Coincidentally I recently interviewed Esmeralda Swartz, the CMO at MetraTech, a Boston, MA, based billing platform, and Hans Vestberg, CEO of Ericsson, the global mobile infrastructure provider. I met Vestberg at the company’s Executive Media Summit (transparency statement: fare and hotel paid by Ericsson). The coincidence is this. At the start of this week Ericsson acquired 140 person MetraTech. Why does a 100,000+ infrastructure provider buy a 140 person billing platform?
As Vestberg explains Ericsson is now a services company. In the past 12 months it has shed 17,000 staffers but it has also brought 14,000 on, through acquisitions and hires. There’s a lesson in there for Microsoft, a company that reportedly tried to head-hunt Vestberg for their CEO role. Change is not just about large lay-offs. It involves strategic re-direction and one element of that is an insight into the reshaping of the overall economy.
It’s no secret that the economy is on a 40 year journey to services, initiated in the Reagan-Thatcher years and accelerated by mobile and Cloud.That shift is also creating profound change in how enterprises need to structure themselves.
MetraTech’s value lies in the insights it has generated into how business is being done differently and the new structural services that companies now need. The MetraTech “product “is a billing service that is very adaptive to what you might call federated business models (Ben Kepes puts it in context for telcos on Forbes)
In recent years we have heard a lot about a different kind of enterprise structure – the platform and the ecosystem. But sneaking up behind P&E is P&F, platform and federation. In the service economy companies are increasingly able to federate their offer to customers – that means they present one front (like a website or a platform) to represent many services from many companies.
Ericsson building at Telefonplan in Stockholm, Sweden. (Photo credit: Wikipedia)
MetraTech is designed to be the glue that binds federations at one level (billing). Services like Ping Identity do something similar at another level (security). Here’s an example, GRU, the Sao Paolo airport in Brazil.
Close to an overcrowded urban area, explains Esmeralda, the airport is a greenfield site with opportunities to grow. In view of this and downtown congestion the Government privatized the airport (GRU) under a 20 year concession.
This comes at a time of rapid growth in air travel in the region but also intense urbanization in the major cities. GRU is seizing the opportunity to take on city-like attributes. As well as increasing the size of its malls, it is building conference and tourism facilities. In fact it is attempting to become the platform for a wide variety of businesses including car rental, car parking, business services, currency exchange and ATMs, security, Internet access, conference organization, hotels, office rental, restaurants, tourism, baggage handling and of course air traffic, which breaks down into airline ticketing, check-in, cargo, fuel, maintenance meteorology telecommunications.
Normally an airport would just be a renter collecting a monthly pay check from its concessions but at GRU the ambition is to help the airport tenants to cooperate more and to cross promote, and to seek mutual opportunities. To do that it uses performance and incentive related billing.
Much of its revenue is predicated on revenue share rather than just rent. The more people it can attract into the airport city, the better for the concessions but concessions need to play their part too. The better the performance of the concessions the more revenue to the airport. Because of time pressures it needs to expand its airport city partners very quickly. It has a short space of time to prove its model. In this situation GRU has created more of a Federation than an ecosystem. Instead of billing for rent it bills according to individual incentive and revenue sharing schemes.
MetraTech is designed to be a flexible system for building up incentives for good federal behaviour as well as for subscription and indirect revenue opportunities. GRU adopted it earlier this year.
Still you come back to the question where might it fit into a behemoth like Ericsson? Ericsson’s new mantra is everything as a service. One of their key growth areas is taking complex infrastructure technology and serving it up as a platform – like they now do in broadcasting where an increasing number of companies (including the BBC, through the acquisition of Red Bee Media) entrust broadcast play out to Ericsson.
Imagine situations where services become increasingly like the supply chain of old. In supply chains the auto industry led the way with Tier 1, Tier 2 and the rest, structured relationships where, for example, a brake supplier would take the lead and legal responsibility on all braking components.
In services something similar is happening without the labels Tier 1 and 2. Companies are taking on high tier responsibility and then working with peers to pull together all the components of a service. Flexible billing provides the incentive options for companies in services to work federally.
So the answer to the Ericsson question is it furthers Ericsson’s ambition to provide services in all areas of the economy. It can now augment its traditional telecoms billing services with something more incentive driven and flexible and better able to serve connected companies that are pursuing a federated structure with new business models. It is one, but only one, component in the new business infrastructure. Ericsson have been smart to spot the opportunity and to drive hard into services, though in my view they still need to work on how they project their strategy and to create more insight around ecosystem functioning. HP, Dell, Microsoft might not wish to admit it but there are lessons here for all of them.