there and create their pricing and plans and things like that, it’s very hard to add additional features and additional functionality. Or different price plans.

If you’re doing a flat rate bill for a service and you’re charging by the number of seats, it’s very hard to change that business model to count how many transactions you have in a piece of software, and bill based on that element.

The limitation on a lot of cases isn’t that the network elements of the service provider can’t handle that, but it’s the billing system at its core that can’t handle that. They either can’t handle the micro transactions and micro payments or they can’t handle the ability to do flat rate billing and users-based billing, and do a hybrid model.

MM: That’s the top of the pyramid?

ES: Yes.

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Achielles heel of Web 2.0 businesses

MM: You brought up something really interesting. The notion of managing transactions and customer relationships across a “monetization and maturity model. That tracks really well with another model that we use. An information maturity model for marketing operations.

More specifically, the thing that I find fascinating about what you just expressed… I find the notion that managing the transaction becomes the primary constraint on business growth and transformation. You might have a business strategy that could drive top-line revenue. But because you can’t manage the transaction or re-engineer the transaction, you can’t unlock that opportunity.

ES: No. We see that as the tragic flaw or the Achilles heel of a lot of these Web 2.0 businesses. There are some really unique ways of how they want to monetize their product or service. But it’s managing those transactions and managing those interactions in a scalable fashion, where stuff breaks.

MM: There was a great theorist—actually a master practitioner—Adrian Slywotzki, who’s written a number of books. But the one that really kind of lands that whole concept is something called, “Value Migration.” I think another one was called “Profit Zones.”

The idea was, he was the guy that really came out and started to develop a very comprehensive, robust description of what he calls a “business model,” or a “business design.”

He says that fundamentally, a business model is really about two things. One, your value-add. What you bring to a market. And value-capture. Specifically, the devices that you have for value-capture.

Specifically, he was getting into the idea that a lot of companies leave a lot of value on the table because they don’t have the appropriate mechanisms in place to capture it.

ES: I’ve never heard of him, so I’m fascinated.

MM: Specifically, in a lot of our interviews with other kinds of technical innovation leaders or thought leaders or market leaders, in terms of who are really driving transformational technology or disruptive technology to market, oftentimes it’s just that—what you said. “How they get paid.”

On an abstract level, according to your monetization-maturity model, at the end of the day, you’re selling a transformation of a business model. The ability to constantly re-engineer, tweak, refine the business model—with an emphasis on the value-capture.

ES: Yes. I gave a talk last week at the SaaS Summit. Very similarly, in a converging way, I concluded my talk with… Especially when you consider in the software space, which was the audience I was addressing, here.

Behind-the-firewall, on-premise providers tend to think of their software as their business. When you move to a service-provider aspect, your software is no longer your business. Your customer experience is your business. And your monetization mechanisms are your business. It’s a very different way of thinking.

MM: Yes. Almost a flat world-round world idea.

ES: Yes.

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Future proof

MM: One last thing, as we move towards what we’ll call the “future proofs” or future-forward-looking comments,” and so on.

I just read a book called, “The Making of Second Life.” It was the corporate history—a four- or five-year history of the development of second life as a user-generated world. The emphasis was on the pivotal role that digital property rights and user-generated worlds have.

Specifically, the emergence of the Linden dollar as a way of managing micro payments.

Could you speak to some of the underlying technical or business issues as they relate to customer relationships or trade relationships based on micro payments?

ES: With our system, we’ve separated micro payments from micro transactions. We think they’re very distinct types of transactions or interactions. Meaning, if you look at the Lyndon and how the Lyndon happens, one of the reasons they came up with the Lyndon was that the economic cost of doing transactions in real-world dollars versus virtual-world dollars was cost-prohibitive to them.

That meant you couldn’t come out and buy a cool tee shirt in SecondLife that in real-world dollars might be a fraction of a penny. One thousandth of a cent.

MM: Right. Economists refer to that as the “transaction cost.”

So the transaction costs of the deal far exceeded the actual dollar value of the deal—much less the profit of it.

ES: Correct. I think that a lot of the future development is going to be in two things. What we call “payment processors,” and then “payment methods.” A payment method can be—effectively—a currency. You have the aggregators—the PayPal, the electronic wallet providers. They try to aggregate these transactions.

So we built our system to be processor-independent and also currency-independent. That means we can transact in Lyndon if we can hook up to a payment processor that will accept Lyndon as a currency. There are none of those, yet. But if you look at things like PayPal and maybe a little bit of what Amazon’s doing with their DebtPay, they’re actually going to end up being a de facto wallet.

MM: This gets into another development I’d like you to speak to. Again, I’d like to reference it in terms of a popular science fiction book by Cory Doctorow. He wrote a book called, “Down And Out In Disney World.”

It’s set in the near-term future, and essentially describes how each of us are completely embedded in a [inaudible] mesh for a mobile or wireless environment. In the course of this new pattern of how we live, work and play as described in the book, there are two basic accounting systems.

There are two financial systems that prescribe or envelop us as individuals. There’s the actual monetary system of dollars and cents, and you buy stuff. Then there’s a reputation management system, where in the language of the book, they call it “Whuffie.”

As you do good things, like free up a parking place for somebody, they throw you 10 or 15 Whuffie. Or if you’re rude to somebody, they take away 10 or 15 Whuffie from you.

So as you kind of go through life, you’re constantly collecting or expending social credits. Whuffie. That has the net effect of whether you get the good seat at the restaurant or get all these other kinds of soft privileges, based on your reputation.

So we’re beginning to see how Arthur C. Clark envisioned satellites and we made them, and as the creators of Dick Tracy envisioned the walky-talky wristwatch. Science fiction often informs the next thing for engineers to go build out.

Specifically, as you talk about micro payments and micro transactions, could you speculate on how you’d see your system or systems like yours facilitating the emergence of this second economy, based on Whuffie dollars—for lack of a better term?

ES: I actually love the analogy. I haven’t read that book, either. I just ordered it on Amazon as you were talking. There’s the combination of the financial system and then the combination of the reputation system.

If you think about it today, effectively, the three credit card company interchanges do—with Visa, MasterCard and in combination with their merchant banks… they are the reputation system. They are underwriting that reputation.

They are coming out and saying Ed Sullivan is a good guy and has a very high probability of being able to pay you that $30.

MM: Even in more direct terms, Ed. If you go to eBay, you’ve got that TrustMark.

ES: Right.

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