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Has everything as a service (XaaS) reached the tipping point? There are signs that it is heading in that direction. HPE’s second-quarter results revealed an annualised run rate (ARR) of $678m, representing slightly more than 10% of its overall revenue. HPE president and CEO Antonio Neri has placed a strong emphasis on XaaS, stating that the vendor is “accelerating our pivot to as-a-service”.
Other vendors are busy moving to the XaaS model, including the likes of Dell Technologies, Pure Storage and Cisco. A number of distributors have also taken the plunge with XaaS, including Nuvias and Exclusive Networks.
The XaaS phenomenon and the opportunities it opens up for the channel are discussed in a report from the Global Technology Distribution Council (GTDC), The XaaS revolution: distribution’s pivot to the future.
The report highlights the ability for businesses to better support remote workforces, quickly deploy new technologies and make instant updates as significant factors driving XaaS adoption.
“The potential is limitless,” says the report. “Vendors that engage with proactive distributors and channel partners will reap greater rewards in this economy, no matter what you call it.”
HPE UK channel sales leader Lewis Simmonds reinforces Neri’s view that XaaS is a growing phenomenon. “Over the years, it’s become more and more apparent to us that customers wanted technology delivered as a service, but they also wanted it on their terms,” he says.
Research commissioned by the company in 2019 “concluded businesses of all sizes were embracing as-a-service models”, he adds.
Simmonds argues that customers of all sizes “are looking for flexibility, autonomy and automation – they want solutions that are tailored to driving their business outcomes without low utilisation, stalled innovation or slow time to market”.
Rob Tomlin, vice-president of the UK channel at Dell Technologies, agrees with the GTDC that the potential for XaaS “is truly limitless” because it “elevates the entire IT ecosystem”.
It can cut costs by almost 50%, but it also makes organisations “more agile and reactive to changing business requirements” as they become integrated with the XaaS model, he says.
Tomlin notes that enterprise IT is “shifting to a hybrid, multicloud, everything-as-a-service market, which benefits partners and customers”.
Someone else who believes XaaS is becoming more prevalent is Stuart Brinicombe, senior director for EMEA partnerships and WW ISVs at Couchbase. “We’re not just approaching the XaaS tipping point – we’ve gone beyond it,” he says. “We’ve reached the stage where customers dictate the services they want delivered to their cloud environments, rather than waiting to be guided by the channel.”
The result is a self-fulfilling cycle. The more customers demand XaaS offerings, the more the channel pivots towards them. Brinicombe describes it in dramatic terms as “nothing less than a revolution – one led from the factory floors and boardrooms rather than the frosted glass offices of Silicon Valley”.
Big opportunity for channel partners
The good news is there is a general belief that the growing adoption of XaaS will be beneficial for channel partners. Dan Waters, country manager of the Arrow UK enterprise computing solution business, says XaaS “represents significant opportunity”, adding that the services “are fast and simple to sell and provision, and the value of the channel to users is in the skillsets that the partner ecosystems bring to the table”.
Frank Vitagliano, CEO of the GTDC, agrees that partners will retain their important role because customers will still want them to be involved. “Customers will continue to rely on ‘trusted advisers’ when it comes to cost-effectively deploying strategic XaaS solutions,” he says.
Vitagliano adds that distributors are well positioned “to help vendors and channel companies capitalise, such as in SaaS [software-as-a-service] configuration and provisioning, security, device management, trade-ins and upgrades, wherever solution providers need help”.
Dell’s Tomlin is adamant that XaaS will not undermine the role of channel partners. “Far from it,” he says. “The global switch from pandemic cautiousness to the oncoming post-pandemic rush, combined with the mass move to everything-as-a-service models, means channel partners have a more critical role than ever before.”
But Tomlin accepts that their roles and relationships with customers will undoubtedly change and evolve. “XaaS solutions provide increased simplification and agility that will set businesses up to thrive in the digital era,” he adds.
Accelerating towards XaaS
Graham Jones, regional director UK&I for Exclusive Networks, which launched its X-OD on-demand subscription-based service in October 2020, says the trend is “accelerating towards XaaS”.
He believes there are many benefits from supplying XaaS, including the way that monthly subscriptions allow for continuity with customers. “It avoids the ‘auction for orders’ we see in the hardware world,” he says. “Multi-year deals keep you sticky and give you more opportunity to review and upsell and provide ongoing services.”
Matthieu Brignone, vice-president for the EMEA channel at vendor Pure Storage, another proponent of XaaS, is unequivocal about its benefits for the channel.
“Partners have a huge opportunity to advise on customer pain points, solving them through the overall value-add and adapted financial offering that XaaS provides,” he says. “Many channel partners are now seeing an opportunity to differentiate by pushing their customers into the next age of innovation while taming costs – a win-win situation.”
Backing up his argument, Brignone says a number of the vendor’s partners have doubled their business through the as-a-service proposition and Pure Storage has announced incentives to encourage more partners to take advantage.
“There is a huge potential for XaaS,” he adds. “With the constant stream of new technology released, as-a-service options allow customers to try new tech and enjoy the benefits of monitoring, management and added services.”
Brignone stresses that “this is not just about finance – XaaS means ‘services’ which enable customers to simply run their technology and work on more strategic tasks”.
Rob Tomlin, Dell Technologies
One distributor that has described XaaS as “a critical part of our strategy” is Nuvias. Karl Roe, vice-president of customer success and digital transformation, highlights the new markets that XaaS opens up for partners, such as small and medium-sized enterprises (SMEs), “where value propositions would have historically been out of reach”.
