It’s a familiar refrain today, with the advantages of accessing the resources and requirements of running a business’ as a service’ rather than purchasing outright routinely advanced. But is there anything that stands in the way of x-as-a-service? Most pundits don’t believe so, although there are certainly challenges to be faced.

Jonathan Stern, regional VP at integration software company Mulesoft, said concepts of ownership are changing. “There is an identification of items over which organisations don’t need or want to have the same ownership of as they did previously. Sure, there are certain elements over which ownership will never be abdicated, but the boundaries are being pushed.”

John Ascroft, chief innovation officer at developer Jade Software said the appeal of as a Service (aaS), works for vendors and customers alike. “It’s a lesser commitment to take something up aaS. There are no long term contracts. Consumers are free to take it or leave it, and both sides can change more easily over time.”

And, Stern continued, not having ownership means someone else gets to take responsibility for management, maintenance and other overheads. “It also means you can spin up quickly and access the things you need from whatever is available.”

But perhaps the largest of the challenges faced in a move to aaS rests not with the customers, but the vendors. Organisations accustomed to selling SKUs can face real difficulty in adjusting their models to deliver services – but, by the same token, so too can those comfortable with buying SKUs also find it more difficult to amend financial and ERP systems to procuring and paying for services rather than assets.

Not that different?
Be that as it may, Darryl Carlton, Melbourne-based Gartner research director, said the shift to aaS isn’t that big a deal for most enterprises. “Sure, when buying packaged software in the past it would come shrinkwrapped in a cardboard box and it was purchased outright for desktop machines. However, for enterprise software, the license agreement said you are effectively borrowing the software. It never was your property anyway.”

What aaS is doing, at every level, is driving a mindset change – and it is one which Carlton said is in favour of the buyer rather than the seller of the service. Where software is concerned, “Organisations are starting to realise, what the hell, we don’t own the asset anyway, so why pay a massive upfront fee and then pay every year for maintenance. Turning to a proper rental agreement is therefore quite straightforward; you’re paying for maintenance and releasing capex, which in some cases can mean as much as a few hundred million dollars.”

It is, Carlton asserted, a shift towards the way in which budgets operate. But, he noted, not all industries are as comfortable with the shift. “Some capital intensive verticals, like mining, struggle with opex as they prefer to spend capex. Moving to aaS has an impact on the business model; for a lot of organisations, it affects how they make funding decisions. But for those, like retailers, which operate on very thin margins and rely on volumes, will find it hugely attractive as it fits in very well with their business models.”

What holds organisations back?
Stern said there are concerns that hold some companies back from moving to aaS models of procurement. “There is a perception that security is weaker and the risks greater; perceptions which require an internal reconciliation of sorts, which we’ve seen happen with some clients as a process over time. But people are getting used to the idea of not owning things, instead renting them and configuring service components to create ownership of a value proposition rather than the component parts of it.”

Carlton agreed, though he said security tends to be more of a theoretical than actual issue for aaS delivery. “When considering a move to aaS or cloud, someone is likely to throw their hands in the air and cry out ‘oh my God, security, stop the move’. It wasn’t even necessary to be explicit about what security concerns there were; just waving the hands around was enough to put a stop to it.”

However, he said this irrational response is giving way to one where justifiable concerns are being addressed as technical issues which can be and are solved, rather than putting the kibosh on aaS models.

But, added Ascroft, there is a groundswell gathering pace. “It’s increasingly accepted to use services instead of owning stuff. As you see other people doing it, and the way it stacks up financially, why wouldn’t you?”

Challenges for service providers
Providing insight into the difficulties vendors face in moving to aaS models, John Kearney ANZ MD of subscription billing software provider Zuora, said this is something the company ‘drives to the heart of every day with every one of [its] customers’. “That’s because a lot of organisations are moving from a model which was never designed for aaS delivery. Now they are grappling with how to monetise around a service go-to-market; probably the biggest challenge is simply working out how to take the product or service they have, and then structure a compelling price and package.”

Fundamentally, added his head of sales engineering colleague Stephen Gibb, moving to aaS is about designing an experience which is attractive to the customer base. “Moving to monthly usage plans with options has to be appealing and compelling, it has too add value to the customer.”

Going on, Kearney said aaS has another effect: customer movement becomes far easier. “If the value being offered is diminishing or flat over time, churn is a risk. You can’t simply convert to aaS and move customers from product A to service B; it is more than price and has to be about delivering greater value and capabilities.”

In other words, adds Gibb, moving from traditional delivery models to aaS had better be about a lot more than keeping up with the Joneses, or it could backfire. “Typically we see companies making the move as they launch into new categories or markets. This can be a major catalyst as it reduces the costs and overheads of traditional business models. We also see a move to aaS when companies go into different segments or move up or down market; this is an important inflection point as it can mean reaching customers a lot more easily with attractive pricing and value benefits.”

Anything you like (aaS)
Ascroft said there are very few technical reasons why anything couldn’t be offered as a service. “On the other hand, some things shouldn’t be taken as a service. Critical business requirements – like security, for example – can justify things remaining onsite.”

As for what can and can’t be offered as a service, the men from Zuora said ‘traditional’ pureplay subscription businesses – like the media – should be first in line. “If these organisations, as they move to digital, aren’t offering content as a service, they have a lot of questions to ask. That said, there are also a lot of organisations of every type, including hardware companies like Schneider Electric and Qualcomm which can offer their solutions as a service,’” Kearney noted.

Even airlines and tyre companies can do it. “The question is always whether or not you can make something compelling for the customer by selling the outcome rather than the underpinnings of that outcome. What can be offered as a service is really limited by imagination only.”

So long, ownership
Carlton said there is a fair rush of movement towards providing anything as a service, but don’t expect on premise vendors to disappear overnight. Some of that is down to vested interests and reluctance to change; as always, change is difficult and shifts cost bases, potentially requiring revised capital allocation. “They won’t need to change for quite some time if they don’t want to,” he said, but “in the long term, vendors will have to adjust as there are external pressures which will compel the change, notably the pace of innovation in cloud and SaaS which will have them lagging behind.”

For his part, Stern believes there is plenty of distance to be covered yet and anticipates an acceleration away from traditional ownership models. “It’s really a case of being sure about which bits have to be owned and that will be determined by the type of business. But the economy is increasingly modular and services are able to be accessed readily.”

Finally, Ascroft pointed to the cyclical nature of the industry. “In the early days everything was shared at the hardware level, then things went in-house, and now sharing is back in again, but at the service level this time. The move away from ownership might be more permanent this time, because society as a whole is moving away from ownership. In the medium term, I think we’ll see more ‘rent as you need’ and less owning things. When you’re not using things, they sit there losing value. People are becoming more aware of that cost.”

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