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XaaS Product Management

Top Product Management Trends in 2022

XaaS Market Trends and Best Practices to Watch

4 min read
By Laura Fay
A new year can bring new challenges for product managers, but also new tools and tactics to overcome them. This year is no exception, as pressures are coming on all sides in all company categories.

The State of Product Management in 2022

The state of product management in 2022 is centered around companies’ journey with their digital transformation. Traditional value-stock companies are being held to their traditional profitability performance standard  while making their move to recurring revenue models. This can be difficult when the transition has strongly demonstrated the  ability to continually deliver losses.

The net operating income (NOI) performance of TSIA’s Cloud 40 Index clocked in at negative 8% in Q4 2021. Performance pressure for growth companies intensifies just as the Federal Reserve plans to reduce its bond purchases and raise interest rates in 2022. (You can see the effect in Docusign and Palantir recent stock performances.) Added fears about COVID-19 variants are also cooling growth stocks.

Responding to Market Trends

Amid these less-than-ideal market conditions, there are still increased market expectations for both traditional tech companies and born-in-the-cloud companies alike to demonstrate sustainable, scalable growth. This growth is also known as XaaS 2.0.

So what does this mean for product management in 2022? Here are two key trends:

 Focus on the Digital Experience

The shift in the industry has resulted in XaaS product management teams centering their goals around the customer’s digital experience. Businesses are striving to compete in a world where customers  expect user-centric digital experiences on par with those experienced in their consumer lives.  

At the industry level, there’s a sizable gap between the customers' expectations and the ability of technology businesses to deliver on those expectations.

In order to compete in this environment and achieve XaaS 2.0 results, licensing models are evolving to align with customer outcomes and business growth is becoming dependent on product adoption and value realization. The chart below chronicles these and other market trends we’ve seen companies adopt in order to adapt.
XaaS Product Management Trend Timeline
XaaS Trend Timeline

While there are companies that have followed the industry's progressions and shifted to the right side of the chart, there are many more whose practices remain  anchored to the left.

Increased Pressure for Product Management To Perform

In this environment, XaaS product management teams, operating as a proxy for the business as a whole, are working hard to compete with XaaS solutions that are…
✓ valuable (to the customer)
✓ feasible (to design and build)
✓ usable (easy to use)
✓ viable (sustainable scalable growth)
 
In a recent blog, I talked about how Chief Product Officers (CPOs) are under increased pressure to select and execute the strategies that put the business on a sustainable, scalable growth trajectory. With that remit, CPOs are increasingly reporting to the CEO or general business manager, who are expecting ever more from their CPOs.

Making optimal, future-proof investment decisions and crafting digital experiences that deliver value quickly and continuously, all the while operationalizing for scale, is proving to be a continuously challenging endeavor as we enter 2022. Furthermore, product management organizations were not immune to the ‘great resignation’ trend seen throughout 2021. They reported experiencing twice the pre-pandemic employee attrition rates coupled with significant challenges in hiring skilled talent.

Product Management is Rising to the Challenge

We can already see the manifestation of the product management challenges in the 48% year-over-year increase on the following TSIA inquiry topics going into 2022:
  • XaaS business model transition
  • Product led growth
  • XaaS pricing strategies
  • XaaS roadmap management
  • XaaS offer design
  • XaaS portfolio lifecycle management
  • Metrics that matter for XaaS offer success
  • Product Management organization structures and incentives
  • Strategies for migration of on-prem customers to XaaS
  • Product’s contribution to efficient XaaS customer engagement
  • Product Management – Customer Success handshake
XaaS product management teams are increasingly focused on their practices to align with the expectations of customers. Furthermore, new product management practices are emerging that present opportunities for XaaS operational scale.

Businesses must decide how to leverage, construct, and empower their teams to capitalize on many of these new practices. In the words of one industry product leader…

"It starts with understanding the unit economics of the model and designing outcome aligned offers and pricing." - Kara Sprague, EVP & GM App Delivery & Enterprise Product Ops, F5 Networks

Three Product Management Trends in Response to the Market


1. Upskilling Your Team with XaaS Business Model Knowledge

Leaders are finding that their product management teams don’t have the knowledge required to understand all the elements in the recurring revenue engine. This makes it impossible for them to effectively impact it.

In a 2021 TSIA XaaS Product Practices Poll, fewer than 40% of surveyed product managers in tech said they could whiteboard the calculation for annual recurring revenue (ARR) if asked. This statistic includes product management from both traditional CapEx businesses and cloud-native companies.

The research captured participant comments such as, “Why do I need to understand ARR?” and “Isn’t that the sales team’s job?” This illustrates traditional tech model thinking.

