XaaS: Everything-as-a-Service

The following sections are included:

• Foreword
• Contents

Coffee. As a service. Panera Bread, a bakery-café chain in the US, rolled out a new subscription model in March 2020 in the US — customers could get unlimited hot coffee, tea and iced coffee at all US outlets for a monthly subscription fee of $9. Customers in the MyPanera loyalty program could get free refills in-store every two hours. The service was offered using an app. The purpose of the service was to boost customer footfalls and spending at Panera. The chain did a test round for three weeks of the program in a hundred and fifty locations in Nashville, Raleigh, Cleveland and Columbus over a period of three months before launching the service. The test rounds showed that the footfall frequency increased by more than 200% and food orders with the coffee increased by 70%. The renewal rate of the program in the tests was above 90%, hence, the tests were successful in meeting the objectives of the service. Panera’s public statement about the service launch lauded the subscription model’s ability to separate the utility of the service and the payment. Customers would pay at the beginning of the month, and then enjoy the service without having to worry about paying each time…

In this chapter, we start by developing a unified framework of customer choice between the XaaS and productization (selling products) modes of firm offerings. In creating this unified framework, we have drawn from the practitioner and academic research from different fields like computer science and IT, economics, marketing, strategy, finance, accounting and operations management. IT professionals will be familiar with the concepts of network congestion and data security from shared services. Economists will recognize the grounding principles of utility theory, and accounting professionals will be well-versed with the trade-offs between the capital expenses (capex) and operating expenses (opex) models. Our approach is largely indifferent to the domain of application: the customer choice model should be applicable across the gamut of IT applications, products and services. We believe that the unified framework of customer choice is a good starting point, as informed customers make their decisions taking all these factors into account, rather than thinking from a siloed perspective…

The pricing of XaaS offerings (like the pricing of any good) is one of the most important factors that customers consider before making their decision to adopt the product, service or software. The reader should note that the actual value of an offering to a customer is the difference between his or her value and the price charged. This difference is called the customer surplus (discussed in Chapter 2). Let us consider the offering of a general product, service or software first to develop insights into the trade-offs in pricing. These insights are very basic. From the customer’s perspective, his or surplus depends on the price of the offering, thus, obviously, the lower the price, the higher the customer surplus. However, from the provider’s perspective, the pricing decision is more nuanced: if the provider prices the offering at a low value, the number of customers adopting the offering will be high. In this case, the provider’s sales will be high (equal to the number of customers adopting the offering), however, the margins (price minus variable cost) will be low. On the other hand, if the provider prices the offering at a high value, the margins will be high, but the sales will be low, this basic understanding of pricing applies to all situations. The provider’s gross profits are the product of the sales and the margins, from which the provider subtracts its fixed costs to get its net profit before tax. Obviously, the provider should choose the price that maximizes this net profit figure if the provider is focused on maximizing its profits…

In this chapter, we present a method for the provider to plan and evaluate if its offering is suitable to be launched in the XaaS mode. Our method divides the evaluation into a three-stage model: first, the provider evaluates if the offering is feasible to be launched in the XaaS mode. Following the evaluation of feasibility, the provider next should assess the profitability of its offering in the XaaS mode. If the assessment of the first two stages yields a positive evaluation for the provider, the provider should then evaluate if it can grow its offering sustainably in steady state. The three-stage model should be evaluated based on several factors that have been presented in the first three chapters of the book, we call the model based on these factors as the BROAD FENCES model. The BROAD FENCES model looks at various aspects of the nanonization of the offering to determine its suitability as a XaaS offering. The model further disaggregates the analysis of the factors into three stages (feasibility, profitability, and growth), and conducts the analysis based on their importance in each of these stages…

The ability of any provider to develop and deliver world class offerings in XaaS mode is influenced primarily by the structural ability of the provider’s organization to consistently deliver value to customers, and its ability to capture part of that value. Structuring the organization to deliver value consistently using the XaaS mode of offerings requires a very different set of skills to the productization mode of delivery. There is a consistent finding in practice that the agile organization is the best structure to deliver consistent value; our own research is consistent with this viewpoint with some caveats. The agile organization has most of the characteristics that are needed for creating a successful and sustainable service-oriented organization. However, it needs some enhancements to move from a set of short-term goals to a model with goals for multiple horizons. To understand how the organization structure and systems for managing resources influence the success of XaaS offerings, we will start the chapter with a discussion of the goals of the organization structure and resource management systems. The discussion will help in understanding the efficacy of agile organizations in delivering XaaS offerings and identify the enhancements to the agile organization for sustainable competitive advantage.

