We have all admired cloud computing, grid computing, hosted services, and seen some billion dollar companies emerging as a result in less than a decade. There have been a number of debates on the topics from Larry Ellison commenting on cloud is nothing but a grid of computers to support his Oracle and Sun merger, hardware companies arguing that cloud is a huge data center or computer aggregation, networking companies argue that it is network of IT components, service companies arguing that its a tool to provide better service to end-users and so on.
Below is the list of some of the XaaS solutions that we are already using:
- This blog that you are reading
- Gmail or any email service that we are using every minute
- Public transportation that you are using instead of driving on your own
- Medical tests using those expensive high capital med-devices
- Friends as a service from facebook
The point is that when you need to travel from east coast to west coast, you do not buy a jet or drive your own car (well… normally), you look for a good deal and use any of the airlines depending on few other factors. This is also XaaS.
So, when we are already using this everywhere, whats the big deal, why are we talking about it? and what is to be learned? Well, these are not rhetorical questions and I have some answers from my point of view.
Many companies be it small or large struggle for its business models. Large companies struggle to penetrate small businesses less than 20 employees, which is a sizable potential market for any goods or service with a market share of 70%. Small companies struggle to get their first foot or to grow due to competition from Elephants from the room as not too many companies want to buy any goods or service easily without proper testing. That is why this XaaS business model is very important.
The core value of your goods or service will still continue but, its a new business model that companies will introduce to either get penetration into small business or for small companies to have small installations in large setups to compete with the standard big brands.
So, what do we learn from this? No matter whether you are in mobile application business or enterprise compliance business or in industrial manufacturing business, this business model is going to suit everyone if it is neatly tailored. The last blanket business model that applied to almost every industry & vertical was ‘freemium’ as written in the book ‘Free’. I vision that XaaS could be a new business model that suits every industry.
For instance, lets look at some possibilities:
- A company that sells a $250K industrial robots, which lasts for 10 years and replaces humans from mundane work such as packaging could look at selling it at value based pricing in XaaS model at say a reasonable $7000 a month as lease that replaces 3 full time employees and their over time and perks on weekends and company would still make its $250K on day one by taking a loan from bank at 10% commutative interest rate with every sale. or even better the company can have its onsite outsourcing center and instead of humans, robots will perform 3 person-month efforts for a 1-1.5 person cost
- A company that makes a mobile application which distributes expensive video streaming for free through market places can now look at the way radio broadcasts new songs by playing fee to album companies. ie… either pay per watch or for subscription fee and going white label instead of being a TVU or hulu or any other silicon valley startup mobile video transcoding companies
- Large ERP companies which has solution suites in the millions of dollars could look at hosting their application in cloud just like Salesforce.com. For instance a typical ITIL solutions or GRC solutions costs about $5 million to implement with a 3-4 years payback time, in a 10K employee set up. The same if it is leased on XaaS model could have a simple payback of 6-8 months and companies can more money with freemium or upselling or higher penetration into the market
- In fact there is a similar service in almost every aspect of life such as movie as a service, TV as a service, web as a service, networking as a service, consulting as a service, or transportation as a service such as Netflix, TiVo, IBM On Demand, HP Adaptive Enterprise, VTA in bay area, Accenture, and so on.
So, what do we do next? Look for your business models. See who pays when and how much, analyze if your entry cost is high or exit cost is higher, analyze your win-loss use cases and then see how you could implement XaaS business model.