Product management can impact each element of ARR with conscious and targeted practices, however, doing so requires a baseline understanding of several XaaS concepts. This includes understanding OpEx, the customer engagement model of land, adopt, expand, and renew (LAER) and related economics, the shift from competing in the market with product differentiation to one of service value realization, XaaS revenue acquisition costs, and much more.

This lack of XaaS business knowledge is creating unnatural headwinds for companies striving to innovate their way to sustainable, scalable growth. Combined with hiring challenges, the upskilling of existing teams becomes a growth imperative.

2. Double Down on the Digital First Strategy

Scaling through the digital experience is very much on the mind of the industry and our second biggest engagement category for product management members.

Product-led growth (PLG) takes a product experience approach to the go-to-market strategy. This allows for low-friction growth by building the methods of acquisition, retention, and expansion directly into that product experience. With product-led growth, the product is not only creating the promise of value, but it also plays a starring role in delivering the value.
Your only scalable differentiator
is your digital experience.

PLG has become a predominant capability of early-stage, born-in-the-cloud companies over the past few years. We’ve seen the rewards in market cap have paid off handsomely, with OpenView’s PLG Index of companies posting a median of 20 times revenue multiples post-IPO.

PLG should not be thought of exclusively for the relatively younger SaaS cohort of technology suppliers. There are lessons to be applied across every industry sector.

We conducted a poll around this topic in 2021, “Bridging the Value and Outcomes Gap.” It’s interesting to note that when product management was faced with the question “what would you do if there was NO customer success or sales engineering team to help your customers' adoption realize value?” 64% responded with, “Create immersive and compelling user experiences.” The obvious next question is, why is that not top of your priority list to begin with?

There are several clear signals that demand product leaders embrace PLG:
  1. Inbound marketing approaches have not proven to be very effective.
  2. Sales teams have not mastered outcome-based selling.
  3. Your customer success organization is expensive and unscalable.
  4. Organic customer expansion is elusive.
  5. The renewals team has not tried or mastered value management.
While not every company’s products are built natively on a connected cloud architecture and many technology solutions are complex, there are numerous lessons to be applied from the PLG/SaaS world. The most impactful of which is applying a digital-first strategy to the customer experience. The TSIA report “Is Product Led Growth Applicable to Your Business?” helps companies identify some easy wins on this journey.

3. Craft Outcome-Aligned Offers

The XaaS Product Management Benchmark data illustrated in the graphic below quantifies the market gap between the desire of the customer, the intent, and the actual practice of the suppliers. We call this the value and outcomes gap.

The symptoms of the value and outcomes gap are:
  • Less-effective, more costly sales that often are dependent on heroic salesmanship
  • Costly customer success efforts
  • Friction in the renewal gears
  • Headwinds in expansion
In the presence of the value and outcomes gap, businesses have yet to develop offers that deliver measurable sustainable value that tangibly impacts their customers’ business outcomes.
Desire for Outcome-based Offers vs. Actual Offering
Desire for Outcome-based Offers vs. Actual Offering

Evidence indicates that there’s a range of reasons why CPOs are not taking on the challenge of closing the value and outcomes gap, despite perhaps best intentions. These include denial that the traditional offers are rapidly commoditizing, complacency about learning what it takes to build scalable XaaS revenue streams, fear of the unknown, and overconfidence. All of these reasons result in blind spots to the operational differences in the XaaS model.

These challenges must be quickly overcome if businesses are to prevail. While companies are focused on climbing the value ladder, competitors are not standing still. The TSIA report "The Alchemy of Compelling XaaS Offers" provides a prescription with multiple industry examples to help close the value and outcome gap.

Product Management Practices Are Playing Catch-up

As noted above, the market at large is marching ahead in the shift from selling technology as an asset to selling outcome-aligned XaaS-based offers. This is fueled by recurring service revenues from individual companies, with plenty of headroom remaining.

Product management’s operational practices and offer attributes are progressing in pace-setting businesses, but lagging in the majority. For those companies, the result is suboptimal margin performance.
Market Shift to XaaS Outcome-Based Offers
Market Shift to XaaS Outcome-Based Offers

What’s clear is that traditional technology practices in product management do not deliver the expected results for models based on recurring services. Old habits die hard.

Our research finds that this lack of alignment between the XaaS operational model and related capabilities starts with a lack of foundational business-level understanding of the XaaS business model engine. This should be considered job number one, upon which additional innovative practices and competitive market offers can be built.

For a more in-depth inspection of the state of XaaS product management, please refer to our latest XaaS Product Management 2022 report.
Additionally, I will be covering these topics at my “State of XaaS Product Management” interactive webinar on April 22, 2022. Register today to be in-the-know of what’s coming for product management. 
 

 March 3, 2022

Laura Fay

About Author Laura Fay

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.

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