How the XaaS Model Can Transform Your Business

In the early days of the Internet, technology companies began offering digital services, such as software applications, online rather than on physical disks. This new direction, known as Software as a Service (SaaS), gave businesses and individuals an easier way to install and maintain the applications they needed. Plus, this system gave the offering companies a steady and reliable stream of income.

As the internet has evolved and online capabilities have expanded, it has become possible for more services to be delivered online. They include things that, prior to this technology, would not have been imaginable. Netflix, Hulu, Amazon Prime, and other streaming services are a good example. Movies and television shows on demand are a completely different model from what came before — cable TV — and before that, standard network TV.

Other types of subscription services have become available as well. Who would have thought, prior to the turn of the 21st century, that prepared food, pet supplies, clothes, plants, personal training, and many other products and services could be sent to homes and businesses regularly, simply with a few clicks and a credit card? But these services now abound. The term Anything as a Service (XaaS) represents these capabilities.

Companies that are able to “subscriptionize” their products and services benefit in numerous ways. In the following sections, we discuss them in detail and help you determine whether or not your company should consider creating a XaaS offering. But first, we dig a little deeper into what XaaS is and provide some additional examples of how these services work in various industries.

What Is XaaS?

XaaS is a model for providing products and services to customers on a subscription basis, using the Internet as a delivery method. The as-a-service model is nothing new, with Software as a Service (SaaS) appearing in 1999 and others — such as Platform as a Service (PaaS) and Infrastructure as a Service (IaaS) — following in the 2000s and later.

The XaaS model has traditionally been deployed in the technology industry. But it can be used by any company that provides products and services that can be digitized or offered through a digital interface, including those in such industries as healthcare, finance, manufacturing, telecommunications, retail, and consumer services.

Both companies and customers benefit from the XaaS model. Customers easily and conveniently get access to products and services from anywhere in the world. And businesses can have a more predictable income stream and scale their services up or down depending on demand.

Examples of XaaS

XaaS is being used in many industries, including those listed here.

Agriculture. Farming as a Service (FaaS) tools are available to help farmers optimize their operations. The services monitor crops for moisture levels, nutrition, and readiness for harvest, helping farmers to save time and money and increase efficiency.
Entertainment. Well-known services like Netflix and Spotify are delivered using an Entertainment as a Service (EaaS) model. These services enable consumers to pay a flat monthly fee and get TV shows, movies, and music on demand.
Fitness. Fitness companies and professionals can use Fitness as a Service (FaaS) to offer online classes, personalized virtual training sessions, and personalized workout plans. One example of this is Peloton, which manufactures exercise equipment and offers subscriptions for classes to accompany them.
Education. Schools, universities, and other educational institutions can use Education as a Service (EaaS) to provide learning tools, including course content, assessments, and student support services.
Automotive. Auto manufacturers can use Automobile as a Service (AaaS) tools to help owners maintain their cars. These services include vehicle diagnostics, remote control of car features, and real-time traffic updates. According to an article appearing on Wired, “A connected auto industry will soon be able to create an on-going relationship with consumers, and reap the reward of recurring revenues from sales of hardware, upgrades, apps and services.”
Hospitality. Restaurants, hotels, and resorts can use third-party services to offer guests personalized experiences. For example, a restaurant might enable customers to record preferences such as a favorite table or dietary restrictions. Hotels and resorts can offer digital concierge services, provide self-check-in/check-out processes, and keep all guest information — including room, restaurant, and spa reservations — together.
Retail. Companies are offering subscription services for everything from clothing to houseplants. For example, Stitch Fix offers customers the opportunity to get a box of five items of clothing as often as they like. They try on the clothes and keep and pay for only those they like.
Manufacturing. Some providers are using Retail as a Service (RaaS) to offer manufacturers check-out, point of sale (POS), inventory management, staff scheduling, and other tasks, all for a monthly fee. As a result, manufacturers get feedback on the products they are developing based on customer response without having to go through the process of setting up a retail store.
Energy. Power utilities can offer energy on a subscription basis, enabling consumers and businesses to know how much they will pay for their energy consumption throughout the year. Such a service is helpful for customers because it makes it easier for them to budget. It is also helpful for power companies because it promotes a partnership approach with customers that can serve them well when they need to ask them to decrease energy use during peak periods.

