XM Satellite Radio's two satellites, nicknamed "Rock" and "Roll," are positioned in geostationary orbits over the East and West Coasts. They beam line-of-sight signals that bounce off more than 1,000 terrestrial repeaters. These repeaters span the United States to provide listeners with more than 100 channels of radio in both their cars and homes. An 82-studio broadcast hub located in the nation's capital and two other broadcast facilities in New York and Nashville pump out 100 channels of music, news and sporting event coverage.
Equipment manufacturers such as Pioneer, Alpine and Sony offer satellite radio units through big-name consumer electronics outlets like Best Buy, Circuit City, Sears and some Radio Shack franchises. GM announced satellite radio units as an option in 23 of its 2003 car models.
XM received awards from Time, Popular Science and Fortune over the last year. Without a doubt the broadcast radio industry thinks this technology is hot, and consumers are buying into it as well. About 30,000 subscribers signed on to XM in the company's first 60 days of nationwide availability.
Of the two providers, XM and Sirius Satellite Radio, XM was the first to launch its service, in late September. Before that, according to Melanie Stensrud, vice president of listener care at XM, the company spent about 18 months preparing for its launch and then another three months doing exhaustive testing of both its systems and infrastructure (See "Systems Rollout at XM Satellite Radio").
Sirius started out as CD Radio, changing its name in November 1999. The company had expected to launch services as early as 1999, soon after the launch of its satellites. Following a series of delays, however, it didn't turn on the switch until February this year. It expects to provide nationwide service by August. The Sirius system uses three satellites with orbits that move in succession across the sky directly over the United States versus geostationary orbits over the equator.
Sustainable Business Plans?
Both Sirius and XM plan ultimately to offer 100 channels of programming. Sirius will have up to 60 music channels with 40 business, sports and entertainment channels, while XM will have 71 music stations with 29 infotainment listings. The difference to note, however, is that Sirius will offer 60 commercial-free channels as opposed to XM's advertised 30, meaning that Sirius will cost a subscriber about $3 more each month. "We have elected to have some of our channels carry commercials and that subsidizes our subscriber fee, and it allows us to keep the fee very low, … without the subscription fee being the only thing we rely on to build the business," says XM's Stensrud.
Still, according to XM, the company will need about 4 million subscribers to turn a profit. While XM expects to reach this number by 2004, flat-rate subscription-based services typically aren't a cash cow. While they maintain a steady flow of revenue if subscriptions increase, there is much to be said for selling enhanced services and upselling the subscriber.
Jason Briggs, senior analyst at Yankee Group, believes adoption will be the key to success in the satellite radio market. "The content itself is compelling enough to get people to sign on to it," he says. In the long run, however, Briggs believes neither company will settle for a minimal monthly subscription fee to sustain its long-term business plan.
A Billing Twist
When most providers seek out a billing system, they do so with the notion that billing is a major competitive differentiator among players in any given space. Yet both XM and Sirius have signed on to Portal's Infranet billing platform.
Stensrud explains that ready-made high capacity drew XM to Portal. "We were looking for flexibility, scalability and the ability to provide a customer experience with a minimum amount of customization out of the box," she says. "Wall Street thinks that we may have as many as 20 million customers within 10 years, so to go from zero to 20 million, I didn't want to have to switch billing systems in the middle of that. That would be a disaster," she adds.
Today XM is strictly a subscription entertainment service, but it could eventually offer some sort of usage-based service. "We knew, for example, that Infranet was very much a system that could support usage-based billing, so although today we don't do that, it has the capability to do that in the future, and it has the capability for us to go there at very large scales," says Stensrud.
However, she says, no implementation is ever perfect-there will always be sacrifices for one reason or another. "I would say I'm 90 percent satisfied with the mix of our software platform based on those three elements [flexibility, scalability and minimum customization]. The part I'm not satisfied on is the customer experience piece of it because we decided not to do a lot of customizing," she says. "We made some compromises internally in terms of process that now, over the next several years, I will fix."Briggs believes billing for satellite services would be a natural fit for Portal. "I'm sure Portal convinced [XM] it knew the roadmap [XM] wants to take years down the road to get content into the car, as well as convincing [XM] that it may not be able to provide or make a viable business case off the $10 it is charging now," he says.
