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Abstract:
Adopting XaaS as a business model can be rewarding yet challenging for enterprises that have
businesses based on providing shrink-wrapped products. The article talks about why XaaS makes for
a strong business case for enterprises despite the associated challenges in implementing the model,
with anecdotes on how other large enterprises are transforming their businesses through XaaS
adoption. It also talks about the changes that an organization should be prepared to go through
towards being a XaaS enterprise.
Overview
Everything-as-a-service (XaaS) is fast emerging as a popular delivery model amongst organizations
globally. Incumbents and large enterprises in particular, have begun to take note as they look to
explore and adopt XaaS as a business model of choice. The evolution & transition is evident from
several large organizations having already adopted XaaS in some form or the other — To name a
few — Microsoft, from a shrink-wrapped software provider to a SaaS player, Cisco & Dell from
hardware manufacturer to IaaS and Managed Service Provider (MSP) respectively etc. With public
cloud services market projected to be a $204 billion market globally in 2016 as per a Gartner report,
the stage is set for XaaS to gain further ground with hardware & software providers, those that are
looking at greener pastures and would like to leverage XaaS for new, repeatable & sustainable
revenue streams.
Adobe for example, noticed that its publishing tools business wasn’t growing despite rise in creativity
demanded by its customers. When Adobe launched the subscription based offering for its publishing
tools, corresponding revenues reached $2.1B as opposed to $1.6B from licensed revenues within just
two-and-a-half years of launch. The new SaaS business operates at 93% gross margins driven by
ability to convert Capex costs into Opex for customers. Adobe was also able to broaden its user base
for publishing tools. Beginners who wanted to use only the basic features of Adobe Illustrator, for
example, could subscribe to the same on a monthly basis, without having to purchase the whole suite
upfront.
Intuit provider of solutions such as TurboTax and QuickBooks software, began shifting customers into
the cloud and found that the move made it easier to cross-sell add-on solutions such as payroll and
check processing. Adobe, on the other hand noticed that Perpetual-licensing model was limiting in
terms of ability to deliver new innovations and capabilities at speed to customers, something that was
solved through as agile, iterative approach as part of its SaaS adoption.
XaaS also makes for a significant business case when organizations can offer hardware that
consumers can continue to use. Apple is a case in point, as it has developed a thriving ecosystem of
iTunes (Apple Music), Apple Pay, other apps that consumers can buy from Apple iStore. The model
has enabled Apple Inc. to make significant revenues from people actually using the iPhone, the
hardware, for various services on a recurring basis.
Adobe, one of the few software enterprises to have successfully transitioned to SaaS model is a case
in point. In 2011, When Adobe decided to offer its publishing and online tools as-a-service, it continued
to offer Creative Cloud, the SaaS offering and Creative Suite 6 (CS6), the traditional perpetual-
licensing offering in parallel for a year. In 2013, organization felt ready to move everything to the cloud
and decided to no longer add new capabilities to the CS line, although they would continue to sell and
support CS6. Centive (Provider of sales compensation solutions) is another example. When the
company decided to adopt SaaS model for its solution offering, it was divided into two separate
business units so that the SaaS unit could have total focus on the new business model, running in
parallel to the existing BU operating on perpetual licensing model. The company moved to being a
full-fledged SaaS player only after business model proved to be a success at the BU level, garnering
confidence & support of key stakeholders including customers, prospects, employees & industry
influencers.
Providing a XaaS offering would also mean being proactive, customer-aware & customer-engaged on
a daily basis. Zendesk for example, sends benchmark reports that offer offering groupings by industry,
with analysis of ticket resolution times, response rates, and forum interactions. Such reports proved
to be a significant value add, directly tying-in to the business goals of the customers. Efforts like these
go a long way in keeping customers happy and engaged, ensuring that they see true value in XaaS
offering, leading to renewed subscriptions month-on-month.
CRMFusion (Develops advanced software assisting organizations in reaching their data cleansing
and data quality goals) is another example of high customer focus. The organization diligently tracks
users and corresponding usage patterns, with capability to report the same up to the last minute.
Capabilities also exist to see who is not using the tool. Company looks to proactively touch-base with
the client in such a scenario to see if there has been a change in employees or if they don’t understand
the benefits of the tool and looks to ensure that clients can continue to use the tool unhindered.
With product enhancements and innovation being highly customer-driven in case of XaaS model, it is
imperative for R&D teams to be plugged-in to customer requirements, expectations & feedback. For
example, at VerticalResponse (provider of self-service email and direct mail solutions), teams are
committed to adding features and upgrades driven by direct user feedback. Strategy is to roll out
upgrades to all users with a single push and to run targeted follow-up communications to highlight that
the features they asked for have been added.
Such a fast-paced development environment also leads to higher expectations from R&D teams in
terms of requisite skill-sets and roles & responsibilities being undertaken. Organizations with XaaS
offerings expect their engineers to have skillsets that are broad-based. Organizations are increasing
looking at engineers with full-stack knowledge and capabilities, transcending boundaries of
development, testing and Ops roles & responsibilities to work on their XaaS offerings.
Enterprises may also need to be mindful of where the software has to be partitioned, only activate
certain code flows for certain set of users. Facebook manages this aspect well with
its Gatekeeper tool. Gatekeeper is a web release tool that Facebook uses to feature toggle: shipping
new features in the off state, then switching them on for any segment of users they please. This allows
them to constantly change the website without pushing. Using Gatekeeper allows them to handpick
exactly which of their users will see what features at any time. It also proves to be an excellent tool for
controlling different versions of an app for different segments, dividing up its users and deploying
certain features to each.
Enterprises may also have to deal with, and overcome inertia that some of the customers may have
in moving from licensed version to the subscription-based software model. Autodesk found that
holders of 5–20 seats of product were reluctant to switch away from perpetual licenses. As a result,
Autodesk had to dedicate additional resources to communicating the value of its offering to this market
segment.