Creating customers for life in the everything-as-a-service (XaaS) economy

By Esmeralda Swartz , written on October 28, 2013

From The News Desk

Search “everything-as-a service” (XaaS) and Google will spit out more than 1.5 billion results. Just based on its nomenclature, you can guess that XaaS is used to describe a variety of business models where almost anything can be delivered as-a-service -- automobiles, wind turbines, jet engines and network devices are just a few examples.

It's not surprising that enterprises have begun to recognize the opportunity around the globe to transition business models to the cloud to take advantage of the XaaS trend. Gartner forecasts that the market for applications, application infrastructure and systems infrastructure delivered as public cloud services will reach $43 billion in 2015.

As companies scramble to stake their claims, many confront a sobering reality: creating and implementing the right operating model is not easy.

The XaaS movement brings with it new requirements, the most critical being the need to efficiently support an ongoing fluid relationship between customer and provider, as well as among channels and partners. To succeed in a services economy, companies must develop adaptable ways to personalize and monetize service offerings for customers. Most companies need to change organizational behaviors designed to produce consistent, efficient, low-cost, high-volume products.

This new, customer-centric world will shape which companies triumph and which fail based on their ability to develop, adapt and monetize individualized relationships with customers.

Businesses will succeed in the XaaS economy if they:

Pivot business models. Companies can transform their business models by devising unique pricing, charging or discounting models to reach target customers and markets. Financial systems must be adaptable to support personalized offerings and pricing models. One-size-fits-all leads to commoditization. Bundling traditional product offerings with new services represents opportunities for differentiation.

Manage the service portfolio across the ecosystem. Cloud offerings involve extending the customer experience outside of a single provider. Customers don’t care and don’t know where the application comes from. Regardless of where the product comes from or which partners you are using, the customer experience needs to be maintained.

Incorporate flexible pricing, billing and contracting. Both subscription and usage-based pricing must be offered. Subscriptions provide predictable recurring revenue and usage-based models provide continual revenue while still supporting the agreements based on commitments and consumption that are desired by customers. For partner offerings, the billing and compensation system also needs to reflect the revenue that is due the partner.

Consider a 360-degree view of the customer. Transactional data generates actionable insights that can be productized. Providers need to acquire and store customer usage and relationship data, analyze the data in real-time and continuously adjust and act with dynamic pricing and personalized offerings to improve the customer experience. Threshold-based notifications can be used to provide alerts to unlock up-selling opportunities.

Remain focused on keeping customers for life. Sales, marketing and support teams need to be focused on delivering value and maintaining customers for life. Customer satisfaction and retention is what matters from the first touch point with the customer throughout the entire customer lifecycle.

If you perceive services as a factory-style process that treats people like products, you are missing the concept of service personalization. Many customers who are sold a service will argue that the concept of “service” is somehow missing in their daily interactions with providers.

Of course, delivering services does require industrial-strength efficiency, but services are not production processes. Tailoring and personalizing relationships and services with customers, partners and suppliers in the XaaS economy is the new reality. Unlike products, services can be modified as they are delivered; they can sometimes be co-created with customers and partners; and service providers must sometimes respond in real-time to customer preferences.

The value of a service comes through the interactions: it’s the experience that matters. A company with a services orientation cannot be designed and organized around traditional product processes that do not reflect customer needs and experiences. In a services-oriented company, the role of customer support transitions from a cost center to one of customer success. The objective is to deliver value, solutions and unique customer conversations to maintain customers for life.

Hundreds of new products are emerging with one fundamental value proposition -- to deliver a product as a service. If you can name the product, you can find a company that delivers it as-a-service.

At a cloud computing event in New York, the chief technology officer of General Electric indicated that 70 percent of revenue now comes from selling as a service what used to be products. This is a shocking statistic for many because GE represents the classic “product” company. GE touches so many industries and sells everything from aircraft engines to television programming and focused on making XaaS work for its customers.

The jet engine serves as an illustrative example of the as-a-service movement. We all know that it is a complex product, which is why airlines have separate agreements with engine maintenance providers, usually the same companies producing the actual jet engines. For those unfamiliar with this industry, it might come as a surprise that usage determines jet engine costs, and it has been pioneered to be a truly compelling customer value proposition.

Rolls-Royce came up with the Power-By-The-Hour concept that is relevant to so many other industries: provide the exact same service for exactly the same products, but charge customers per flying hour of the engine. It is worth noting that Rolls-Royce introduced it about 50 years ago, before the term “cloud” even existed. Why is this differentiated service so valued by customers? And how can other service industries learn from this way to source?

The actual business case is straightforward for the end-customer. Airlines have a difficult time forecasting how often equipment will break down. Additionally, the cost of repair and stocking spare parts is not desirable. After all, what the airline really wants is the engine to fly. That is precisely what the Rolls-Royce Power-by-the-Hour contract offers: customers buy functionality (a flying engine) and not spare parts. The company selling you parts and labor has a direct incentive to sell you more of it.

We all have stories about going into a car dealership with one problem, and having the mechanic find three other problems under the hood. Under the Power-by-the-Hour model this would not happen: both the service provider and the customer would have a common goal and commitment.

The service provider is actually incentivized to perform more proactive maintenance (operating time is money – downtime is not) or maybe even to design a better engine. This is a classic case of both the customer and the service provider winning.

[Image via Amazon]