How XaaS Can Transform Any Business

The XaaS model can provide transformational benefits to businesses that set themselves up to take advantage of it.

Increase Scalability

Because XaaS is provided electronically, it offers the opportunity to scale delivery up or down based on demand and with no additional physical infrastructure. However, it’s important to note that if it is a physical product or a personalized service that is being offered, additional infrastructure, equipment, or personnel may be needed to meet demand.

Another aspect of increased scalability is the opportunity to access new markets. Companies that use the XaaS model can reach potential customers anywhere in the world and introduce them to their offerings.

Reduce Costs

A big part of the XaaS model is automating various aspects of the product or service delivery process, including customer support and billing. This automation can contribute to greater efficiency and, therefore, lower labor costs.

Companies can also reduce costs through use of the pay-as-you-go pricing model, which is common in the case of digital offerings. For example, a company may offer an online accounting tool to make end-of-year taxes easier for businesses. To do so, it may use various cloud offerings that charge a variable rate based on resources used, eliminating the wasteful phenomenon of buying equipment but not using it or under-using it.

Increase Sales

Reducing the need for labor to attend to things like customer support and billing can enable companies to focus on core competencies, leading to a focus on marketing and sales. With this focus, businesses can generate interest, lead potential customers through the sales funnel, and produce more sales and revenue.

Additionally, the service model itself generates more sales because it provides a low barrier to entry for customers who might be willing to try out new products and services without an obligation to continue. Enabling customers to cancel their subscriptions at any time contributes to this factor.

Reduce Time to Market

Using the XaaS model enables new businesses to innovate and launch their offerings more quickly, often without the need for extensive physical infrastructure. They can test their products and services quickly and improve them based on real customer feedback, allowing them to get into the market and compete with similar companies.

Cater to Customers

Another aspect of the XaaS model that can help businesses is the ability to provide customers with a more personalized experience.

Companies can offer various levels of the product or service to be delivered.
They can use analytics and machine learning to learn about customer behavior, preferences, and responses. This information can help organizations improve their offerings, increase customer satisfaction, and gain more customers and revenue.
Customers get an enhanced experience through features like self-service portals, 24/7 support, and regular product and service updates.

Increase Security

Providers of products and services using the XaaS model typically include strong security features such as encryption, firewalls, and access controls that help protect sensitive customer data and prevent data breaches. Additionally, these companies must comply with industry standards such as HIPAA, PCI DSS, and GDPR, which also help to protect customer data.

With digital offerings, these providers offer regular updates with the latest security patches, which can help prevent security vulnerabilities for customers as well. Further, these companies are likely to have dedicated security teams available to respond quickly to any security incidents.

Reduce Risk

With increased security comes reduced risk. For example, companies that use the XaaS model are less susceptible to data breaches and imposed penalties as a result of noncompliance with industry standards. Additionally, these companies typically use regular backup and disaster recovery services, which can help them quickly recover in the event of data loss or system failures.

Improve Analytics

With increased automation, companies that provide products and services using the XaaS model are able to analyze large amounts of data and gain valuable, real-time insights that help them make informed decisions about research and development, sales and marketing, and internal operations. The tools they use may include predictive analytics, machine learning, and data visualization, as well as integration with other tools and systems, such as CRM and ERP, which offer the possibility for more detailed analysis.

Reduce Carbon Footprint

When companies deploy the XaaS model, they often use energy-efficient data centers and cloud infrastructure, which reduces energy use and carbon emissions. The use of these services also reduces the need for companies to purchase and maintain hardware, which minimizes electronic waste and the carbon emissions associated with disposing of hardware.

