After publishing three books on the topic of migrating a technology business model from selling technology as an asset to selling technology as a service, here is a common question we receive from the leadership teams of technology companies:

“So, exactly how long does it take for a company to navigate this business model transformation?”

Our response: 

“All up and in, anywhere from five to ten years.” 

The common reaction from executives:

“That is a non-starter for us! Our investors will never tolerate taking that long.” And, "Why does it take so long?”

Nobody likes our answer. But our answer is based on data. Our answer is based on studying companies that are both succeeding and failing at what TSIA calls “the XaaS transformation.” Our answer is based on reality.

Why Five to Ten Years? 

Within the XaaS transformation, there are three specific transformations that must eventually occur:

  • Offer Transformation: Product and service teams must learn to design and deploy compelling XaaS offers. For more information on this transformation, read Developing a Compelling XaaS Offer
  • Services Transformation: The company must learn to serve XaaS customers. This means a new and maniacal focus on adoption, expansion, and renewal of existing customers. For more information on this journey, read The Four Phases to Becoming LAER Efficient
  • Sales Transformation: The company must migrate the go-to-market channels to sell XaaS service contracts instead of transactional product deals. For more information on this journey, read XaaS Compensation Models

Within these three transformations, there are at least seven intensive workstreams that impact every function within the company:

  1. Target Economic Engine. How do the new XaaS revenues fit into our financial objectives? Does the company have a target economic engine defined for the next 3- to 5-year horizon?
  2. Build XaaS Offers. Does the company have the capabilities to design profitable XaaS offers?
  3. Sell XaaS Offers. Does the company have the appropriate customer engagement models, skills, and metrics to land new XaaS customers?
  4. Initial Delivery. Does the company have the skills, organizational structure, and processes to efficiently stand customers up on new XaaS platforms?
  5. Manage XaaS Environments. Does the company have the organizational structure, infrastructure, and processes to manage customers on XaaS platforms?
  6. Keep and Grow XaaS Customers. Does the company have the appropriate customer engagement models to cost-effectively renew and grow XaaS customers?
  7. Enabling Partners on XaaS Offers. Can the company enable partners to successfully sell and support XaaS offers? Do partners have a profitable business model as it relates to thesenew XaaS offers?

For a more thorough review of these workstreams, read The XaaS Transformation.

XaaS Transformation Case Study

There are numerous company case studies on the XaaS transformation that TSIA has researched and documented over the past several years. But just this week, Doug Merritt, the CEO of Splunk, was interviewed on this very topic by Christopher Lochhead, a former colleague of one of our TSIA researchers:

Listen to the interview: 166 Radical Business Transformation | Doug Merritt CEO of Splunk

In this excellent interview, the following points are made regarding successful XaaS business model transformation:

  • This is a multi-year transformation.
  • The Board and Executive team must be all in and completely aligned on the objectives of this transformation.
  • Transparency is critical when communicating to investors.
  • There is real financial impact as a company navigates this transformation.

Even though Splunk’s profitability is being impacted by this transformation, investors are rewarding the progress:

Splunk Market Summary

The realities discussed in this interview are completely aligned with the guidance we have been giving technology companies for several years. In the book The XaaS Playbook, we define the four phases of swallowing this transformation fish. In a 2018 paper, we provided members with updated examples: Update: Swallowing the Fish.

Again, nobody likes the answer we give to this question. But visionary, effective CEOs like Mr. Merritt are earning their salaries by successfully navigating their companies through this critical transformation.

 

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Thomas Lah

About Author Thomas Lah

Thomas Lah is executive director and executive vice president of TSIA. Since 1996, he has used his incisive analysis, strategic thinking, and creative solutions to help some of the world’s largest technology companies improve the efficiency of their daily operations. He has authored several books, including, Bridging the Services Chasm (2009), Consumption Economics (2011), B4B (2013), and Technology-as-a-Service Playbook: How to Grow a Profitable Subscription Business (2016).

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