Everything-as-a-Service
How to win in the shift to flexible consumption business models
By Tamarah Usher and Charles Schreiner
For over 15 years, companies have experimented with what it means to be an “as-a-service” business. The now classic pizza example (depicted in the image below) has frequently been used to explain the various types and stages of transitioning to this new business model.
At Slalom, however, we know this isn’t the whole pie. Years of experience have told us that — while we think this analogy is helpful — it’s incomplete. A pizza parlor doesn’t tell you why transitioning to an as-a-service business model might be beneficial, nor is it strategic in its viewpoint.
In this post, we’ll help define what it means to be an as-a-service business, its benefits to the company and consumers, and some pitfalls to avoid during execution.
What is an as-a-service business model?
Many companies are actively considering moving to an as-a-service business model, chasing after new revenue models and headline-grabbing stories from top tech firms. But what really is an as-a-service model?
At Slalom, we see as-a-service business models as the delivery of a service (broadly defined) over a network (typically cloud or the internet). The model can be a digital-only service or the integration of digital and physical interactions with the customer. Ultimately, the model allows customers flexibility in consumption, functionality, and pricing.
From the company’s perspective, an as-a-service business model boils down to a new — and likely more lucrative — revenue model. It represents a dramatic shift from one-time or even repeat purchasing to a method of recurring revenue. You’ve probably heard of Google Apps, MS Office365, and Salesforce as tech-first examples of this model. Even if you’ve never interacted with these tech giants, you’ve probably seen ads for Stitch Fix, or BMW’s newest heated seat subscription service.
Why the as-a-service model is attractive
Since there is no upfront investment required in an as-a-service business model, the model makes products that were previously inaccessible attractive to new customers. Premium products or services previously considered luxury or large-business-focused can now be consumed broadly.
As suppliers of the new service tiers — in addition to expanding the market — the most attractive dimension of the model is the predictable and renewable revenue streams. This has driven the now $152 billion software-as-a-service (SaaS) market. While dominated by cloud consumption, the opportunities in the platform, services, and “phygital” products led by subscriptions are vast and growing to meet the demand.
The next advantage of the as-a-service model is the rich data and continuous feedback loop, which keeps companies and customers aligned to this strategy for the long haul. Since the customer will be serviced at every step in the acquisition journey, at every touchpoint with the product/service, and integrate the offering into their business or daily life, the opportunity to exploit this data stream is incredibly valuable. As-a-service offerings can incorporate explicit and passively collected feedback to add product features, reduce friction, automate, make predictions, and more. Since these products are developed cloud-native with embedded analytics, they typically release new capabilities at more frequent intervals.
Slalom’s approach to guiding businesses through their as-a-service strategy recognizes that not all businesses start from the same place. To best outline the business model innovation opportunities, we start with our roadmap to outline key capability developments along the journey. Combined with a long-term strategy that considers expansion, adjacent offerings, projections for value capture, and market potential, this will ensure your strategy is met with the excitement and investment the innovation deserves.
Best practices to ensure success
For entrepreneurs and large enterprises alike, the idea of designing and testing new business models can feel overwhelming. While agility and bringing your product to market quickly is the best approach to getting real customer feedback, there are a few things to consider before launching.
We’ve found that prioritizing these best practices is essential in preventing regret, tech debt, and other irreversible missteps:
- Truly knowing your customer.
- Having a robust mobile strategy.
- Optimizing margins through a tested pricing strategy.
- Investing in cloud and DevOps to capture value in fast turns to market.
- Incorporating product analytics.
- Using innovative approaches to feature development and model testing.
- Charting your strategic roadmap to capture vertical and horizontal expansion.
- Transforming your internal processes, talent, and metrics to support new ways of working.
- Having a plan to take advantage of upsell opportunities.
- Instilling trust through effective infosec.
Conclusion
Regardless of where your company is on the as-a-service journey, you should think about not only the potential financial benefits of this innovative business model, but also the changes, tradeoffs, and best practices needed for success. Throughout this series, we’ll further explore the 10 best practices above that Slalom utilizes when helping companies transition to this innovative business model.
Slalom is a global consulting firm that helps people and organizations dream bigger, move faster, and build better tomorrows for all. Learn more and reach out today.
