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Almost everything that’s growing in the B2B market today is XaaS, or “as-a-service”, where the “X” is a placeholder for anything you want it to be, such as Software-as-a-Service (SaaS), Device-as-a-Service (DaaS), Network-as-a-Service (NaaS), etc., just to name a few. Being successful in the XaaS world requires becoming LAER Efficient, in which Product Management plays a pivotal role.
In this post, I will address key questions on this topic, including:
First let’s put some clarity on the term XaaS. It really embodies anything with embedded technology that’s offered to the market on a subscription basis. It implies growth by consumption and renewal.
Examples of different XaaS offers and business models.
The technology industry has seen phenomenal growth in XaaS revenue, and indeed the TSIA Cloud 40 Index has reported a healthy 20% year-over-year revenue for the past several years. On the flip side, it’s clear that XaaS business models continue to struggle to achieve scalable and profitable growth, with evidence of this being seen across hardware, software and technology service providers’ XaaS offers.
How do we know this?
TSIA’s Cloud 40 Index has illustrated over the past few years the challenges that subscription business models have in producing positive operating margins, and it’s nowhere close to those seen in the traditional technology business models.
TSIA Cloud 40 Index: Net Operating Income (NOI) performance.
Innovating with highly differentiated solutions is the starting point for B2B business growth, however it’s simply not enough to drive as-a-service businesses to the second phase of scale and profitable growth.
So how do you accelerate scalable profitable ARR growth in today’s technology marketplace? On the face of it, the formula is simple:
In the Technology-as-a-Service Playbook, TSIA introduced the LAER customer engagement model, which provided a framework for companies to engage with their customers in four distinct phases:
TSIA's LAER model: Land, Adopt, Expand, and Renew.
The Sales and Services teams of technology companies have embraced LAER as the de facto standard customer engagement model for recurring revenue businesses. Companies both large and small across all industries have organized their Sales and Services teams around LAER, including Adobe, Autodesk, Microsoft, IBM, Tableau, Salesforce, ServiceNow, and Talend, just to name just a few.
As noted earlier in this article, the challenge for the industry is to master the formula for scalable and profitable XaaS business models. To help the industry with this challenge, TSIA designed another framework, called the “LAER Efficient Framework”, and identified 4 phases that companies may experience as they make the journey to operationalize LAER for optimal efficiency.
The journey to becoming LAER Efficient.
There are a series of organizational capabilities of people, process and technologies required at each phase of the journey to LAER Efficiency along with key performance indicators (KPIs) that serve as progress markers.
KPIs of LAER Efficient companies.
What do the Sales, Services and customer performance markers tell us about where the technology industry is on the customer engagement journey to LAER Efficiency?
Based on TSIA’s research across numerous Sales and Services-focused research practices, we see that it is still early days on that journey. Pure XaaS native (also known as born-in-the-cloud) companies lead the pack with traditional tech companies, who are in the early stages of transitioning all or part of their business models to XaaS, just embarking on what is likely to be a multi-year journey.
Where many companies are in their journey to becoming LAER Efficient.
A key question must be asked of the Product Management team: “Is LAER Efficiency just an issue for the Sales, Services and Customer Success teams?” The instinctive response is, “Of course not!” Why?
The data reminds us that even when the market loves the subscription offer, rewards the company with strong revenue growth, and the business has deployed a Customer Success team to help drive adoption, many businesses still struggle in their quest for acceptable margins and scale.
Even with the best efforts of Sales, Services, and Customer Success, no technology business is likely to achieve full LAER Efficiency without the presence of key attributes in the company’s portfolio of solutions and key practices within the Product Management team.
To double-click on this, TSIA’s research demonstrates that supplier’s that take an outside-in perspective and shift left all the way up the food chain to the very beginning to the product concept, discovery, and design phase, are most likely to realize their scalable growth objectives. These findings draw attention to Product Management’s XaaS Success Playbook where the technology product, the portfolio of offers, and related pricing are not only designed to maximize the customers’ value realization, but also explicitly designed for business revenue capture and for driving cost out of the customer engagement model.
Product Management leaders that acknowledge and embrace this highly impactful role in accelerating the path to LAER Efficiency for their recurring revenue business, will create and build a lasting platform of growth and scale.
At our upcoming Technology & Services World conference, taking place Oct 21-23, I will double-click into the XaaS Product Management’s Success Playbook and expose a strategy for optimizing revenue capture and enabling a cost-effective customer engagement model. We’ll delve into the practices, KPIs and markers for Product Management along journey and explore an assessment framework to advise your game plan to becoming a LAER Efficient company.
Also in the XaaS Product Management track, you can also look forward to other relevant sessions from industry thought leaders, such as:
Register now and join us for three days of learning and idea sharing around what XaaS holds for the future of business as we know it.
Post Date: September 24, 2019
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Laura Fay is the vice president and managing director of offers research and advisory for TSIA. She also serves as TSIA’s vice president of XaaS product management research. Laura is a technology industry veteran with over 30 years' experience driving business growth in the enterprise technology industry via leadership roles in product management, general management, product development, and customer success.
The Technology & Services Industry Association (TSIA) is dedicated to helping technology and services organizations large and small grow and advance in the technology industry. Find out how you can achieve success, too. Call us at (858) 674-5491 or we can call you.