Technology-as-a-Service Playbook

How to Grow a Profitable Subscription Business

Thomas Lah, J. B. Wood

• Publisher: Point B Inc
• Year: 2016
• Print ISBN: 9780986046230
• eBook ISBN: 9780986046254
• Topic: Business
• Subtopic: IT Industry
• Index: Business

Technology-as-a-Service Playbook defines the tactical and strategic plays technology companies must run to build a profitable subscription business. Whether you are a pureplay cloud company or a traditional technology provider making the pivot to the cloud, this book will help guide your decision-making and execution around the "as-a-service" model to put your company on a path to profitable growth.

This cloud-driven journey will affect every part of the organization. How offers are designed, built, marketed, sold, and serviced will all need to change. And these transformations are not limited to OEMs—they will also directly impact the vast network of channel partners. After all, it's not just about building recurring revenue, it's about building PROFITABLE recurring revenue. Technology-as-a-Service Playbook is the road map to the next-generation tech business model.

1	Disruption Happens

How can you spot a tipping point? Malcolm Gladwell, whose book, The Tipping Point,¹ helped popularize the term, says it’s that magic moment when an idea, trend, or social behavior crosses a threshold, tips, and spreads like wildfire. Well, we think one has come to dozens of business-to-business (B2B) and business-to-consumer (B2C) technology industries.

Ten years ago, we first stood in front of thousands of tech executives and worried aloud that the cloud era was going to disrupt the tech industry more profoundly than any other transformation in its vaunted 50-year history. Our worry was not rooted in disruptive technology but in disruptive business models. Big companies like IBM, HP, and Oracle have all weathered generational changes to computing models and architectures many times. Handling new waves of technology is old hat; they have plenty of plays for that. But we worried that this perfect storm of new technology and new business models could re-cast the very foundations of market leadership in the industry.

A lot has happened since that decade. Unless you have stubbornly avoided all business media over the past few years, it is impossible to have missed the interest in subscription business models, not just in IT but in nearly every technology-related industry. Today’s energy surrounding subscription business models is the follow-on to the buzz a few years ago about the “sharing economy”—something that Time magazine said was one of the top 10 ideas that would change the world back in 2011. The attraction of the sharing economy was and is the ability to simply access rather than own physical and human assets. For the provider, it produces recurring revenue streams that keep customers spending for years—even decades.

Although subscription business models and the sharing economy can manifest themselves in many industries, this book is concerned only with tech and near-tech industries. Even more specifically, we are focused on highly cloud-enabled, technology-as-a-service offers. The categories of these offers take many popular names. There are software-as-a-service (SaaS) offers, platform-as-a-service (PaaS) offers, infrastructure-as-a-service (IaaS) offers, managed services, and so forth. To keep it simple for the rest of the book, we are going to refer to them collectively as XaaS. You can make the “X” whatever you want. It simply means that you are offering sophisticated computer software, hardware, industrial equipment or devices, and/or services in an “as-a-service” consumption model to your customers. We would expect some or all of the offer to be delivered through the cloud. If you are selling subscriptions to razor blades or fine wine over the Internet, this book probably isn’t for you. On the other hand, if you are involved in the strategy, development, finance, marketing, services, or sales of complex, cloud-based technology solutions in IT, industrial equipment, health care, or consumer markets, and terms like SaaS and managed services resonate with you and your team … then keep reading. We have some interesting observations to pass along. Very importantly, if you are involved in traditional (asset-based, on-premise) technology and you are wondering what XaaS technology will mean to your job and your company … then definitely keep reading. That’s because your company is about to be caught up in the business model tipping point. To remain competitive, you will not only need new offers, but you will also need a new way to operate. Being connected to your customers is the catalyst.

Before you begin, you might be asking yourself: Just where are these observations coming from? OK, fair question.

Our answer begins with this statement: We don’t know all the answers, and anyone who tells you they do should be shown the door. It’s still early days in assessing how the cloud era of tech will fully disrupt the technology industry; predicting the future is dicey. It’s like predicting the future of the clean energy industry. It’s hard enough to figure out which technical approaches will ultimately win the market, much less what the best business practices of the new leaders will be. So, who are we and why this book? The answer is that we run the Technology Services Industry Association (TSIA). As one of tech’s largest industry associations, our company gets to uniquely study and talk with hundreds of the world’s most successful technology and industrial companies each and every day. We are an incredibly research-intensive bunch. We have experienced industry executives, PhD researchers, and data analysts looking at all the data we collect from public sources and from the companies themselves. We field thousands of formal inquiries annually from management at both traditional and XaaS companies wanting to know about the trends and best practices in running a successful business in this time of radical change. They want to know what lessons we are learning from our research on top-performing companies because we have access to data that is simply not available in the public domain. It’s from all this research and interaction that we draw our observations. So, though we can’t predict the future, we think we may be in one of the best positions to dissect and debate it. Most importantly, we think some winning patterns are emerging. That is what we want to share in this book. You might not agree with all of our observations, and not every one might play out. But, we think they are important for every executive and manager in the tech world to be aware of and consider. It’s a tricky time. Are we at a tipping point? If so, what will it mean to the traditional business models we know and love? How do we prepare? What will successful XaaS organizations of the near future look like?

