We recently commissioned an independent global study of senior management and C-suite executives that looked at the business model changes services organizations are making in the Everything as a Service (XaaS) economy. The XaaS economy is where products and services are delivered in a continuous relationship with the customer, rather than as a series of discrete individual sales. With XaaS as a catalyst, organizations are modernizing operational and business models to create greater efficiencies and to engage customers, employees, and business partners in new ways. However, while headlines have been touting the XaaS economy as the future of business for years, we wanted to know how many organizations have truly embraced new services models and made substantial changes. What is the reality, and what does the future hold for services industries?
Our research found that while only 21 percent of businesses have moved to a fully subscription-model pricing system, about half (52 percent) have partly adopted subscription pricing. However, it is clear to see that change is coming, and coming fast, as the majority of businesses — 61 percent — stated that they have made changes of some sort to their business models as a result of XaaS. Additionally, of those that have made changes, three-quarters believe that XaaS has positively influenced their business model, products and services. And that’s not all. 72 percent have actively extended their services beyond their traditional core markets, 79 percent have expanded services to new international markets and 85 percent have increased their income because of the changes they have made.
You’re not alone if you feel that your organization is lagging behind, however, as the survey also found that 47 percent of C-Suite executives believe they are late to implement changes, and 41 percent believe they are behind their competitors.
These business model transformations have driven massive change in the enterprise technology market too, representing an interesting shift in the industry – namely, the shift of power from vendors to customers. We’re seeing new prioritization of the customer and the dawn of better times for enterprises shopping for solutions. While we still have a ways to go before full adoption, there’s no denying it: The XaaS economy is here. If you’re not harnessing new technology to deliver new value through your business services — or are not planning to do so soon — your customers will find someone that can.
How Things Have Changed
In the years before vendors began moving to XaaS-based business models, the enterprise software industry didn’t have the best reputation. In short, customers often felt let down. Software was proprietary and difficult to use without expert knowledge, so people couldn’t access its full potential without a significant and ongoing investment of both time and money. This led to vendors launching broad-scale efforts to meet specific customer needs. They created add-on businesses that delivered consulting services, customizing software for customers, and charging for the consultant’s time.
Helpdesk services made up of product experts were required to answer customer problems 24/7, for which they paid a recurring fee. Vendors focused on selling — and then fixing — their products after implementation. They weren’t engaging with customers to create rapid value for them. They didn’t support them to optimize the value they derived from technology on an ongoing basis, constantly evolving their products through the learnings derived from how customers used the technology.
A Customer Revolution is Underway
One of the most immediate and interesting changes we see in today’s digital economy is that world-class technology and platforms are no longer exclusively the domain of large corporations and organizations, as they were in previous generations of computing. The playing field of the software and technology industry has largely been leveled and will continue to become so. This means that an organization’s success will hinge far less on its access to software and technology, and far more on the most effective use and execution of the features that technology provides for the sake of unique customer value creation.
This increasingly dramatic shift is also being defined by a revolution in customer knowledge. Due to the availability of online reviews and third-party knowledge bases, customers are now more knowledgeable than ever before about the technologies available and how they can be used in their business and industry. They also have a more complete understanding of what can and can’t be done with that technology. Because of this shift in dynamic, software vendors are beginning to focus less on providing the best possible code, and instead are focusing on meeting their customers’ expectations and demands faster than their competitors.
Companies and developers that show the deepest understanding of their customers’ needs and expectations – and subsequently execute on those needs and expectations – will fare the best in the coming years.
Turning Technology into Competitive Advantage
The rapid pace of change in business and technology isn’t going to slow down any time soon. Software companies are competing to meet customers’ expectations in record time. Rapid value creation driven by a deep understanding of the customer’s processes and delivered through standardized offerings – with reusable and customizable components that can be flexibly and granularly delivered – is the focus today.
As we move to a XaaS economy, the most successful companies will be those that are able to align their customers’ success with their own. Technology becomes the enabler of a business model – and not the business model itself. Being able to leverage technology as a differentiator isn’t about the technology you have, but how you use the technology, and how it supports your people.
In fact, our survey found that those who have embraced the XaaS model have seen significant competitive advantages: 77 percent have increased customer retention, 75 percent have introduced more standardization into their products and services, and 80 percent claim they have introduced more personalization in marketing their services.
While this might sound exciting (or daunting, for some), it does beg the question – what should an organization do to truly stand out in this new economy? While the answer is somewhat complex, it can be simplified into a few core concepts.
- First, all organizations providing services need to have a deep and thorough understanding of their customer’s business, including the critical factors that determine success or failure.
- Second, organizations that can deploy existing technology in creative and innovative ways will leap ahead of their competition – at least for a while. Can you use technology to help you extend your product or service offering? Can you change the way you package or deliver your product to improve your service and increase sales? What specific services can you offer that stand you apart?
- Third, your people are the ones with the best ideas for improving their work experience but also the customer experience, and your profitability. They want to be successful and to help you to be successful. Equally, better processes and customer experience will ensure you keep your customers. Do they need to sign as many documents as they do currently? How difficult is it for them to find answers to questions? Can they extend their contract quickly and efficiently? Can they easily access all the data they need to take decisive actions? Listen to ideas and build your technology strategy around them for slick service delivery end to end.
While no one can know for sure what the future holds, what we do know is that major change in the enterprise software market is well underway. This is a great time for organizations that are looking to create new revenue streams, and we know from our research that more than two-thirds (69 percent) of senior managers and C-level executives expect to adapt their income model in the next three years. Technology vendors are selling results, and technology holds the power of enabling creativity and differentiation.