Briggs does believe, however, that at present the product may be overqualified for what it has been employed to bill. "I think right now that both providers won't be using Portal to its fullest extent, so it's probably not as big of a deal that they are both using Portal," he says. "It might be three to five years down the road, as both providers become more and more competitive."
Service Evolution
Tiered service offerings appear to be next on the list. Over time, Stensrud says, XM will look more like DirecTV, in that customers will be able to pick and choose from premium packages. The radio ID number would identify whether the user could receive premium channels or other packages.
"We're still defining what we want to be when we grow up from a programming perspective, partly because there are going to be technologies used that will change over time in terms of how we can segment and allocate bandwidth into channels," Stensrud says. "Compression technologies today are one thing, but in five years, they may have come up with something new that may allow us to triple the amount of channels we have."
Although it is likely a long way off, Sanjay Swamy, Portal's senior director of market development, foresees customers being able to order a CD directly from their radio when they hear a song they like. Anything they order would be charged to their satellite radio account, which would be cleared for a certain credit limit.
"You can grow that into merchandising of concert tickets and a lot of other targeted offerings," Swamy says. He adds that partnerships with providers who could help XM deliver content to its listeners would likely evolve as a natural extension of what the company currently offers. For example, cross promotions and cross marketing to consumers of similar services, such as DirecTV-with whom XM has formed a marketing alliance-could allow discounts for customers brought on through partner promotional campaigns.
"If you talk to a bank, they will tell you it costs them anywhere from $50 to $500 to get the first dollar into a new account," Swamy says. If a business relationship with a partner would bring in revenue from new customers, he says, XM would likely be willing to offer discounts or share revenue for its services; however, if XM decides to cross-promote its services, the billing system must track how the customer came onto the service and apply any related discounts.
Likewise, CRM systems will have to track customer data coming in from various touch points. XM has employed Siebel to manage its CRM. Siebel spokeswoman Margaret Molloy says the company's product can support premium channels, track promotions sent to a subscriber and manage future marketing campaigns.
With new services come several billing challenges. First, the system has to be able to authenticate that a customer has a valid account and whether he or she is a premium customer. To determine whether a transaction could be completed, it must know the credit limit and whether the customer pays bills on time.
The biggest single billing challenge XM might face is to offer usage-based services. "That's sort of a transformation of architecture," Stensrud says, "especially if we decide that we wanted to have both usage-based billing and flat-fee products. That will be an intellectually interesting challenge for our IT team, but it's actually also a process challenge for us in customer service." Static flat-fee billing is simple and doesn't generate a lot of questions, but a switch to usage-based billing would suddenly flood customer care with an influx of questions to call centers.
Provisioning Without Pain
No matter how future offerings evolve, satellite radio providers will rely heavily on automated provisioning and account management. Seamless ties between CRM, billing and OSS are critical for these providers. XM's Stensrud explains that XM pieced these systems together by running its Web interface with the same subscriber management system, or SMS, used as the engine in the call center.
When customers go to the Web to activate service, the Web front end takes them to a brand new activation screen where they give all the standard order entry information, including name, address and credit card. The customer must submit a valid radio ID in order to subscribe to the service. If a valid ID is not submitted, the Web care front end will interrupt the transaction and ask the customer to resubmit the information with a valid ID that comes with the radio when it is purchased.
"The unique aspect of XM's deployment was the requirement to communicate with satellite provisioning systems," explains Siebel's Molloy. In this process, Siebel accepts the subscriber's order for service and sends the transaction using Vitria.
She notes that whether the customer uses the Web site or speaks to a CSR, the customer information is updated in Siebel. If a subscriber begins the order process on the Web and then elects to contact the call center, the CSR has a view of the information already entered on the Web and will always have the most updated information about the subscriber.
After the order is entered, it goes through the SMS system and is processed to create both a customer service record as well as a billing record.
