How and why high-tech companies are navigating the switch to XaaS

For decades, companies have pursued the idea that the latest and greatest digital technology would offer them a competitive edge. And few would argue that this isn’t true. Hi-tech innovations opened the door to unprecedented efficiency and new ways to engage customers. But the transformative technologies that companies eagerly embraced weren’t set in stone. They continued to evolve—and to stay competitive, high-tech customers had to continue to invest in the latest and greatest.

This dynamic created some deeply entrenched challenges that high-tech customers are no longer willing to accept:

• Disruptive implementations – The implementation of new technologies often required complex and costly changes to existing business processes.
• Quickly depreciating investments – By the time a company finished implementing new technology, a better and faster alternative was already available.
• Inflexibility – Most high-tech customers didn’t have a clear understanding of how their needs would grow and change. This led them to under- or over-invest in specific solutions.

These and other factors are the drivers of a new approach for high-tech manufacturers: everything-as-a-service, or Xaas. By offering their platforms as subscription-based services, high-tech companies achieved the best of both worlds: they discovered a way to generate predictable, recurring revenue and meet the market demand for right-sized technology investments and greater flexibility and scalability.

But a new way of doing business means that high-tech companies will have to reinvent their approach to the market and embrace the following:

• Competing as an ecosystem – In the XaaS world, no company is an island. High-tech companies must rely on a network of partnerships to deliver value through bundled, outcome-based services. Success depends on the seamless collaboration of partners across a digitally connected ecosystem.
• Transitioning to a customer-driven model – To achieve more predictable and sustainable revenue streams, high-tech companies must undergo a fundamental shift from a product-driven to a customer-driven paradigm. This entails moving away from the traditional high-tech, product-centric mode of business and refocusing on building relationships and delivering business outcomes. High-tech companies and their partner networks will have to work together closely to gather and share data on customer activity and sentiments and synthesize that data with information from sales, finance, and customer support to launch and refine XaaS offerings. In other words, high-tech companies need to use their analytical capabilities to understand the evolving customer in the same way they continually research evolving technology.
• Delivering platforms, not products – For decades, high-tech companies delivered hardcoded, highly engineered systems to address customers’ business challenges. But this relatively inflexible approach isn’t fit for purpose in a more dynamic and volatile era. Businesses need to change strategies at the drop of a hat (as with the “overnight” shift to remote work during COVID), and that means their technology has to enable that flexibility. With a platform-based approach, companies can add new functionality and scale existing capabilities to support continuous change.

New world, new modes of business, new capabilities

In practical terms, an XaaS model will also introduce different processes for managing the client relationship.

Subscription Billing

In an XaaS world, billing is a whole new ballgame. It takes on new importance as a channel of client engagement. Companies will need to rapidly deploy highly innovative sales processes in an agile and scalable environment to deliver more flexible and personalized billing. This will demand the tight synchronization of sales and revenue management processes to ensure that customers get the right agreements and that those agreements are profitable and sustainable for providers.

Entitlement Management

A critical component of the XaaS model is managing the rights of usage, authorization, privilege, access, and permissions granted to a customer. These “rights of usage” —also known as entitlements—can be software-specific (such as licenses, downloads, updates, and free trial periods). But they can also apply to maintenance and support services, training, as well as warranties for physical hardware.

Subscription Order Management

High-tech companies will need to be as flexible as their customers when it comes to subscriptions. Providers will need the subscription order management capabilities to monetize a wide range of subscription, usage, and revenue sharing models.

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