Telcos Top Up on Digital Fuel

Many of the world’s largest carriers are turning to a small startup to manage the increasingly challenging job of managing their service level agreements (SLAs) with enterprises. The startup, Digital Fuel Technologies Inc. , now says it is improving its SLA management software. (See Digital Fuel Releases Catalogue and Startup Spotlight: Digital Fuel.)

Digital Fuel offers three software services to carriers to manage their SLAs. One part logs all the services the carriers offers and its corresponding pricing structure. A second service tracks whether the SLAs are being met. Finally, a financial management program determines how much money the service provider owes in the event of an SLA breach.

The new version simply known as Version 6 provides enhancements to the service catalog and financial management tools. For example, in older versions, the service catalog could only deal with subscription based services. Now, one-time transaction services, such as ordering a computer, can be managed as well.

And, while Version 5' financial management service could only bill and charge customers for services and SLA breaches, it can now also analyze the costs incurred to the service provider in actually delivering the services.

This gives a carrier a more realistic idea of what the provision of a service will mean to its balance sheet. “The big difference is having a pricing model tied to what it actually costs to deliver a service,” says Yisrael Dancziger, president and CEO of Digital Fuel.

This capability involves more interaction between Digital Fuel’s three separate services. As such, in the newest version, the three services are integrated into one offering as opposed to older versions where there were three independent services sold individually.

Digital Fuel may be a small company, but its SLA management tools have caught on with some of the biggest carriers in the world and over 500 enterprises. At the beginning of this year, BT Group plc (NYSE: BT; London: BTA), which had been using Digital Fuel’s service for only one of its business areas decided to standardize its entire SLA management capabilities on the Digital Fuel platform. (See BT Chooses New SLA Standards.) Dancziger at the time labeled this the equivalent of “multiple customer wins.”

Successes like this have contributed to Digital Fuel’s three consecutive years of 70 percent to 80 percent revenue growth. Dancziger says that despite the shaky economic conditions, his company is on track for another 70 percent growth year in 2008. “We thought we might have to cut that growth based on what’s happening in the economy, but not yet,” he says. “We have the contingency plans if that happens.”

Dancziger is one of the few CEOs in telecom lately who even acknowledges that the economy could have an adverse affect on his business, but he says he is ready if that happens. “I believe it’s going to come to my industry. We’re probably going to have a quarter or two that are tough because of the economy. I have very clear metrics so that if I see a slowdown, I can react.”

In the meantime, the growth is still there although competition is intensifying. CA Technologies (Nasdaq: CA), IBM Corp. (NYSE: IBM), and HP Inc. (NYSE: HPQ) are some companies that are looking to develop similar SLA management services, but Digital Fuel says it hasn’t seen any pressure from them yet.

“The bad thing about expanding is you’re always running into new competition,” says Dancziger. “But the good thing is beating them.”

— Raymond McConville, Reporter, Light Reading