XaaS: Why is 'everything' now a service?
A deep dive into “XaaS: The everything as a service” era. Digital Transformation | Business Value Creation | Digital Leadership | 12-minute read.
The “as a service” industry is taking the world by complete storm. The global everything as a service market was valued at $433 billion in 2021. This market is projected to grow from $545 billion in 2022 to $2,378 billion by 2029, exhibiting a CAGR of 23.4% (Fortune Business Insights, 2022).
However, you may be wondering... What exactly is it? What are the various types of “as a service” offerings? What is driving this drastic growth? And should your business adopt XaaS products? If so, what factors need to be considered?
After much research and following my learnings on the Digital Transformation module during my MBA at Warwick Business School, I’m writing this blog to share my understanding of what XaaS is, in an effort to demystify the acronym, discuss the various critical pillars of everything as a service, what is driving the growth in servitization, its pros and cons, and some of the factors that you need to consider before implementing a XaaS solution for your business.
So, what is it?
Anything as a Service refers to a broad category of services related to cloud computing and remote access. It recognizes the large number of products, tools and technologies that are now delivered to users as a service over the internet, instead of being provided locally or on-premises (Bigelow, 2017). New IT paradigm is increasingly shaped by various emerging trends, especially Big Data and Cloud Computing, that can be recognised by different “as a Service (aaS)” models.
The increasing trend of providing everything as a service (XaaS) represents the evolution of the service-oriented architecture and design that supports the development and deployment of software applications as services (Duan et al., 2016).
The core proposition with XaaS and other cloud services is that businesses can cut costs and only purchase services from various providers that are necessary for their operations. Before XaaS, businesses often had to purchase several software and hardware products and install them on-site. They were also responsible for the security, expensive infrastructure, and maintenance of these products for their business processes. With XaaS, businesses can simply purchase the offerings they need, scale services up or down based on their requirement, and pay for them on a subscription basis. Utilizing the multi-tenant approach that as a service products offer drastically increases flexibility and decreases the total cost of ownership (Techopedia, 2017).
What are the various types of “X” as a Service? While there are several anything as a service offerings, three of which are seen as the ‘pillars of XaaS’ and are discussed further below:
Infrastructure as a Service (IaaS) also known as ‘cloud infrastructure services’, is a form of cloud computing where the cloud provider manages the infrastructure components such as servers, storage, networking hardware, as well as the visualization or the hypervisor layer, and delivers them to the subscriber organisation via virtual machines that are accessible over the internet. IaaS consists of easily scalable computing resources, and this allows businesses to access all the IT infrastructure they need, either on a temporary or long-term basis. Amazon Web Services and Google Compute Engine are some common examples of IaaS. In addition to the infrastructure components, IaaS providers also supply a range of services such as detailed billing, monitoring, replication and recovery (backup), security, and load balancing (Boisvert et al., 2020).
Platform as a Service (PaaS) is a cloud computing service where the service provider delivers a platform to the consumers to host, run, develop, and maintain a modular bundle of applications without the complexity of building and maintaining their own on-premise or cloud infrastructure. PaaS includes Infrastructure (servers, storage, and networking) in addition to middleware, development tools, business intelligence services, database management system and more. PaaS is designed to support the complete lifecycle of building, testing, deploying, maintaining, and updating web applications. IBM Cloud and Microsoft Azure are some examples of PaaS. PaaS providers also supply services such as development team collaboration, web service integration, information security, and database integration (IBM Cloud Education, 2019).
Software as a Service (SaaS) also referred to as “on-demand software”, is the most popular and dominant type of XaaS, where a provider offers the entire end-user application as a service (Duan et al., 2016). It is a software licensing and delivery model where the software is licensed on a subscription basis and is hosted centrally. With SaaS, the provider can offer multiple versions of the same software from a single physical server. Each business has its own version of the application, with associated customizations, data, and access controls all from a shared code which is centrally maintained. When new features or functionalities are released, they are rolled out to all customers (Violino, 2019). Salesforce, Shopify, and Slack are some popular examples of SaaS.
