Will it eclipse Voice/Data/Wireless?

It seems like only yesterday when we used to debate when and if data would “pass” voice, in terms of which one companies spent more money on. At the time it was inconceivable, but fun to speculate on. Data spend passed voice spend a long time ago, however, now it’s clear that wireless will pass data in the not-too-distant future. There also appears to be another wave of rapidly growing expense: IT Subscription Services.

IT Services was not even a noticeable category just a few years ago, but it is now growing at an alarming pace. Services such as web conferencing are remarkably effective at speeding and enhancing communications ability, while at the same time, keeping travel costs down. But spending for services such as these seem to have grown at a rate that is out of proportion to its business benefit.

Sure, web conferencing has had a profound impact and it is becoming another one of those essential services, (like dial tone) that an enterprise can’t function without. But why is the cost rising so fast?

Remarkably, the cost isn’t just racing upwards only due to greater utilization. Rather, web conferencing services are one of a large group of services that are sold in a manner that is not dissimilar to other subscription-based services, such as wireless. In wireless, smart and manipulative product managers long ago figured out that if they could price their services in such a way that customers would buy a package for more service than they actually consumed (i.e. unlimited data plans), the suppliers could make even more money than just by charging high rates.

Bundling is manipulative: Hence, the bundling, pooling, and bucketing of voice and “unlimited” (which are actually limited by the use of throttling) data plans that you see advertised currently. The main problem with these plans is that they are based on a false premise. The premise is that a consumer-friendly appearing price point is offered, such as “only 5 cents per minute,” but when you look under the hood, there are conditions that make the price go up severely, unless YOU can actually predict your exact usage. For example, the plan may say $59.95 per month for 1,200 minutes, which yields just under a rate of 5 cents a minute. However, the fine print says: “If you use less than 1,200 minutes, you still pay the $59.95. In this package if you only use 500 minutes in a month, then your net effective rate is actually 12 cents per minute. Conversely, if you have a busy month, or you select the wrong plan and your usage is more like 2,000 minutes, you might get a surprise by receiving a phone bill of $284.95. The reason? Because the supplier has an overage rate of 15 cents a minute (not the 5 cents you paid for the first 500 minutes) for any minutes that you use which go above your plan.

Problems with accountability: The even bigger problem is that if you were using the phone for yourself and your family only and you were paying for it out of your family income, there is a high probability that you (or whoever pays the bills in your family) would be personally looking at your usage. You would have the ability, potentially, to monitor and adjust your calling plans based on what you see in the billing. Well, that’s all well and good for a family. But when you are running an F500 corporation with 25,000 wireless devices among your users, its impractical and inefficient to expect all of your users to inspect their phone bill (they probably don’t even see it) and then call in to adjust their plan accordingly. Plus, it’s OPM “Other People’s Money” so you can’t really expect them to feel that invested in worrying about the cost.

IS TEM a solution? Probably not. So what is the solution? There are many companies out there that sell “wireless mobility optimization services.” The pricing and subscription plan abuse of the suppliers, when applied to large corporations, is what gave rise to the entire industry of TEM “Telecommunications Expense Management” companies that provide this kind of service as a subset. Isn’t it a shame that due to supplier manipulation you have to hire yet another supplier to keep track of the primary supplier? Ah, but that is the nature of being in business and relying on technology that is very useful. Technology that is produced by a group of really smart (read that “wily”) people that also apply their intelligence to gaming their customers by creating these unmanageable plans.

Abusive Wireless models are a root cause of IT expenses rising. Although it seems like going off point by covering wireless so extensively in an article that is supposed to be about IT Services, it really isn’t off point. In fact, it is exactly the point. Using almost exactly the same concepts that are used in wireless, IT Service providers sell their services in subscription models that are not that dissimilar from those employed by the wireless providers. In fact, their approach is also not that different from those annoying rental car pre-paid gas schemes that you have to deal with each time you rent a car at the airport.

In all three scenarios, the trick that is applied is that the supplier is making the sure bet that you will not be able to guess, with any degree of precision, the amount of services you will consume or exactly when you will need it. To the extent you can’t predict consumption, (which varies wildly by individual, by region, and on a month-to-month/year over year basis) you have to pay more. Sometimes you even pay a multiple of what the advertised rate is. Do you prepay your gas in your rental car? How carefully do you consider the impact of the same approach in your mobility and IT services costs? It can be a very bad deal.

Also, much like the rental car gas gambit, there is a certain amount of fear involved. In the same way you don’t buy a full tank of gas in the rental car and then carefully manage the consumption to ensure that you bring the car back “just above empty,” due to the risk that you could run out of gas, have to pay for a tow truck, and potentially miss your ride back on the plane, subscription models clearly indicate that “if you don’t buy enough subscriptions, or seats, or ports,” that you have to deal with the ever present risk that an important participant, let’s say on a shareholder call, will be blocked from getting in on an important call. And what might that cost your company? Well, first of all, it will cost you your job. What it costs the company can’t really even be calculated.

Sure, you can agree to pay an overage charge, in certain circumstances, that will result in your being able to pretty much assure that the “blocked important caller” scenario never happens, but in order to do so, you are back in the model of the wireless phone overage charge at 15 cents instead of the advertised 5 cent per minute situation. Again, multiply this effect times tens of thousands of employees, often operating around the globe in multiple regions and time zones and it gets even trickier. In addition, enterprises also sometimes even fall prey to the added trick of having to pay an alternate minimum subscription fee equal to 15% of your total employee base, whether you use that much or not, and you can quickly see how the costs spiral ever upward, regardless of “how much gas you really need.”

If you provide your own network, you could end up paying double. Suppliers also apply another trick. They like to advertise a super-low per unit rate, for a different kind of service (sometimes called “ON-NET” in the industry), which means that while you are using their web-conferencing bridges; the accompanying voice connections actually take place on YOUR own network, rather than theirs. For this service arrangement, they give you what appear to be a really good price, of about a 50% discount, but the fact is, that since the calls are traversing your network rather than theirs, it actually means that they are billing you for calls that have to be supported by network infrastructure that YOU built and pay to maintain rather than them. Its a false economy, kind of like if the rental car company had the right to bill you for gas that you bought yourself and put in their tank.

The net result of all of these manipulations is that your company is paying probably 50% more for IT Subscription Services, and as much as two to three times as much as you really should, based on your business need, and your consumption. If you were able to match your actual need to the actual lowest available price for the services you consume, you would find that the cost of these IT Services would plummet, both immediately, and on a durable basis.

In the same way that the AIQ team designed and implemented automated software to disaggregate, track, and correct telecom invoices and plans in the early 90’s, this same team has figured out how to correct the misapplication of IT Service billing and plans in the current century. It was only a matter of time – once enterprises began to consume large quantities of expensive, complex service, the AIQ team was there working on unraveling this Gordian knot that we call “Subscription Services.”

In the past 12 months, the AIQ Team has helped a global 100 and several Fortune 500 companies reduce its IT Service expense by between 50-100%. In one case, the client was facing having their IT Service subscription expenditure more than double. By the end of a relatively quick project, this client saw their IT Service cost converted from an expense to a no-cost line item. The AIQteam can do the same for you.

Get in touch and let’s talk about your expense and how we can help you rein it in. If the upcoming year and economy holds the risk of reduced revenue and higher taxes, one of the best ways to assure profit is to cut expenses. If you can do that without impacting service quality or capabilities, its a great way go.