Thomas Lah - 11 Apr

Technology-as-a-Service
Playbook

How to Grow a Profitable
Subscription Business

Thomas Lah

J.B. Wood

Copyright 2016 Technology Services Industry Association

ISBN: 978-0-9860462-3-0

Nmero de Control de la Biblioteca del Congreso: 2016938814

All Rights Reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system without written permission from the authors, except for the inclusion of brief quotations in a review.

Printed in the United States of America.

Contents

How can you spot a tipping point? Malcolm Gladwell, whose book, The Tipping Point , helped popularize the term, says its that magic moment when an idea, trend, or social behavior crosses a threshold, tips, and spreads like wildfire. Well, we think one has come to dozens of business-to-business (B2B) and business-toconsumer (B2C) technology industries.

Ten years ago, we first stood in front of thousands of tech executives and worried aloud that the cloud era was going to disrupt the tech industry more profoundly than any other transformation in its vaunted 50-year history. Our worry was not rooted in disruptive technology but in disruptive business models. Big companies like IBM, HP, and Oracle have all weathered generational changes to computing models and architectures many times. Handling new waves of technology is old hat; they have plenty of plays for that. But we worried that this perfect storm of new technology and new business models could re-cast the very foundations of market leadership in the industry.

A lot has happened since that decade. Unless you have stubbornly avoided all business media over the past few years, it is impossible to have missed the interest in subscription business models, not just in IT but it nearly every technology-related industry. Todays energy surrounding subscription business models is the follow-on to the buzz a few years ago about the sharing economysomething that Time magazine said was one of the top 10 ideas that would change the world back in 2011.The attraction of the sharing economy was and is the ability to simply access rather than own physical and human assets. For the provider, it produces recurring revenue streams that keep customers spending for yearseven decades.

Although subscription business models and the sharing economy can manifest themselves in many industries, this book is concerned only with tech and near-tech industries. Even more specifically, we are focused on highly cloud-enabled, technology-as-a-service offers. The categories of these offers take many popular names. There are software-as-a-service (SaaS) offers, platform-as-a-service (PaaS) offers, infrastructure-as-a-service (IaaS) offers, managed services, and so forth. To keep it simple for the rest of the book, we are going to refer to them collectively as XaaS. You can make the X whatever you want. It simply means that you are offering sophisticated computer software, hardware, industrial equipment or devices, and/or services in an as-a-service consumption model to your customers. We would expect some or all of the offer to be delivered through the cloud. If you are selling subscriptions to razor blades or fine wine over the Internet, this book probably isnt for you. On the other hand, if you are involved in the strategy, development, finance, marketing, services, or sales of complex, cloud-based technology solutions in IT, industrial equipment, health care, or consumer markets, and terms like SaaS and managed services resonate with you and your team... then keep reading. We have some interesting observations to pass along. Very importantly, if you are involved in traditional (asset-based, on-premise) technology and you are wondering what XaaS technology will mean to your job and your company... then definitely keep reading. Thats because your company is about to be caught up in the business model tipping point. To remain competitive, you will not only need new offers, but you will also need a new way to operate. Being connected to your customers is the catalyst.

Before you begin, you might be asking yourself: Just where are these observations coming from? OK, fair question.

Our answer begins with this statement: We dont know all the answers, and anyone who tells you they do should be shown the door. Its still early days in assessing how the cloud era of tech will fully disrupt the technology industry; predicting the future is dicey. Its like predicting the future of the clean energy industry. Its hard enough to figure out which technical approaches will ultimately win the market, much less what the best business practices of the new leaders will be. So, who are we and why this book? The answer is that we run the Technology Services Industry Association (TSIA). As one of techs largest industry associations, our company gets to uniquely study and talk with hundreds of the worlds most successful technology and industrial companies each and every day. We are an incredibly research-intensive bunch. We have experienced industry executives, PhD researchers, and data analysts looking at all the data we collect from public sources and from the companies themselves. We field thousands of formal inquiries annually from management at both traditional and XaaS companies wanting to know about the trends and best practices in running a successful business in this time of radical change. They want to know what lessons we are learning from our research on top-performing companies because we have access to data that is simply not available in the public domain. Its from all this research and interaction that we draw our observations. So, though we cant predict the future, we think we may be in one of the best positions to dissect and debate it. Most importantly, we think some winning patterns are emerging. That is what we want to share in this book. You might not agree with all of our observations, and not every one might play out. But, we think they are important for every executive and manager in the tech world to be aware of and consider. Its a tricky time. Are we at a tipping point? If so, what will it mean to the traditional business models we know and love? How do we prepare? What will successful XaaS organizations of the near future look like?

In a nutshell, here is what we have learned after studying the topic from multiple angles for 8 years: XaaS is not just technology that is priced by the month and hosted in the cloud. If it were that simple, you wouldnt need this book. We believe that, as the enigmatic smoke clears around the cloud, whats emerging is an image of success in XaaS business models that is fundamentally different from traditional tech. Its something that goes way beyond the technology and the pricing model... something that cuts deeply into the underlying business model the tech industry has grown comfortable with. Its just a new way of running a tech company. And its powered by your real-time connections to the customer. Whats most interestingwhy we wrote this bookis that NOBODY truly knows what that new way is! Its a fact that there is no B2B subscription business that is as rapidly growing and as profitable as the traditional tech bellwethers were in their heyday. Only the XaaS CEO who can make that claim can write the definitive book. And really, they should accomplish it more than once to prove that they have perfected the formula. Until that day, we are all in this togetherall trying to break the enigmatic code for the profitable XaaS business. We are debating whether the tipping point has arrived and what life after that will look like. Lets face it: The cost of building software is dropping fast. We think its the business execution around the codenot just the ability to write codethat will determine the success or failure of future icons.