And many more… Additionally, some of the other up-and-coming service models are:
What is driving this growth in ‘Servitization’?
The global COVID-19 has had a huge impact on driving the rapid growth in servitization, as the industry has been experiencing higher than anticipated demand across all regions compared to pre-pandemic levels (Fortune Business Insights, 2022).
With organizations already moving towards digital transformation, with over $1.18 trillion being spent by companies globally in 2019 (Statista, 2022), 81% of organizations surveyed by Deloitte indicated that the pandemic has accelerated their shift to XaaS from traditional IT. Additionally, 55% reported that the COVID-19 crisis was causing their organization to invest more in XaaS than initially planned. Moreover, over 6 out of the 10 respondents indicated that XaaS gives their organization a competitive edge, and is viewed as a critical step in the digital transformation of their company (Deloitte, 2021).
?“The COVID-19 pandemic shined a bright spotlight on the importance of IT in maintain business continuity — Expect this trend to have staying power as the advantage of service-based technologies — continue to provide measurable benefits and enable enterprises to compete effectively”
- Paul Silverglate, Vice chairman, Deloitte.
Another major factor propelling the growth of the ‘as a service’ phenomenon is the unstoppable growth in internet penetration (Statista, 2021b) and the increased focus on customer centricity. The market shift and evolving customer expectation from product delivery to continued services have led to consumers choosing the service differentiation factor while choosing a solution or a provider. This has enabled providers to entice customers and sustain their loyalty through subscription models that offer continuous engagement. The increased levels of interactions during the product service lifecycle builds stronger business relationships that can benefit not just the provider but also the end consumer (Snowdrop Solution, 2022).
The good, the bad and the ugly While there are several advantages and disadvantages to consider for XaaS products, some key ones are listed below:
Pros Companies can become leaner With XaaS solutions, it eliminates the need for a business to build data warehouses, acquire servers or house an expansive IT department. As companies can integrate aaS products into their tech-stack and use the software solutions to streamline business operations, it ultimately saves them time and resources. Thereby enabling them to focus more on their core business functions. (Duo, 2021). What was previously a huge capital expense has now become an operating expense. With XaaS, businesses can simply retain critical staff and leverage XaaS companies as a true partner.
Data to drive decisions With XaaS, data can be leveraged to make crucial business decisions. Companies are no longer only reliant on instinct or business acumen to make decisions as XaaS offerings collect large amounts of data (depending on the type of product/solution) ranging from customer drop-off points, agent-productivity, all the way through to end-user experience and customer satisfaction levels. This data can be analysed and leveraged to predict future trends, thus offering a competitive advantage.
Scalability is easier The XaaS model allows businesses to be more responsive to market and customer needs, thereby increasing business agility. Access to newer technologies and the increased levels of flexibility to easily adapt to external changes could increase internal innovation capabilities and their overall scalability (Ring central, 2021).
Cons Downtime potentially impacting businesses Providers servers could potentially experience downtime impacting end-users business functions and could bring operations to a complete halt. Therefore, it is critical for businesses to evaluate the XaaS platform's average uptime and take into account their maintenance routines. While internet downtimes and outages could occur, they can be mitigated with a backup emergency plan. In addition some providers may guarantee continued services through SLAs (NetApp, 2021).
Hidden fees and licences can add up In 2021, organizations across the world were using an average of 110 SaaS applications (Statista, 2021). While as a service applications reduce the capital expenses, it is easy to rack up numerous license fees and additional seats for employees during scale-up phase. Organizations should keep a close track of the costs involved, any hidden fees and maintenance fees, and also consider integration issues that may arise while using varied aaS offerings (Duo, 2021).
Security concerns Security risks such as loss or leakage of data, limited visibility and control, insecure interfaces and APIs, and data breaches may occur. While security is one of the perceived barriers to cloud adoption, it no longer continues to be the biggest inhibitor (Cloud Industry Forum, 2022). With providers offering continuous monitoring, user access controls, and risk assessment, organizations can fully evaluate security protocols.