The middleware passes the serial number of the radio and unique key information as well as information on the channels the customer selected to the satellite central systems. That transaction triggers another one in XM's uplink management system, which pushes programming and information to the car radios. The SMS begins an over-the-air transaction to the customer's radio, telling the radio that it is now authorized to receive XM's programming and what channels the customer is authorized to receive (today there is only one package). The satellite pushes down the signal to the car radio, and the system is activated.
Automating Online
XM built incentives into its pricing-a one-time $5 discount on the activation fee-to encourage customers to active online. "We want people to actually use the Web," Stensrud says. "It really is considerably more expensive for XM if you call the call center."
"The way they structured it right now, providing the cost incentive to the customer is really, really smart," says Yankee's Briggs. "Anytime you get anyone to move their interactions online versus pick up a phone, not only is that service provider saving costs, but the customer is saving costs as well."
"For someone whose revenue is somewhat fixed like they are right now, the ability to drive that cost is the way they are going to show profitability in the short term. One of the ways to drive out costs is to drive down costs and one of the ways to do that is to drive out the amount of manual provisioning that's needed. It's critical right now when you've got a service that's fixed in price, and I think they've also demonstrated the fact that it's important to them," he adds.
Stensrud says that XM's call center deals with more than order entry-it also provides customer education. "We very rarely have someone call us and activate the radio and [they] don't ask any questions at all," she explains. "I built my business case assuming that at least in the first year, the vast majority of people would want to call us because they would be interested in more than just the application, they would be interested in asking questions about the service-and that has in fact proven true."
| Systems Rollout at XM Satellite Radio XM made the bulk of its platform decisions by March 2000 and spent a considerable portion of 2000 just on design work. The company hired customer service staff six months before launch. “We started as an organization right after they made the [systems] acquisition decision,” says Melanie Stensrud, vice president of listener care at XM. “So right from the very beginning, my team has been very involved in what the design of the systems would be.” From April to August 2000, XM customized the systems and established its business policy decisions, such as billing frequencies and methods and which corporations the company would use for a lock box or for printing and stuffing invoices. XM employed Arthur Andersen to assist it with actual IT deployment. From August 2000 until May 2001, XM completed development work. Then, it began alpha testing. “We did an internal test—employees only—it was sort of post-user acceptance testing,” Stensrud says. Then the company shipped out systems and conducted another revision of software before it started beta testing in June. “We worked with external friends and family beta customers for all of the month of June, part of July, and then we locked down systems and did the final fixes to the problems that we thought absolutely had to be solved before launch,” she says. “Our launch version of software was ready at the beginning of September.” “Since our launch on Sept. 25, we’ve done three additional releases of software, bug fixes, enhancements, and general reacting to what we’ve learned from our customers. … We’re kind of on an every-two-month cycle right now of fixing things. I know our IT team wants to get into a normal once-a-quarter release of software, but we’re still a start-up, and that’s too slow.” By the fourth month into operations, Stensrud says, XM was operating systems on its own. “We very rapidly weaned ourselves off of external resources, because the corporation really does need to know how to maintain and manage its own systems. It can’t keep going out to the rest of the world to do this,” she says. XM’s intention is to continue to migrate the base code in the same progression that the vendors do, but the company has already added a significant amount of customization to the systems. “I know that Siebel intends to do some significant changes in their release 7 and we intend to adopt those changes, because we believe that ultimately it will make the business more efficient,” Stensrud says. XM’s aims to do that primarily with in-house resources, but when it wants to get large pieces of code written quickly, it will probably bid work out to external resources. “Our intent is to have as much internal control over our software destiny as possible,” she says. An initial challenge for XM was how it decided to employ the systems it did, since the way it used systems was unique. “We have a business model that’s never been done before,” Stensrud says. Many components of XM’s business are like a lot of different things—telco, cable, DirecTV and wireless. “What we did was take the best of what we knew from all our previous experiences and in terms of building our model,” she says. “So in the sense that all of these systems hadn’t been put together the way they are, there were some integration challenges.” But nothing the company couldn’t handle, apparently. Stensrud says that typical norms predict as many as four to five defects per thousand lines of code. “With a set of systems as complex as ours, you could potentially expect as many as 1,200 or 1,300 defects in the first year, based on those statistics,” she says. “I think we’ve got a grand total of 123 bugs that we are working on.” |
