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Customers have spoken loud and clear. They want to subscribe to your solutions, and they want YOU to operate it. Are you ready to provide the solution they really want?
Over the past three years, I have traveled over half a million miles to six different continents assisting our members on their journey from being a product engine company to a XaaS provider. The tectonic shift in the tech industry is undeniably real – and every bit of data you can muster supports this shift.
I ask this question a bit tongue-in-cheek to every executive I meet: “Do you know what the S stands for in XaaS?” They look at me like it’s a trick question, mostly because it is. I ask this question to provoke deeper thought on the obvious answer. I tell them it doesn’t stand for “subscription.” It doesn’t stand for “solution.” It stands for service. Your technology, as a service.
This is a super important point that can not be understated. Just look at the comparison between product and service revenue in 2009 and again in 2019, in the TSIA Technology and Service 50.
The pie chart has basically flipped. The pie hasn’t increased in size. Customers are changing the way they want to purchase and consume tech. More and more customers are choosing OpEx service-led models over traditional CapEx product-led models.
To all you senior executives out there: How well does your product organization understand services? Not just product-attach services like Professional and Support Services or Field and Education Services. I’m talking about “operate” services. There are two major types of operate services in the market today: Managed Services and XaaS. TSIA has developed a capabilities framework for both operate models and over 85% of the organizational capabilities required for XaaS are also present in the Managed Services capabilities inventory.
We also know that traditional product organizations lack over 80% of the capabilities required to successfully scale and operate XaaS solutions. What does that tell us? The muscles required for successful XaaS solutions are more likely to be present in Managed Services organizations than they are in product organizations. There’s a pretty simple reason why.
The image below represents the continuum of engagement and service functions required for both XaaS and Managed Services solutions. If you are choosing to build XaaS solutions out of your product organization, you must ask yourself a very sobering question, “Can my product organization do all this?”
That doesn’t mean that all Managed Services organizations are naturally masters at operating XaaS solutions. In fact, we know most MS organizations are not fully optimized for successful growth, profitability, and revenue retention. We also know the critical organizational capabilities they need to have in place. As mentioned earlier, there is substantial commonality between XaaS capabilities and Managed Services capabilities.
Another point I make with senior tech executives is that they need to understand we are not just talking about the number of capabilities; we’re also talking about the breadth of capabilities required. TSIA develops capabilities assessment frameworks to help categorize capabilities by key functional area. These include:
The following diagram is the TSIA Capabilities Framework. Though we have a framework like this for every research practice, this model allows us to assess operational maturity and preparedness to support managed and XaaS solutions. While the framework is roughly the same between Managed Services and XaaS, we know full well that most product-led companies have never built most of these.
So, where do you start? Like any superhero actor, if you want to play the part, you need to put in the hard work. You need to develop muscles/capabilities that likely didn’t exist before. Look inside your services organization. Wouldn’t it make more sense to build a services business in a services organization? That doesn’t mean the product organization doesn’t have a role to play. For sure they do. There are dozens upon dozens of capabilities that need to be built into the product to ensure scalability and serviceability of the solution. That’s the right place for the product team to start. As far as X as a service goes, leave the services part to Services.
To learn more about TSIA’s ability to assess your organization’s capabilities and preparedness to support XaaS solutions, contact us here.
Post Date: November 5, 2020
George Humphrey is the vice president and managing director of service and delivery research and advisory for TSIA. Given his extensive background, George also directly supports the managed services research practice. He is a networking and communications industry veteran with over 25+ years of experience. Throughout his career, he has held several leadership positions in managed services, including global strategy, product line management, marketing, operations, and client management.
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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.