The delivery of Everything-as-a-Service, or XaaS—be it infrastructure, platform or software—is the wave of the future. Post-pandemic, many large companies are transitioning to “as-a-service” business models for the products and services they offer to remain competitive in the marketplace. According to a Deloitte Insights’ 2021 study, many U.S. IT companies that embraced XaaS said it helped them create new business processes, products and services, and business models, and reimagine how they sell to their customers.
At its core, XaaS is about subscribing to a long-term (or short-term) outcome rather than purchasing a product or service outright. It is a practical approach to business growth and a visionary model that needs to be at the forefront of all businesses—whether startups or long-standing organizations—as technology continues to advance and impact customer relationships.
What to know before investing in XaaS
While there is tremendous value in adopting the XaaS model, there are several important considerations to address first. For one, selecting the right technology service integrators to partner with is essential as companies revamp their Enterprise Resource Planning software systems and create a sustainable, working as-a-service offering. Second, companies must determine how to calculate the most advantageous price points to offer their services or products. If this isn’t done correctly, companies risk failing to recoup the costs of their goods and/or services sold over time. Third, before investing in the switch to the XaaS business model, companies need to plan for and create a model that entices customers. This change in their business model may require incentives and add-on services for their customers or clients.
When companies do their due diligence and undertake the requisite preparations to switch to the XaaS model, they can reap benefits including:
1. Continuous, ongoing relationships with customers. With the XaaS model, companies are in regular touch with customers over several revenue periods. This allows customers to share their experiences and give essential feedback, whether positive or negative. These interactions offer companies opportunities to access information faster and create better products or services as marketplace demands shift.
2. Annual rather than seasonal revenue. Since customers are paying for the outcome of a purchased product or service over several periods, a company’s revenue/cash flow can be seen throughout the fiscal year, rather than simply seeing a spike in sales during a particular season (e.g., fitness equipment usually sees a spike at the beginning of the year following people’s New Year’s resolutions). In the XaaS model, there is the potential to recognize revenue over several periods or quarters depending on the model (consumption, pay-per-use, subscription, etc.) adopted.
3. Add on services. With the XaaS model, companies can upsell or cross-sell their offerings by providing a variety of subscription models. Netflix, for example (along with many other streaming services), offers a basic subscription plan to use just one screen, while their standard and premium subscriptions have higher screen limits. With customers being offered the flexibility to modify their subscriptions based on their needs, the company benefits by catering to a wider range of customers.
4. Scalability. XaaS helps companies to adapt easily to new business models to empower customers with flexibility, variety, and control. While customers experience this benefit without burdening the offering provider and its employees, it creates good will, customer satisfaction, and the ability for the service provider to take on more market opportunities to grow.
5. Business Growth. Business growth comes from increasing revenue, profits, and market share. XaaS models support this growth by enabling a faster time to market, providing the availability of long-term customer contracts, and generating higher customer renewal rates.
One company that embraced the XaaS model and experienced company growth as a direct result of doing so is Hewlett Packard Enterprise (HPE). HPE announced its plans in 2019 to transition to the XaaS model with GreenLake. The company laid out its goals, stating that it planned to switch its entire portfolio over to an as-a-service model by 2022.
Releasing its 2022 third-quarter financial results in August, CEO and President Antonio Neri noted, “Our growth in recurring revenue this fiscal year is evidence of customers’ strong response to our HPE GreenLake platform… Customers continue to prioritize investments in IT and are finding HPE’s industry-leading edge-to-cloud portfolio to be particularly relevant in today’s complex macroeconomic environment, where technology innovation is critical to accelerate business transformation and deliver important business outcomes.”
In a separate company blog post, Neri added, “This quarter’s results clearly demonstrate demand for our industry-leading portfolio. Customers continue to find HPE’s solutions relevant in today’s complex macroeconomic environment, where technology innovation is critical to delivering important business outcomes. This demand validates our strategy and the compelling value proposition we offer our customers. It also enabled us to accelerate our recurring revenue this fiscal year… Customers tell us they need to drive their important digital transformation work while also managing costs. It is clear HPE can meet those needs with our edge-to-cloud portfolio delivered through the HPE GreenLake platform.”
Taking the plunge
Digital transformation services are the industry standard, and the delivery of XaaS has truly captured the digital business world. Fueled in part by the pandemic and the demand for even greater digital services, the cloud has come into sharper focus these days with everything that it can offer. This is backed by a June 2022 report by Fortune Business Insights, which posits that the XaaS market is projected to grow from $545.35 billion this year to $2,378.07 billion by 2029.
Companies are always seeking ways to save time, money, and resources as well as attract and retain customers. That’s why now is the time for companies to embrace XaaS models and the opportunities it can provide by increasing productivity and agility.
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