Additionally, these companies can often operate with all or most of their employees working from home. This arrangement further reduces carbon emissions by eliminating the need for carbon-producing transportation.

Does Your Company Need XaaS?

So, is XaaS right for your company? The answer may be yes if the following statements are true.

You want to provide customers with more flexibility and customization.
You want to provide enhanced customer care.
You want to be able to easily adjust your offerings as customer needs change.
You want to reduce the costs associated with physical infrastructure.
You want to reduce the risks associated with traditional infrastructure, especially IT infrastructure.
You want to cut down on the need for labor for things like billing and customer service.
You want to increase customer data security.
You want to minimize data loss, downtime, and security breaches.
You want to reduce time to market.
You want to increase revenue and customer engagement.

Getting Started With XaaS

If you’re ready to get started with a XaaS offering, here are some possible next steps to consider.

Form a team to define the project, kick it off, and create a plan. This step should include defining business requirements and nonfunctional requirements, as well as identifying stakeholders and recognizing their needs.

2. Determine the appropriate XaaS business model. They include the following options.

Freemium – limited options available for free, more available with a paid account
Flat-rate pricing – a certain volume of service per time period available with a paid account
Pay-as-you-go – usage based on volume of service used per time period
Tiered pricing – additional features available for an additional cost
Per-user pricing – unlimited use based on subscription priced per user.

3. Determine service offerings, functionalities, and features. This step includes a close examination of customers and their needs. It also includes determining your value proposition — that is, the value customers get in return for what they pay.

4. Identify the features needed to create a minimum viable product (MVP). The MVP will be what you test in the market to determine whether to move forward with the project or how to modify it to better meet customer demands. The following video explains why you should not skip this step.

5. Determine the tools and resources needed to build the product on a consistent basis. It may include specific technologies, equipment, or cloud services.

6. Deploy the project, planning ahead for things like methodology, cost estimates, dependencies between tasks, the project schedule, human resources, communications, and how you will measure success.

7. Create a marketing and sales force to generate excitement for the product before it launches. Create marketing campaigns for before, during, and after the launch.

8. Launch the product and continue to use marketing and sales to generate revenue. Create key performance indicators (KPIs) so you can measure outcomes. KPIs might include customer satisfaction, customer churn, retention rate, customer lifetime value, conversion rate, customer acquisition cost, number of support tickets, daily active users, monthly active users, stickiness, session duration, bounce rate, number of actions per session, monthly recurring revenue, and Net Promoter Score.

Throughout the process, be aware of the challenges of creating a XaaS offering. According to a recent survey report published by business consulting firm EY, one challenge is creating an effective product strategy for XaaS offerings, “such as developing product enhancements for XaaS, understanding what customers want, and defining XaaS monetization and pricing.” Another is “taking XaaS offerings to market, including defining the route to market, training and incentivizing sales teams, and marketing XaaS offers to different segments.”

XaaS Outcomes to Expect

So, what happens after you adopt the XaaS model? In the survey report, EY notes that “over 90% of companies have some revenues generated from XaaS models,” 60% of organizations use subscription-based pricing models, and “9% of all businesses have fully shifted to XaaS business models.”

For these companies, “XaaS is expected to contribute an increasing share of overall revenues.” Significantly, “the proportion generating more than 80% of their revenues from XaaS is expected to surge from 3% now to 19% … in three to five years.” SaaS companies are leading the way in XaaS revenue share, with life sciences and healthcare next in line.

The report also states that a significant number of organizations are driven to adopt XaaS offerings based on customer expectations and evolving buyer behavior. They expect their XaaS deployments to have a positive impact on their engagement with end customers.

An increase in revenues and customer engagement are two of the most important outcomes companies can expect when adopting a XaaS model for at least part of their operations. So, while the challenges of setting up XaaS offerings can be formidable, organizations can expect positive outcomes to make overcoming those challenges well worth the effort.