He adds: “Both commercially and from a knowledge capacity, the SME market would not typically engage with the channel on the same level as larger players. XaaS, however, enables partners to resource and support SMEs in ways that they could not before.”
Roe echoes Brignone’s point that it is all about service. “The main opportunity for channel partners in the XaaS world lies in the word ‘service’,” he says.
HPE’s Simmonds contends that the partner ecosystem “has been, and remains, vital to penetrating the market and helping as many customers as possible with their digital transformation with as-a-service offerings”.
And he claims partners are already benefiting. “The nature of the consumption model means they can avoid the competitive nature of the typical three-yearly refresh cycle and instead be in closer contact with customers to meet their needs when they arise,” says Simmonds.
“Savvy partners are pivoting, or have already transitioned, to as-a-service models. They are not just looking at technology anymore. Instead, they are focusing on the overall ecosystem across the build, sell and service space.”
Couchbase’s Brinicombe adds: “The benefits to the channel are clear. It gives channel organisations the opportunity to provide a more fluid set of services, enabling them to be far more responsive to customer demands. Channel businesses have much more of an opportunity to tailor the bundle of services they offer to the customer’s needs, which increases customer satisfaction and, by extension, the chance to claim more of the customer’s wallet – all at a time when retention has never been more important.”
Partners already engaging with XaaS
Francis O’Haire, group technology director at Data Solutions, says partners are already engaging with XaaS. “Channel partners have seen the writing on the wall for some time when it comes to making money from playing a purely transactional role in reselling software and hardware, and have invested much more in developing their consultancy and integration skills,” he says.
The more that partners have progressed with that strategy, “the less they will be affected by a transition to XaaS from their vendors”, says O’Haire.
Partners that have transitioned to a recurring revenue model will have a business “which is much more resilient to the ups and downs of the economy since pure product selling is more prone to downturns as capital-heavy projects suffer”, he adds.
Richard Eglon, chief marketing officer at Agilitas, says future XaaS models will focus more on collaboration and how to get best-of-breed partners.
“This will build an ‘as-a-solution’ proposition as ‘as-a-service’ models will not be enough to differentiate,” he says. This will require channel businesses to understand their intellectual property, especially where their ‘as-a-solution’ sits in the ecosystem, if they want “to remain intrinsic to customers”, he adds.
Eglon believes channel partners need to play the part of aggregators and innovators when it comes to technology and financial models.
“By reaching, engaging and servicing customers in new ways, the role of channel businesses will also begin to change,” he says. “Adapting to these changes has become crucial and companies that are willing to be innovative and embrace XaaS will experience benefits, investment and growth – making them much better placed in their industries than those that don’t.”
What are the potential pitfalls?
While few doubt the opportunities XaaS presents for partners, there are also issues that channel companies need to be aware of to make it work for them, their customers and vendors.
Nuvias’ Roe starts with the basics. “The main pitfall with XaaS would be not planning for it,” he says. “Cash and business models are definitely changing from capex [capital expenditure] to opex [operational expenditure] and businesses that plan to sell like this need to plan to operate like this too.” Partners need to manage their cash and balance sheets in a different way than before, he adds.
Pure Storage’s Brignone warns partners to pay close attention to the small print. “Not all as-a-service offerings are created equal,” he says. “Our advice is to examine the terms and conditions. What are the exit terms at the end of an as-a-service contract? Is there a penalty for failing to meet performance or capacity service-level objectives [SLOs]? Is the vendor offering a true flexible model, or a dressed up lease?”
He says these are all important considerations because if partners want “to offer a real service, you need to have the data, observability and telemetry of workloads to manage the tight SLOs you offer customers”.
Licensing is another factor, according to Couchbase’s Brinicombe. “Licensing issues complicate the XaaS picture further,” he says. “Many channel organisations have built their business model around selling monthly or annual subscriptions – a practice well suited to traditional on-premise software, but less so for XaaS offerings.
Karl Roe, Nuvias
“Even for resellers well versed in managing a complicated mix of licences and subscriptions, adapting to the customer’s need for on-demand services has been remarkably challenging. Since XaaS is here to stay, we should expect the channel to prioritise adjusting its business model to fit this new type of demand, this year and beyond,” adds Brinicombe.
Paul Jacobs, commercial director for mobile at Exertis, warns that there are several risks that channel partners need to be aware of. For example, who is responsible for paying the vendor’s invoices?
“The channel needs to avoid underwriting the customer,” he says. “Another thing to consider is the trend with newer as-a-service vendors to go direct to the customer. Service levels and customer satisfaction will become key battlegrounds in the fight for business – competing on price will no longer be viable.”
Simon Blackwell, chief marketing officer at TelcoSwitch, says there is potential for a falling out if the partner hasn’t worked closely with the vendor in scoping and correctly capturing the customer requirements, especially in terms of features and integrations.
“In these scenarios, the customer will often point the finger at the partner, even if the vendor is to blame,” he says. “This is simply because the customer will have a closer relationship with the partner than the vendor directly.”
The way to avoid this, says Blackwell, “is to ensure that the links between vendor, partner and customer are properly managed, and there is an onus on the vendor to ensure they work closely with the partner in understanding customer requirements and flagging any limitations of a proposed solution”.
The GTDC’s Vitagliano agrees, claiming that the main dangers or pitfalls “will be associated with the complexity of the change and evolving role that channel partners, distributors and vendors play”.
“Trust and clear communication are essential,” he adds. “Customer value should naturally be the driving force, which all can collaborate on to deliver most effectively.”