In a nutshell, here is what we have learned after studying the topic from multiple angles for 8 years: XaaS is not just technology that is priced by the month and hosted in the cloud. If it were that simple, you wouldn’t need this book. We believe that, as the enigmatic smoke clears around the cloud, what’s emerging is an image of success in XaaS business models that is fundamentally different from traditional tech. It’s something that goes way beyond the technology and the pricing model … something that cuts deeply into the underlying business model the tech industry has grown comfortable with. It’s just a new way of running a tech company. And it’s powered by your real-time connections to the customer. What’s most interesting—why we wrote this book—is that NOBODY truly knows what that new way is! It’s a fact that there is no B2B subscription business that is as rapidly growing and as profitable as the traditional tech bellwethers were in their heyday. Only the XaaS CEO who can make that claim can write the definitive book. And really, they should accomplish it more than once to prove that they have perfected the formula. Until that day, we are all in this together—all trying to break the enigmatic code for the profitable XaaS business. We are debating whether the tipping point has arrived and what life after that will look like. Let’s face it: The cost of building software is dropping fast. We think it’s the business execution around the code—not just the ability to write code—that will determine the success or failure of future icons.

Just how different might the winning B2B/B4B XaaS company look? Here are 10 assertions that are a sample of things we will cover:

• The ability to “prove deliverable business outcomes’” will supplant “win the feature bake-off” as the central focus of senior leadership at tech companies. This will cause a dramatic re-thinking of investments and top talent allocation. Offers will “go vertical” in order to better deliver full value to the customer. Services will move from the back of the bus to the front of the bus. But at the same time …
• Software will eat services. The ability of technology companies to reduce technical complexity and build best customer practices into their software will be a defining characteristic of successful XaaS providers. Value-added services will survive and prosper as a concept. However, labor-delivered services (except highly consultative expertise) will still be viewed by management as a boat anchor. Eventually, development will accept that their charter includes the “full product” and not just a collection of features. They will build all the capabilities into the product that are needed not only to win the feature bake-off but also to enable the differentiated services that will drive adoption, encourage expansion, reduce sales costs, and have a plethora of other objectives. These are the capabilities needed to create downstream profits and sustained competitive advantage.
• Suppliers and customers will increasingly compete as every company becomes a tech company. Low-cost software development will turn industrial buyers of technology into technology producers themselves. Technology resellers will find their original equipment manufacturer (OEM) suppliers competing with them through cloud-enabled, direct models. Large XaaS providers will manufacture their own hardware and build their own software, no longer being a buyer of technology but actually overseeing the manufacture of the products they use. (By the way, all of this is already happening at scale.)
• The act of selling will undergo radical change. Customers can now self-serve a huge amount of the information they need to make a technology purchase decision. They will be able to self-serve on simple purchasing decisions like low-cost XaaS trials or renewals. Even on more complex decisions they will have less and less interest or patience for “company overviews” or “demos” from their sales rep. They will know all that. They will want to discuss the “last mile.” They will want to know specifically how your key features will lead to improved business outcomes for companies in their specific industry. Selling will become a process, not a heroic act!
• Delivering and measuring customer success will become a defining characteristic of market leaders. If you don’t have a systematic way to make more than 90% of all your XaaS successful, you will not be profitable. We are not just talking about success in your terms; we are talking about success in the customer’s terms.
• Organizational structures will be significantly reinvented with highly integrated development, marketing, sales, finance, and service teams swarming around specific customer segments. Regional autonomy over international markets will decline, and centralized processes and systems will ascend. Even traditional departmental profit and loss statements (P&Ls)—the archaic command and control systems we dearly loved—will collapse under the weight of the new operational and organizational models, where expense dollars in one department yield revenue growth or cost savings in a totally different department.
• Channel partner models will get re-thought and reconstructed. Many resellers will perish in the transition. New kinds of partners will be added. How the OEM and their partners work together for a particular customer will be radically redefined as the old notion of direct or indirect customers is replaced by a model where bo...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Contents
• 1. Disruption Happens
• 2. The 3x3 of XaaS
• 3. Digging an Economic Moat for Your XaaS Business
• 4. Stressing Traditional Organizational Structures
• 5. Swallowing the Fish
• 6. The Power of XaaS Portfolios
• 7. XaaS Customer Engagement Models
• 8. The Financial Keys of XaaS
• 9. The Case for Managed Services
• 10. Changes in the Channel
• Endnotes
• Index