Today, every product is a service — from a grocery order to cyber security software. Known as Everything-as-a-Service (XaaS), this trend refers to sales models that enable customers to purchase products on demand, with the flexibility of self-service, multiple channel access and payment options.
This consumption model is rising in popularity, with many providers moving from traditional perpetual/term license models to subscription/aaS models. Yet, despite its rapid growth, XaaS companies are still facing mounting challenges in these areas:
- Transforming their operating model(s) to realise a true “connected enterprise” to help provide a seamless customer experience
- Maintaining their margins while offering competitive pricing and product agility to their customer base
- Managing the cost of delivery to remain competitive in the market
These key issues are underscored by the evolving needs of modern consumers who are becoming increasingly demanding about:
- The experience they want to receive
- The value they want XaaS providers to deliver
- Reliability of the product offering
- The cost structure they would want to commit to
Signals of change
Accelerated by COVID-19, the XaaS sector, which has grown by leaps and bounds over the past two years, is now in the perfect storm of change. Shifts in customer demand, rising competition, regulatory challenges, emerging technologies and economic uncertainties require the sector to move swiftly and strategically to create compelling value for business and consumers.
Enlightened customers, heightened demands
Fast-maturing customers are increasingly clear about the kinds of XaaS services they seek. As they strive to gain the agility to adapt to changing market conditions, customers expect their XaaS providers to become more intimate business partners. This will require businesses to work closely with customers, continually improving every interaction and balancing ease of upgrades with self-service capabilities and flexible pricing.
No preferred price, no dice
As inflation continues to bite, customers are tightening their belts and seeking out value for price. According to a 2021 KPMG-commissioned study, seven out of 10 XaaS providers feel they can effectively articulate their product architecture, implement a dynamic pricing strategy and optimise resources to improve product quality. Given this complexity and a need to get the ‘value’ right, there are a few important pricing-model related considerations for the XaaS industry, such as price optimisation, bundle pricing and value alignment.
Too much crowd, too little impact
A recent survey of the Software-as-a-Service (SaaS) industry found that 86% of organisations expect four out of five of their apps to be SaaS post-2022. More than three out of five cited ‘migrating workload to cloud’ as their top priority for 2021, with companies anticipating using an average of 16 SaaS apps every day. However, in the rush to meet this rising demand, certain categories have been saturated with an excess of products, such as customer relationship management (CRM — used by 87% of businesses) and procurement apps. To expand their growth potential, XaaS players will need to explore and carve out distinctive niche products and industries.
Co-opetition to maintain competition
A growing number of competitors are collaborating to deliver hybrid aaS models and share risk. Such alliances highlight the rise of co-opetition, creating ‘open data’ ecosystems where ‘common’ data or code can be freely used, reused, redistributed and combined with other open data. This interoperability dramatically enhances the capability to combine different datasets and develop more and better products and services.
Publisher or platform?
In the future, it seems likely that XaaS companies who generate or facilitate content will have to identify as either publishers or platforms. This carries huge legal implications. While tech companies still have a responsibility of care and duty to remove any content that violates federal criminal laws, they currently can’t be held responsible for users spreading misinformation through the platform. However, with a growing requirement for regionalised compliance officers, there will likely be increasing expectations of compliance and regulatory oversight.
Data sovereignty under the spotlight
The swift adoption of cloud computing has put data sovereignty under the spotlight, with countries passing laws to regulate and control data storage and transfer, subjecting data to laws and governance in the territory where they are collected. These laws now reach beyond sectors and carry steep penalties. For example, organisations can be fined up to 20 million euros for failing to comply with General Data Protection Regulation. Additionally, some nations place significant limitations on data transmission, either outside the country of origin or cross-border. Such regulations are forcing XaaS companies to rethink where they store data and move away from global data hubs.
No pride in prejudice
Emerging technologies like IoT (Internet of Things), AI and edge computing are expected to have an impact on the design and marketing of products. However, XaaS companies should consider issues such as bias, which can arise from a range of factors. These include poor algorithm design, bias in sample selection and design and data that conforms too closely to broad stereotypes and fails to take into account an organisation’s or individual’s unique profile. Sector players can consider two main methodologies to help reduce bias: consequence scanning and training on ethical principles and bias.
Keeping security a priority
When using XaaS tools, it’s essential to have an integrated platform that can swiftly identify security incidents and provide detailed analysis to mitigate the root cause. XaaS customers are faced with further challenges like regulatory and security compliance, disparate legacy systems, technological disruption and a lack of alignment between people and processes. To address regulatory and security compliance, XaaS providers should focus on helping to improve operational efficiency and creating customer-centric, service-oriented strategies.
Challenges in cloud migration
Although advancements in cloud technologies have reduced implementation costs and technical barriers related to transitioning to XaaS, there remain significant challenges in adapting performance and operating metrics. Changes to service and product offerings (e.g. moving from a license to aaS) can create new performance obligations — or change existing ones, which calls for processes and controls to identify and evaluate such shifts.
When asset-light is right
Today’s customer needs are volatile and influenced heavily by convenience, requiring companies to constantly upgrade and refine products and services. XaaS offers the speed and flexibility to adapt to fast-changing markets as value is not tied to physical asset ownership. The recent pandemic has prompted companies in all sectors to consider asset-light strategies to fuel growth and strengthen financial performance, leading to improved shareholder returns and higher valuations. A subscription-based model, with lower set-up and implementation costs, is also an attractive operational and investment option for organisations considering shifting to remote or hybrid workforces.