?It is important to note that the pros and cons described are applicable to all XaaS models, and they are important for any business to take into consideration before evaluating any of these offerings.
What do Businesses need to consider before implementing XaaS? Research indicates that only 30% of all digital transformation projects are successful (BCG, 2020). For effective implementation of XaaS offerings, digital transformation requires leadership across three different areas - People, process and technology (Chen and Popovich, 2003).
People First People are critical to any digital transformation or change management within an organization. It is people that make decisions and drive change and deliver value. It is vital to gather the right set of people ranging from Chief Technology Officer, Chief Information and Security Officer who inspire the transformation right down to the executives who drive the change and aid in the delivery of the XaaS solutions. While moving workloads and processes to the cloud, it can have a significant internal impact as it requires planning and integration with existing operations and is likely to present challenges. Therefore, it is important for the organizations to identify the right change drivers, involve them in the overarching strategy for the digital transformation and leverage them to conduct a thorough evaluation of the right XaaS products ranging from product trial all the way through to implementation.
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Process Next Process is an important area however a lot of businesses often struggle with it as it is difficult to implement and enforce. Managing in the cloud requires organizations to move and react faster than ever before. Areas such as security governance, change management and business continuity need to be clearly defined, and procedures need to be put in place to ensure continuous and process-driven execution. The success of the implementation depends on the organization's capability to adapt an ‘agile mindset’ and drive ‘agile behaviours’ (Deloitte, 2022). While internal processes will change when adopting to the cloud, it is an opportunity for businesses to streamline, optimise and improve existing structures that now surround the technology (Echanove, 2017).
Technology – Evaluating the right technology for your businesses!
As indicated earlier, there has been unremarkable growth in the XaaS industry, and there are numerous solutions and products that are currently available in the market. This can be quite overwhelming for any businesses looking to identify the right as a service offering for their needs. To ensure success, it is extremely critical for a business to first identify its requirements (core, must have’s and nice to have’s), compare competitive products and analyse overall business fitment. Too often, companies make large investments in technology without taking into consideration factors such as transition ROI, the impact on the day-to-day operations and people’s capabilities to scale with the transformation. To avoid failure, businesses need to have clarity on the transformational goals and process agility when these goals evolve. They also need to assess their capability to work closely with their prospective XaaS partner which will determine relationship and product compatibility between the entities.
One size may not fit all, but fits most… While XaaS expansion has steadily increased in the last few years,?some industries have been slower to adapt to the cloud than others. Research indicates that the healthcare and banking sectors have somewhat struggled with this shift due to the concerns over security over proprietracy data and applications, the high stakes nature of the services, subjugation to additional regulations, data integrations, and privacy issues (Stone, 2022). However, both secors are slowly moving towards cloud key strategies. To combat the highlighted problems, the evolution of a hybrid cloud environment that takes advantage of both public and private cloud technologies has been proposed. Leveraging the public cloud's scalability and private cloud's security could be effective (Mckeon, 2022).
Servitization is here to stay!
Servitization is all around us. It is already a big part of our day-to-day lives.
In 2011, Marc Andreessen famously stated that “Software is eating the world”, and his words have been truly prophetic (Manage Engine, 2019). Fast-forward to 2022, and XaaS is all around us!
The combination of cloud computing and global internet access with high speed and high bandwidth provides the perfect environment for accelerating the XaaS model (Sharma, 2022). Scalability, continued support and operational flexibility make XaaS shine in comparison to on-premises offerings. With the digital revolution and both consumers and businesses embracing the servitization model, XaaS is sure to drive businesses and dominate the future. Although whether it is IaaS, PaaS, or SaaS, there are some drawbacks that businesses need to consider before implementing the XaaS transformation. For successful implementation, addressing the why now, analysing the internal aptitude for change, and understanding the infrastructure and surrounding support is critical.
References
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