In this installment of my blog series on transformation in the high tech industry, we'll discuss the need for As-a-Service business models for product differentiation. Up until recently, having the best hardware was the winning ticket for high tech companies. Those that were first to market with innovative new technologies or came out with products better than the competition typically found themselves on the fast track to success.  

Today, that is no longer the case. In our modern and very digital marketplace, the companies that are succeeding are the ones that have been able to differentiate themselves by offering services and ongoing experiences provided after the initial sale. Instead of a one-time purchase, these companies are growing and expanding because they now have recurring revenue streams. This type of digital transformation is made possible by new As-a-Service business models that drive a shift toward subscription business models like Device-as-a-Service or Software-As-a-Service as a new way to engage with the customer. This new approach provides customers with more choices and it is easier to move toward this model than the more traditional model of heavy upfront investment in software and hardware. 

In addition to providing an enhanced customer experience and fostering greater customer loyalty, As-a-Service models provide inherent flexibility and scalability, enable customers to move their technology spend from CapEx to OpEx and help companies efficiently monetize data to drive innovation and growth. 

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The Shift to As-a-Service is Happening 

In Accenture’s recent global survey of high tech executives, 64% identified shifting to an As-a-Service business model as a key technology for achieving long-term scale.  Shifting to subscription-based models can bring a 5X boost in enterprise value per dollar of revenue earned.1 For example, Apple’s recurring revenue-focused services business accounted for 19.5% of net sales in 2020 and is projected to return a profit of more than $50 billion by 2025. 

There are many types of As-a-Service business models including Device-as-a-Service, Infrastructure-as-a-Service and many others that can help companies compete in a subscription economy. These models can instill long-term resiliency into a company and help them find untapped revenue, gain a competitive advantage and create successful customer experiences. 

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64%

Identified shifting to an as-a-Service business model as a key technology for achieving long-term scale. 

5%

Shifting to subscription-based models can bring a 5X boost in enterprise value per dollar of revenue earned.

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19.5%

Accounted for Apple business net sales in 2020 and is projected to return a profit of more than $50 billion by 2025. 

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First Steps to Take 

While an As-a-Service business model has significant benefits, capturing its full value is not easy. It requires a multi-year commitment. There are many challenges along the way, including evolving financial models, supply chains and new sales and support models. Progress toward the new model must be carefully managed in order to avoid undesired impacts on near-term operations. A successful transformation requires not only a comprehensive, well-articulated business strategy backed by strong organization change management, but also new or substantially upgraded capabilities across product engineering, sales and marketing, manufacturing and supply chain, after sales, billing and core finance.  

Based on the experiences of companies who have built successful As-a-Service businesses, here are some of the most important considerations to help accelerate, industrialize and scale to these new models while avoiding pitfalls along the way.  

  1. Revamp go-to-market strategy and sales organization - Upskill and enable the sales organization to launch new bundled offerings.  Reassess how to go to market in order to effectively deliver on the value proposition.  This will help enhance the customer experience and achieve financial objectives.  
  2. Redesign the operating model - Ensure the right cross-functional capabilities are in place to support the go-to-market strategy in a more sustainable and responsible way, with clearly defined roles and responsibilities. 
  3. Unify product and platform strategy - Develop a shared platform of common base services that allow product teams to rapidly innovate and experiment. 
  4. Build foundational business processes and tools - Invest in secure enterprise system capabilities to enable new business processes with a frictionless user and customer experience.  
  5. Reinvent and expand the ecosystem - Develop strategic partnerships to reach build-partner-buy decisions and jointly develop, market and commercialize offers. 

 

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The XaaS Files Podcast

Companies are learning the hard way that in order to stay resilient in this ever-changing high tech industry, they should embrace digital transformation models that may help find untapped revenue, gain a competitive advantage and create successful customer experiences. 

This podcast shares interviews with innovative executives that have made the change to an as-a-Service operating model. These leaders share their experiences, knowledge and best practices that have helped them defeat the disruption. 

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Don’t Get Left Behind 

As consumer choices grow and change, businesses need to adopt new ways of meeting customer demands. Companies that don’t adapt to new business models may be outpaced by their competition and could eventually find themselves out of business. This is where As-a-Service business models can help transform a company into a leader in their industry. Many high tech companies are achieving service margins that are 2x-3x higher than for hardware products.  Looking at the market through that lens makes it clear that having the best product is no longer the ticket to success. Digital transformation, and specifically a shift towards As-a-Service business models, is the key! 

 

David Sovie

Senior Managing Director – High Tech, Global

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