Everything as a Service, is it really such an innovation? This is what you need to know
During my work experience I have read a lot of blogs and I always found useful sources of knowledge within the SAP Community, but I have never invested time in writing my own blog. So, why now? I think part of the reason is because I wanted to step out of my comfort zone, even though I do not like to be on the spotlight, but the main reason is because I want the share with the community what Everything-as-a-Service (XaaS) is, and why XaaS models are becoming so critical, even though the basic concept of renting a product instead of selling it, was already known and applied long time ago, even before the internet was a thing.
Definition, what is Everything as a Service?
Let me start with a definition: *aaS is an acronym for as-a-service (e.g., X-as-a-service), and refers to something being presented to a customer, either internal or external, as a service. As-a-Service, or XaaS (Anything or Everything-as-a-Service) offerings provide endpoints for customers/consumers to interface with which are usually API driven but can commonly be controlled via a web console in a user’s web browser. Source Wikipedia.
A bit of background
Originally the XaaS model was something only applied to the cloud computing, providing services over the internet. But prior to this application, and prior to the internet, between 1960 and 1977, Xerox, the famous American company that sells print, digital document products and services, developed the Xerox 914. It was the first plain paper photocopier, and it was invented by Chester Carlson. The Xerox 914 had a pricing structure that was designed to encourage the customers to rent rather than buying it: it could be rented in 1965 for $25 per month, plus 10 cents per copy, while the purchase price was $27,500.
Credit for the image to the Advertising Archives
What changed since the mid-1960s
The XaaS model fundamentally did not change from the first attempt done by Xerox, what changed is everything else around it. To name a few changes which are accelerating the transition to XaaS models I can list the following:
- Advances in technology: there are in fact new innovative technologies acting as enabler of the XaaS model (Internet of Things/IoT, Machine Learning/ML, 5G, Analytics …)
- Customer expectations: shift from CapEx to OpEx (Capital Expenditure to Operational Expenditure), more flexible consumption, familiarity with subscription-based or even out-come-based models due to popular providers such as Netflix
- Revenue potential: higher margins through services
- Product differentiation: breaking traditional boundaries and opening new territories
- Circular economy and sustainability: retained ownership of materials flows, motivates circular economy, reducing consumption of natural resources, closing materials loops.
What is happening now?
I can tell you a lot is happening. In the last three months I have done research with a specific focus on the Utilities industry, since this is one of my areas of expertise. I have found that XaaS models can really be anything. There are Energy Service Providers (ESPs) offering Heating-as-a-Service, where I, as a consumer, can decide to pay a monthly subscription for the hours I need to warm-up my house without owning the heating system; a third-party provider in partnership with my Utility provider will take care of installing, maintaining, and replacing the heating system when necessary. The same can be applied to Solar-as-a-Service where I, as a consumer who cannot afford buying new solar panels, can get renewable energy and lower my electricity bills in the long term by paying a monthly subscription to my energy retailer who will also take care of the maintenance and installation for me. Another example is Energy-Efficiency-as-a-Service where householders, or real estates, can turn to energy service providers and ask for improvements of their flats, or buildings, to upgrade their energy efficiency ratings with no upfront costs. This approach is considered as a catalyst for greener, more cost-efficient buildings through comprehensive energy efficiency retrofits and renewable energy upgrades.
Energy as a Service as one of the XaaS models for Utilities
The three examples I have made earlier, they all fall into what is now called as Energy-as-a-Service (EaaS): an innovative business model whereby a service provider, either traditional energy service providers (ESPs) or new ones, such as information and communications technology (ICT) companies, offers various energy-related services rather than only supplying electricity (i.e., kilowatt-hours, kWh), heat or gas. ESPs can bundle energy advice, asset installation, financing and energy management solutions to solve and expected outcome holistically (source International Renewable Energy Agency).
What about other industries? XaaS models can be applied within the Utility industry and so in others such as the High Tech, Industrial Manufacturing, Chemicals, Waste Collection and Environmental Services, Professional Services, Automotive and others, but for this blog I wanted to limit the scope.
What do XaaS and Outcome Based Business Models have in common?
The new business models based on the XaaS approach, such as the three ones I have described previously, they can easily be considered as outcome-based business models. In fact, if you think about it, customers are paying for warming-up their homes, not for the fuel consumed by the heat pump, neither for the heat pump itself or for its maintenance, even though all three elements are necessary to the outcome. The same goes for Solar-as-a-Service, where customers are paying for the renewable electricity produced by the panels installed on their roof. And there is no difference when customers are paying someone else for upgrading the energy efficiency of their buildings. All three of them are outcomes: they are a combination of servitization with digitalization. Therefore, I see the XaaS models as enablers of Pay-per-use respectively Pay-per-performance business models.
What SAP is doing to help this transition?
While I was doing my research, I have expanded my network, I got in touch with peers and experts in this area and I have learnt that SAP can do a lot to help our customers. There are industry experts who are already actively working with those customers who started their journey in the last years or months and together they are building their architecture roadmap to develop those new business models. We are discovering new requirements that needs to be addressed by new capabilities and SAP product management is listening to our customer’s voice. We have dedicated service offering that can help addressing challenges such as transitioning to an outcome-based business model or expanding existing XaaS capabilities, implementing end to end scenarios and gaining full visibility into profitability of outcome-based models.
Call to action
I hope that you found this blog informative and if you are one of those customers willing to follow the trend by approaching the XaaS model, or if you are already in the process of transforming your business models towards an outcome-based model, do not hesitate and get in touch with your Account Executive, SAP is here to help. You can also write a comment on this blog, and I will be happy to get in touch with you answering any questions you might have, or simply give me your feedback and let me know your thoughts.