Bill Me, Please

There is a widespread belief in the market that the Internet billing field has good potential in the coming years and may conquer the billing sector in general, but Wall Street's opinion is divided. Some of the analysts at the investment banks who cover the sector are convinced that it will become a hot item on Nasdaq. They base their assessment on two reasons why the development of Internet billing will accelerate soon: the entry of broadband and the development of communications infrastructure that, among other things, will bring about the establishment of new communications companies using Internet infrastructure. These companies will need Internet designed billing systems. There are even analysts who will extrapolate and declare that this new field will be fertile ground for the growth of Israeli companies on the scale of Amdocs.

In contrast, other analysts state that Internet billing is not yet a niche, and though it will be hot, it is hard to imagine that it will reach the scale of optics, cellular Internet and similar technologies on Wall Street.

The Internet billing market is taking its first steps, and it is therefore difficult to accurately assess its expected scope and growth. Most of the available figures refer to the billing field in general. Rough estimates show the revenues of the Internet billing market to have been about $300 million in 1999, and is expected to grow by 50% in the next few years.

The Yankee Group research company estimates that the Internet billing market will amount to $7.7 billion in 2004. This figure includes the IP Mediation market in which companies like Amdocs and NARUS (which gather information from the Internet and deliver it to billing companies for pricing) operate. The Yankee Group estimates that the contribution of the IP Mediation market to the figure will be about $2.2 billion. The research company Gartner Group estimates that the scale of the Internet billing will be over $3 billion in 2002. These estimates do not include Internet billing companies' sales to the ASP market.

Two main factors underlie the flowering of the Internet billing market. One factor is the end of the period of tolerance toward losses by Internet providers. From now on, Internet providers (ISP) and ASP companies who want to survive will have to show revenues, or at least an expectation of revenues. The second factor is the entrance of telephony, cable and satellite companies to the ranks of Internet providers.

"As the trend to provide Internet via the infrastructures of cable television, cellular and satellite companies intensifies, the need to price Internet use on these infrastructures will grow in proportion, based on common Internet billing practices. In other words, according to the type of network use and the type of content being transmitted, says Rivka Allon, deputy managing director of Convergys Solutions Israel. "Therefore, companies providing billing services to cable, cellular and satellite companies are beginning to provide billing services for the Internet."

"Amdocs acquired Solect, the second largest Internet billing company," says Convergys Solutions Israel deputy managing director for projects Gilad Cohen, "The purpose, among other things, was to offer billing services for its mobile telephone customers."

This all sounds very fine, except that the cellular and television Internet market, however interactive it may become, is still only theoretical at the moment. Sector growth depends to a great extent on the penetration of broadband, which has yet to become widespread.

As for the demand from Internet companies to begin earning money, Nimrod Shapir, a solutions architect at HP Israel, says, "Up till now, Internet companies directed all their resources to raising the number of subscribers as much as possible. Today, investors want to begin seeing revenues."

"In order to meet the revenue expectations, Internet companies need sophisticated accountancy methods that will be able to selectively price different services. Unlike traditional telecom companies that bill subscribers according to airtime and distance between callers, Internet companies have to determine different rates for each type of service, such as surfing, videos and e-mail, and for each type of content. Consequently, there is a need for Internet billing and IP Mediation companies."

Globes: What is the greatest challenge facing Internet billing companies?

Shapir : "Content pricing. Internet companies still talk about pricing according to the number of bytes transmitted through the system, but in the near future, they will require billing companies to provide solutions for a wide range of pricing. This is where the great problem lies. For example, a user wanting to play an Internet game during which he is supposed to shoot a target, has to buy a certain number of bullets. The system has to be able to count and price these bullets. If he wins, it has to be able to give him 50 more bullets free.

"Advertisements, for example, are demanding pricing that does not yet exist, based on the business model of the advertiser.

"In order to create a bill that unifies all the types of services and contents, the billing software has to price each type of service as well. A cellular operator, for example, has to be charged for both the price in minutes for airtime and the price of the product purchased through the cellular phone - all on a single bill.

"The billing process is built on several levels: the gathering of information, determining the price for each type of use, calculating the bill according to the customer's basket of services, bill collecting and communications with the accountancy department. The traditional billing companies can do the last two items by themselves, but they need IP Mediation companies for first stage, and Internet billing companies for the second and third stages."

Gilad Cohen : "IP Mediation companies that deal in information gathering, identify, collect and analyze the activity carried out online. The billing companies which receive this data, translate it into prices. The second component of their operation is customer relations management systems. These systems create the bills according to each customer's basket of services."

It has become clear that the products developed by the IP Mediation companies are designed for a wide range of uses that are not necessarily related to billing.

"IP Mediation companies claim that in future they will be able to provide systems that will change in real time the information content package, in order to guarantee network transmission quality and efficiency," says Gilad. It is important to emphasize that these are not yet actual capabilities. They are only potential."

One IP Mediation application is the ability to detect fraud and illegal activities.

Many in the industry believe that in future, the billing companies will collect the mediation data themselves, and will acquire the IP Mediation companies to do so. "The moment that the billing companies have to pay NARUS and XACCT, they will prefer to develop these abilities themselves," says an industry source.

"The advantage of IP Mediation companies is time saving," says another source. "In the short term, IP Mediation companies have an important role, but it is reasonable to assume that in the long term, their product will be part of the billing product."

Meanwhile, the war between NARUS and XACCT is escalating. XACCT, which is about to issue on the stock exchange soon, is holding fire, while NARUS is firing with all guns.

The industry claims that the bottom line is that neither company has a full solution. "XACCT's product has two disadvantages," say an industry source. "First, it has a problem providing real-time information. Second, every time a network adds a new service, XACCT has to develop a new chip (adapter) for it, to extract information. According to Amnon Bar-Lev, XACCT now has about 250 adapters, and is planning to have 300 within a year.

"The disadvantage of NARUS's product is its inability to see the big picture," adds the same source. "NARUS gathers information from the network by line reading. The problem is that there is information that is not transmitted via the network, but is located in the servers, for example. NARUS has a problem finding information that is not transmitted."

Both companies know that while accelerated growth will increase their markets and that there is room for all, but their niche war is not about survival, but for leadership. They know that, like in other sectors, it is the industry leader who will set the standards that the market will live by.