Adopting XaaS leverages expense model for businesses — EY-Parthenon

The subscription-based model of bundling services for a monthly or annual fee still works.

Netflix rose to fame with a subscription-based model that lured 200 million subscribers globally by 2020. Despite the recent setback from increased competition, Netflix’s model proved to be effective for other businesses.

Amongst the advantages of adopting XaaS — the subscription-based model — is that it leverages the expense model for businesses, said Joongshik Wang, EY-Parthenon Asean leader and EY ASEAN technology, media and entertainment, and telecommunications leader.

“It optimises the expense model for corporates. Rather than incurring large upfront costs on hardware, software, storage, security, and other infrastructure, businesses can opt for a XaaS or subscription-based model,” Wang told the Singapore Business Review.

The next advantage is that it frees up capital expenditure on infrastructure and IT resources that can help businesses use the expenses for other projects, Wang.

This was how a cloud-based voice solutions firm helped other businesses in reducing costs by at least $262,000 (US$190,000). It also offers a subscription-based software model that can be used in any device and replaces traditional telephony systems, which require more costs such as repairs, installation of hardware, and other maintenance costs.

Wang also noted that XaaS requirements to customers can be scaled up or down, which is difficult to do for traditional business models.

“XaaS is increasingly important for consumers as they offer the flexibility and scalability required to compete in today’s fast-paced digital world. Increased investments into digital transformation and advanced technology use cases across sectors are also driving the XaaS market,” Wang said.

Netflix-like model for cars, telemedicine

When it comes to industries, Wang said the life sciences and healthcare, and automotive sectors are most likely to move to the XaaS model as “there are clearly-defined use cases that can be implemented on a subscription-based model using the internet.”

In healthcare, for instance, there is a need to implement telemedicine, remote patient monitoring, and electronic health records on a XaaS platform. 

A fine example would be Fullerton Health’s medical app, which offers cashless medical visits via e-health card, clinic locator, easy-to-use e-claim submissions, access to quality healthcare through telemedicine, and 24/7 medical concierge.

For the automotive sector, mobility or car sharing as-a-service, connected and autonomous vehicles, and predictive vehicle maintenance are some of the use cases already functional or under trial in Singapore, Wang said.

One example is Carzuno, which includes insurance in the customer’s monthly bill, a 24/7 roadside assistance program, and taxes, for its customer package.

In Southeast Asia, Singapore-based enterprises are one of the early adopters of XaaS due to government initiatives.

“This is in part driven by the push from the authorities via initiatives such as the Smart Nation drive, as well as the government’s own migration to public cloud, and the digital transformation of key sectors like banking and financial services,” said Wang.

It’s a bold move

Shifting, though, to this business model will not be easy because of its requirements, first of which would be a customer value proposition.

“To ensure customer adoption, any XaaS offering needs to have a well-defined customer value proposition, clearly highlighting its impact on the customer’s business in terms of key performance index,” said Wang.

“Moreover, the XaaS solution should be adaptable and easily integrated with existing systems and processes for the end customer,” he added.

Choosing pricing options for customers and monetising strategy are also some of the obstacles in XaaS offering. Most XaaS offerings are subscription-based, but some businesses are moving to outcome-based monetisation strategies.

“This recalls the transformation that information technology enabled-services providers experienced eight to 10 years ago when they moved away from time and material pricing models to outcome-based pricing,” said Wang.

Other hurdles include defining the route to market strategy, training and incentivising sales teams, and marketing XaaS offerings to different segments, he said.

Changing ways

Businesses shifting to XaaS also developed changes and removed outdated business practices.

Take, for example, the involvement of executives when purchasing IT-related services. Gone are the days that only the chief technology officer or chief information officer will be responsible for the IT strategy.

In recent years, other functional and business unit leaders are participating in the IT decision-making. “This shift is relevant in the context of XaaS, given that the value proposition is geared toward functional KPIs, with the pricing model increasingly focused on business outcomes,” said Wang.

Marketing staff also need to tap new selling skills, commission structures, and upselling as well as cross-selling for the XaaS adoption since strategies selling outdated products will not work on XaaS models.

Wang said XaaS billing is also important for subscription-based models because companies need to integrate a flexible and automated system for the frequency of billing cycles.

Despite these challenges, there are still increasing opportunities for the XaaS model in Singapore. In fact, the public cloud market, which includes XaaS, in Singapore is at an increasing rate of 20% and may reach $5.3b - $6.04b (US$4b-US$4.5b) by 2025.