XaaS Business Model Transformation

AlixPartners Capabilities and Services

In today’s rapidly evolving technological landscape, the traditional boundaries of technology products and services are being transformed by XaaS – or “Everything-as-a-service” – business models. XaaS now serves as the preferred consumption model for software and tech-enabled applications. XaaS refers to the delivery of various offerings over the internet for a recurring subscription fee. Common XaaS examples include Software-as-a-Service (SaaS), Infrastructure-as-a-Service (IaaS) and Platform-as-a-Service (PaaS). XaaS model provides several benefits for both customers and vendors of technology. Customers enjoy lower IT costs, higher levels of flexibility and scalability, and faster access to advanced technology. Vendors, on the other hand, benefit from increased revenue predictability, stronger customer relationships, and faster time-to-market.

Successful XaaS transitions can bring significant valuation increases for enterprises. While enterprises start their XaaS journey with product transitions, it is only one part of the transformation. Realizing full potential of XaaS can require a complete a business and operating model change for enterprises. At AlixPartners, we help clients across industries complete XaaS transformation through assessment, careful planning and disciplined execution with a focus on profitable growth.

Our expertise

XaaS is one of our key transformation pillars in the tech industry. We recently conducted a detailed XaaS business model transformation study from which we derived the following key insights:

PACE OF CHANGE:

It typically takes 4 to 6 years for a XaaS transformation, depending on the starting point.

However, given that many competitors are already operating full XaaS models, there is a growing need for enterprises to accelerate their own XaaS transformation.

VALUATION IMPACT:

Revenue multiple increases from 2x-4x of revenue to 5x-7x after a successful XaaS transformation.

Despite lower valuations in 2023, profitable XaaS companies have continued to outpace the market.

RECURRING REVENUE:

Valuation multiples tend to maximize after the transformation achieves 80%+ revenue rotation to recurring revenue (ARR).

Faster pivot to recurring revenue can accelerate enterprise valuation.

REVENUE GROWTH:

Valuation increase is highly correlated to continued revenue growth post transformation.

XaaS transformation must enable market expansion and growth, after initial slowdown due to changes in revenue recognition.

EBITDA MARGINS:

XaaS transformations need to maintain steady or improving EBITDA margins to end with increased valuation.

Successful transitions can improve EBITDA margins by 2 to 3% on average through operational discipline and efficiency improvement.

Our approach and capabilities

We utilize a three-step approach to help clients with XaaS transformations:

Assessment

Duration: ~2 weeks

Evaluate product maturity for XaaS
Capture targeted customer feedback
Assess high level operational readiness, e.g., QTC process, IT, and finance
Assess high level GTM readiness, e.g., clarity and differentiation of sales motion by channel
Conduct XaaS commercial assessment

QuickStrike

Duration: 4-6 weeks

Set business goals
Product transformation goals and plan
Pricing transformation goals and plan
Operational transformation goals and plan
GTM transformation (direct, partners and marketplace) goals and plan
Customer conversion strategy
Transformation roadmap and timeline

Implementation

Duration: 8+ weeks

Establish XaaS project management organization (PMO) and KPIs
Engage relevant stakeholders
Create program plan and budget
Oversee execution and measure progress
Develop process for executive reporting and course corrections

Our core capabilities in the XaaS space include:

PRODUCT & PRICING

PRODUCT

Customer value proposition
Competitive intelligence
Product roadmap and development

ENGINEERING

DevOps lifecycle and execution
Hosting operations
Site reliability

PACKAGING AND PRICING

Compelling offers and differentiators
Consumption pricing model for new and existing customers
Direct, partner and marketplace pricing approach

GO-TO-MARKET (GTM)

SALES MOTION

XaaS sales motion for various routes to market, e.g., direct, partner, marketplace
Sales strategy during transition
Target industry segments, customer, and partner list for transition
Partner economics and co-sell approach
Sales and partner incentive plans
Regional targets and rep quotas

MARKETING

XaaS value proposition for stakeholders
Sales enablement and training material
Outline marketing and demand gen approach for partner and marketplace routes

SERVICE DELIVERY

CUSTOMER SUCCESS

Continuous engagement model for driving
adoption and consumption
Land and expand motion
Support for advanced use cases
Coverage aligned to GTM
Premium customer success offers

CUSTOMER SUPPORT AND SERVICES

Customer onboarding
Service delivery tools, metrics, and methods
Establish incident protocols
Migration and deployment support
Partner services enablement

INTERNAL PROCESSES AND SYSTEMS

QUOTE-TO-CASH (QTC)

Configuration, quoting, invoicing and payment processes aligned to subscription model
Order processing and fulfillment at scale
Consumption tracking
Partner and marketplace QTC readiness

FINANCE AND ACCOUNTING

Revenue recognition aligned to subscription business model
XaaS metrics and reporting

LEGAL

Update contract terms with XaaS
Refine trade compliance and contract support for expansion, e.g., FedRAMP, other geographies

Our approach at work

SITUATION

A $3B - $4B global talent acquisition company engaged AlixPartners to design and implement a multi-year growth strategy, including business transformation from selling large end-to-end offerings to a modular, digitally integrated model.

APPROACH

We designed and implemented a new product management function, developed a novel go-to-market strategy that protected the core business, and redefined delivery operations to support several new recurring digital revenue streams.
We conducted a series of innovation workshops to identify, build, and launch differentiated digital products and rationalize value propositions across the enterprise product portfolio value propositions.

CLIENT OUTCOME

$150M+ revenue increase projected within 3 years
It took less than 2 months to stand up a fully operational product management function
In less than 4 months, client defined high level product vision into market-tested and executive aligned MVPs

SITUATION

A $2 - $3B multi-cloud data management company engaged AlixPartners to transform its revenue model from perpetual licensing to subscription and SaaS to improve valuation.

APPROACH

We established a Subscription Transformation Office and Cloud Subscription Office to drive the program, design products/offers, advise on pricing and go-to-market, and manage the digital transformation to support the new model
We enabled the execution of subscription and cloud-based SaaS transactions at scale by implementing system and process enhancements

CLIENT OUTCOME

In less than 6 months, 90% of products were transactable via the new subscription/SaaS model
More than 80% of new business to be transacted as SaaS within 24 months
2x to 4x increase in valuation expected with new revenue model

SITUATION

A $3 - $4B US enterprise software company engaged AlixPartners to design and implement new GTM strategy to accelerate their business
The enterprise product suite was sold via an on-premise perpetual license model and had varying degrees of success across industries

APPROACH

We developed transformation roadmap and product-specific strategies to SaaS models enabling variable cost optimization and enhanced customer flexibility
We migrated company owned data centers to fit-for-purpose cloud environments
We developed new engineering capabilities to support product management, business operations, and optimized customer experiences

CLIENT OUTCOME

40%+ increase in recurring revenue
15x EBITDA multiple realized post transition

Insights

Product management imperatives for cloud transformations

Over the last decade, product companies across industries have increasingly shifted to XaaS business models. While this journey significantly transforms all parts of the organization, product management and strategy are at the heart of the shift. By thoughtfully addressing key product management capabilities, talent, and skills, senior leaders can help to ensure that their organizations make the most of their critical cloud investments. READ MORE