The following sections are included:

• Introduction
• Creative Thinking Skillset
• Skills for Standardization of Tasks
• Systems Thinking
• Teamwork Skills for XaaS
• Role Mobility for XaaS Organizations
• The Skills needed of XaaS Leaders
• Relating People Skills to Organizational Culture
• Summary

The offering of the use of product assets in the XaaS mode has developed over the years to encompass the use of various products. The use of products in the as-a-service mode is an emerging niche that enables customers to use the product assets in a flexible use mode. It also has the corresponding benefits of outsourcing servicing and other peripheral services to the provider, giving customers the option of one-stop shopping. The origins of using the XaaS mode for product offerings began with time-sharing and rental systems in recent times and has now grown to the providing of sharing systems with an asset-light model. In this chapter, we will showcase some examples of using the XaaS mode of offering product assets, which do not involve core IT assets (examples in the IT domain like IaaS and SaaS will be showcased in Chapter 8). The case studies come from diverse industries such as battery-as-a-service (Epiroc and NIO), PCs-as-a-service (Dell), aircraft engines-as-a-service (Rolls-Royce), equipment-as-a-service (TAFE), homes-as-a-service (Ziroom) and design-as-a-service (ARM Holdings). We will analyze these product offerings in the XaaS domain by using the BROAD FENCES model, and then summarize the analysis of each case study using the XaaS Staircase.

The popular press refers to XaaS offerings synonymously with cloud computing applications like the IaaS, PaaS and SaaS offerings. The cloud computing applications framework refers to the offering of computing resources like software resources and computing and network applications on the Internet. The speed of accessing the Internet has enabled providers to offer on-demand services on the Internet primarily to businesses, and infrequently to customers in the B2C space. Some of the earliest examples of cloud computing are the Salesforce CRM offering in 1999 for software, and the offering by Amazon Web Services of its Elastic Compute Cloud (EC2) services in 2006. Most of these services are offered by data centres to a multiple set of users. These data centres may be located across multiple locations. Cloud solutions used by a single user are referred to as private or enterprise clouds, while solutions that serve multiple locations are known as public clouds. The rate of growth of cloud computing has been much faster compared to the growth of XaaS offerings with non-IT product assets owing primarily to economies of scale. We have previewed the three categories of IaaS (infrastructure-as-a-service), PaaS (platform-as-a-service), and the SaaS (software-as-a-service) models in Chapter 1. In this chapter, we review some IT XaaS offerings with case studies on Blockchain-as-a-Service (Tencent), Disaster Recovery-as-a-Service (Bluelock), Unified Communications-as-a-Service (DingTalk), Visual Search-as-a-Service (ViSenze), Platform-as-a-Service (OpenShift) and Workplace-as-a-Service (Atos).

The bundling of utility from multiple sources is one of the founding principles of all enterprises. Without the ability to bundle different elements of utility, the notion of the firm would not have existed. Customers would have to acquire individual components from multiple vendors and integrate these components themselves. The firm provides value to customers by integrating or bundling components into a product or service, thereby alleviating the need for customers to carry out this integration. However, the degree of bundling or integration performed by firms changes over time. The Ford Model-T was manufactured in a completely integrated manner, with Ford making basic components like nuts, bolts and crankshafts internally, then assembling them together to make the Model-T. Over time, Ford and other auto manufacturers found that evolving technologies makes it difficult to have a core competence on every aspect of automotive manufacturing. Large suppliers who specialized in designing and manufacturing specific components had a higher level of expertize on those components, and manufacturers outsourced the component design and manufacturing to these suppliers. A similar decomposition of the OEM’s activities happened in the PC industry as well, with suppliers like Intel and Microsoft acquiring expertize in the design and manufacturing of hardware and software components, respectively. The OEM was left with the tasks of designing the system architecture, or the set of rules by which different components would interact with each other. The OEM also assembled the components together into the final product and branded and marketed the product. The tiered supply chain emerged to create fragmented roles for different players in the industry, with each player having specific expertize in specific activities and components. This fragmentation or decomposition of activities is also beneficial for service offerings. Services are offered as… well services, hence, the usage over time has already been unbundled, and customers can choose the time that they want to avail of the services. Bundled services imply that customers do not have the choice of specific elements of the service but must avail of the entire service. The unbundling of services into its constituent components enables the nanonization of the XaaS offering. Customers can choose the components that provide them utility and discard the components that do not offer them utility. Bundled services are akin to the choice of main courses that are served with side dishes; in contrast, unbundled services are like standalone items being served as à la carte items, with customers choosing the items that they want…

The transition of offerings from product-based assets to offering them in the as-a-service mode has been accelerating in the recent future. By offering product asset-based experiences as a service, firms can utilize the principles of successful XaaS models to create value for themselves, customers, and society at large. In this chapter, we will outline our thoughts on the evolution of the XaaS model in the future. To understand why the XaaS model has grown so quickly, we analyze the as-a-service offering using the transaction costs explanation of the theory of the firm. We then identify some societal benefits from the XaaS model, followed by some predictions for the XaaS model in the future.