As today’s modern IT environment evolves from more traditional physical and on-prem asset management to cloud-based services, enterprises are challenged with how to manage new expense categories and how to tie those service charges back to overall business performance. Fortunately, there are many parallels that can be drawn between Telecom Expense Management (TEM) and Cloud Services Expense Management (CSEM). In this blog, we will touch upon the fundamentals of common charges for IT programs, types of cloud services, and how cloud services correlate to different billing charges. Armed with this knowledge, IT leaders and program managers can better articulate their business case for implementing an integrated approach to managing technology expenses across the entire organization.
First, we will start with three basic types of charges that serve as the foundation for IT programs.
Recurring Charges – Typically represent fixed charges that are assigned to goods or services on a contracted schedule (e.g. weekly, monthly, semi-annual or annual), with monthly subscription fees being the most common. Recurring charges are associated with an active subscription to a service. However, recurring charges will prevail and may increase above the negotiated rate once the contract terms expire. It is common for suppliers to offer lower rates for longer-term commitments. And, they continually adjust subscription rate fees in order to stay competitive. Cloud service providers introduced a new dimension to recurring charges by offering a means to financially reservice commitments for the use of future cloud services for timeframes of one or three-year terms. IT leaders need to understand all the variables to make sure they are optimizing their reservation commitments.
Non-Recurring Charges – Encompass a one-time charge for goods and services that are associated with specific events or transactions. Examples include activations, procurements, changes and deactivations. Like recurring charges, the rate schedule for non-recurring charges is typically negotiated and can change when the contract term expires.
Usage Charges – Are aggregated metered charges derived from the per-unit consumption (e.g. mega/giga byte, per hour/minute/second, etc.) of a specific technology service. The per unit rate is typically negotiated based on the terms of commitment and total aggregated consumption. Negotiated contract agreements and publicly available rate schedules govern per unit rates by time, location and overall accumulated usage. Suppliers continually adjust rates to stay competitive and encourage the adoption of new services in order to sunset more costly legacy services.
Cloud services are typically designated with a noun describing the specific technology service and appended with the letters “aaS” (which represents “as a Service”). This indicates that the technology is not acquired in a traditional sense, but rather accessed and temporarily consumed via cloud service. A technology service is recognized as a cloud service if supports the following five characteristics:
The most common subtypes of cloud services are summarized below.
The billing model for each type of cloud service correlates to one or more of the foundational charges managed in an IT program. A quick conceptual summary is outlined below. Additional clarification will be provided in subsequent publications of this blog series.
SaaS – are typically recurring subscription services that are assigned to individual named users. However, competition is now ushering in new innovations to metering transactions so that organizations aren’t paying the same monthly subscription fee for employees that may only access the software service once a month versus continuously. They are also seeking ways to repurpose subscriptions for employees that leave the organization. As competition forces the billing model for SaaS services to evolve to accommodate all types of users, organizations will benefit by monitoring consumption patterns to develop models for the different types of users.
IaaS – are traditionally metered services which start upon activation independent of actual usage. Billing increments may vary by second, minute, hour, day or month. Technology evolutions continue to innovate ways to logically partition operating environments to help organizations maximize their compute resources. Organizations need to monitor and model consumption patterns to formulate strategies to help them negotiate optimal rates. Additional clarification on investing in reservation commitments, leveraging virtual machines, (VMs) and containers will be provided in a subsequent blog.
PaaS – are transaction-based usage charges which are typically very high volume (e.g. millions or billions per billing cycle) and may include tiered rate discounts based on type, spectrum, volume and time-based usage of APIs.
UCaaS – represent a wide spectrum of communication services and typically encompass a combination of recurring named/per seat subscription and usage-based transaction charges.
In upcoming blogs, we will continue to build upon this topic with the goal of empowering IT leaders and program managers with the know-how to transform their traditional TEM program into a strategic fiduciary type service that enables their organizations to effectively embrace the proliferation of dynamic cloud services. In case you missed our blog about how Cloud Services Require New Approaches to Expense Management, you can check it out here. We also encourage you to check out our recent Calero World Session “Expanding TEM Best Practices Into Additional Cloud-based Subscription Services.”
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