Software-as-a-service (SaaS), Platform-as-a-service and Infrastructure-as-a-service are already well-known business models. However as more companies are welcoming digital transformation a new business model has arisen called everything as a service (XaaS), which has the goal of transforming a business from product-based to service-based through subscription models. XaaS is not only suitable for certain kind companies, but for any company in any industry who wants to shift to a service- based business model. In the age of digital transformation the customer demand for as-a-service models has rapidly increased. Service based business models are more focused on delivering value to the consumer and prove to be more profitable by opening up new revenue models, which is why many business leaders are recently making this shift. Research has showed that companies that have made the switch to XaaS are growing five times as fast as their competitors and have 7% higher returns for their shareholders.
When implementing a XaaS model there are multiple types to choose with different revenue models. The first one is an unlimited subscription, which is a subscription that offers an unlimited quantity of the service you offer for a certain period of time. Instead of an unlimited quantity, you also have a predefined subscription, which offers a certain amount of services for a period of time. Another version of a predefined subscription, is a subscription plus overages which is a predefined subscription but with extra’s that will be billed when used. Another well-known business model is Freemium, which gives customers free access to basic services, but charges when customers choose to use the premium version with more extensive features. Spotify is one of the companies that uses this model as they offer a basic and ad-supported service. When purchasing the premium version, the ads dissappear and there is also a possibility to download songs. The last two business models are consumption-based, which entails charging customers on a pay-per-use basis, and outcome-based, which entails charging customers based on the value you deliver.
When implementing XaaS into your business, it is important to realize that it involves a shift in your entire business. Therefore a clear strategy is essential to make the business succeed in this increasingly digitalizing and competitive business world.
Sources:
https://www.pwc.com/us/en/services/alliances/sap-implementation/xaas-business-model-transformation.html
https://www.forbes.com/sites/forbesbusinessdevelopmentcouncil/2019/05/29/what-to-know-before-transitioning-to-an-xaas-business-model/?sh=ba0f1566f875
https://www.informationweek.com/cloud/8-tips-for-growth-in-an-xaas-business-model
https://www2.deloitte.com/us/en/insights/focus/industry-4-0/anything-as-a-service-xaas-solutions-transformation.html
https://www.tsia.com/xaas-speaking-engagements
https://www.cio.com/article/3308418/what-is-xaas-a-way-to-inject-agility-into-your-digital-business.html
https://www.strategyzer.com/business-model-examples/spotify-business-model
Hi Lynn, thank you for this interesting post.
I enjoyed your insights and it was definitely something I didn’t know was becoming such a big deal. Of course we see a lot of services being pumped into our economy. As for my opinion, as the economy is constantly growing and being pushed to grow even further, companies get more creative and are turning indeed more service based. As products have certain limit to their usability and matrials are also getting more limited, for continues growth, service is one of its major solutions.
You argue that this Xaas business model is suitable for any company in any industry. This is an interesting thought though I am not sure if I can 100% agree with this. I definitely see the vast opportunities for many companies (whether it would be very beneficial or not) to implement this business model, but some old fashioned product-based companies, I would argue, are bound to stay product based companies. You talk about the various types of revenue models for Xaas (e.g. Freemium, pay-per-use, outcome based). These are definitely revenue models a lot more companies could utilize, though I think not every company.Take for instance a furniture company like IKEA or clothing company like Levi’s . Would you argue that these companies can profit from the Xaas business model aswell?
Hi Luke,
Thanks for your response! I agree with you that it is easier for some companies rather than others to implement an XaaS model. However, eventhough a bigger transformation is sometimes needed, I do think that most companies are able to transform into a XaaS company. For instance, your example with Ikea. Ikea could set up a subscription model with their furniture (maybe for the more high-end products) or a service that puts together the furniture. Or for Levi’s you could also set up a subscription model where you lease your jeans per month. These are all just random ideas, but I think a lot is possible if you think outside the box!