Cloud computing is transforming the way business is done. Traditional industries are now being sold as a service vs. a good. While this model first began with software as a service (SaaS), it’s now sweeping B2B sectors from transportation to printing and jet engines. Nils Herzberg, global GTM lead and senior vice-president at SAP said, “This whole topic of paying per use versus owning is a megatrend…Past generations wanted to own; future generations will just want to use.” This is the generation of “everything as a service” or “XaaS”.
As companies move to the XaaS model, however, they’re noticing that customer loyalty is harder to come by. When a trucking company only owns ‘drivers’ instead of a whole fleet of trucks, the cost of switching to a new transportation vendor is much lower. The XaaS world is a buyer’s market, and the importance of customer service and relationships is much greater. CEOs moving to this model need to carefully prepare for change, and consider the customer experience to ensure a successful transformation.
Preparing for Change
When making the switch to XaaS, a company can expect a huge impact on the culture and dynamics of the business. Since it will no longer be paid for goods, it may take a financial hit at first – meaning the CEO may need to manage expectations with the board or other stakeholders. The CEO also will need to lead the company through the process of understanding that the entire operation – not just how it bills, but the roles and incentive structures of marketing, sales and customer success – are changing. It’s a complete overhaul of the business, and companies taking this journey need a very specific, well-thought-out change management strategy.
Cisco’s transformation from a hardware to a software-oriented company is a great example of the challenges that can be experienced. Several years ago it began shifting from hardware toward a model that derives recurring revenue from its Cisco ONE software-licensing model. It required a huge engineering effort, a rollout across thousands of customers and partners and a new business unit. It also necessitated a transformation for sales and marketing, since they had to adjust for selling SaaS and operations (XaaS) instead of hardware, which requires an entirely different skillset.
While the transformation brought many long-term opportunities and the company saw revenues through the software business earlier than expected, it also saw a drop in overall revenues as the company went through the transition. The complete business model transformation could take years, so as one strategy to help accelerate its growth in subscription-based software, Cisco has made acquisitions of SaaS companies that align with its business. It began this acquisition strategy as far back as 2012 when it acquired Meraki – a cloud-controlled Wi-Fi and networking company – with, according to Meraki’s CEO, the goal of “hopefully having [Meraki] “cloudify” other Cisco products”. Of note, Meraki said that “Beyond technology, [Cisco] recognized our business model as being highly integrated and customer experience focused” – a key factor for success when moving to the XaaS model.
With the move to XaaS, the lines between customer and prospect become blurry. Prospects are looking at a lot of options, doing research on the company before pulling the trigger, and want to test on a small scale before buying a big package. While a “customer” may be on a freemium model or on a low-end package, sellers will need to nurture that user to turn them into a high-yield customer and ultimately build revenue, so the customer experience is everything.
This means sales has to be involved in driving consumption from day 0 and stay involved long after the initial deal. Traditionally, sales sells a product, then goes to the next deal, and so on. Now, licenses are sold month by month vs. product by product or even year by year. Sales has to maintain a 1:1 relationship with all their customers – they can’t just focus on their new deals; they have to focus on their existing customers too.
Staying in touch with that volume of accounts is challenging using standard marketing approaches. Companies must adopt new practices to streamline this new strategy and do it at scale. A big factor in creating a loyal relationship is communicating with customers in a meaningful way, meaning sending valuable and relevant content – and XaaS companies are in a perfect position to do this.
Economy of Scale
XaaS companies have become the hub for their customers’ daily operations. As a result, they have collected a wealth of valuable insights that allow them to add value and become sticky. For example, if you’re a trucking company, you’ll know how many trucks your customer is driving, where they’re going, how much gas they’re consuming and their overall supply chain costs – and when spikes and dips occur. If you gather enough data and analyze it to drive meaningful recommendations for the customer, you’ll become a significant asset integral to their organization.
As another example, companies run their business operations on Microsoft Azure, AWS or Google Cloud not only because it’s scalable and cheaper than using their own servers, but also because the cloud provider can analyze usage patterns across its thousands of users, and leverage that data to give recommendations to its customers on how to run operations more efficiently.
Companies moving to XaaS should invest in collecting data and providing analytics. Key to that is becoming addicted to data; you should use it to run your own business more efficiently, and bring more value to your customers. You’ll be able to share trends you’re seeing before something breaks, develop trust by giving your customers expertise that influences their business, and provide them with recommendations on how to run their business in a way that will drive better loyalty.
The XaaS model is attractive in driving continuous revenue, but CEOs need to carefully prepare a change management strategy and place a high emphasis on account management and overall customer experience. In particular, focus on marketing and sales as drivers of customer relationships and loyalty, and not only as drivers of net new logos. A recent study by Calabrio revealed that 100% of the 844 surveyed executives ranked customer experience as their company’s major focus, but only 27% of CEOs are making it their personal priority to improve customer experiences. CEOs need a bigger stake during the transition phase to XaaS to ensure success.