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Introducing XaaS Pricing — and 10 reasons why you should care

What is XaaS Pricing?

XaaS Pricing was launched in 2021 as the industry’s first and only market research and data platform vendor solely focused on B2B Anything a Service (XaaS) pricing. Founded on over a decade of experience delivering best-in-class, tailored, competitive price benchmarking research, XaaS Pricing arms vendors, including existing TBR clients, with actionable pricing intelligence by providing:

  • Best-in-class, price benchmarking research that arms vendors, including existing TBR clients, with competitive and actionable pricing intelligence, public and nonpublic XaaS pricing, packaging and discounting data covering approximately 50 vendors (soon to scale to 20,000) across 40-plus unique and proprietary metrics
  • Monthly Pulse, a report on key trends and updates in the B2B XaaS pricing space
  • Quarterly deep-dive reports on pervasive themes and recommendations for vendors
  • Weekly newsletter at https://xaaspricing.substack.com/
  • Access to XaaS Pricing’s analysts
  • Availability for custom competitive and market pricing research (additional fees)

All TBR clients now have access to XaaS Pricing for an introductory trial period of 90 days. XaaS Pricing is available via the TBR client portal. To participate in the beta program for the XaaS Pricing SaaS application, please click here to get set up.

How can XaaS Pricing help my business?

All those things are well and good, but they aren’t super useful unless they are actionable. Here are 10 reasons why every B2B technology vendor should care about XaaS pricing:  

You spoke, we listened  

A recent TBR survey of 200 users indicated that pricing and go-to-market strategies are the most useful areas of competitive intelligence research for you. XaaS Pricing was launched to support these needs.

‘As a service’ continues to eat the world

Cliché but true. Subscriptions are transforming consumer experience and disrupting all aspects of B2B. Even in the services sector, for example, professional services are being productized into “as a Service” offerings (Our thoughts on PwC’s actions in that space). Vendors need to understand these models at scale to make the pivots necessary to succeed.

Markets are more competitive than ever, and getting more competitive by the day

Crayon’s 2022 Statement of Competitive Intelligence Report showed that nearly 60% of companies see their markets as “much more competitive in recent years.” Competitive product advantages evaporate quickly, and differentiation materializes through positioning, which often comes down to how value is positioned through pricing and packaging.

B2B tech companies spend way too little time on pricing

According to ProfitWell, companies spend less than 10 hours per year on pricing. This is due to a number of reasons, including time available, ownership within the organization, dearth of appropriate skills, and lack of data. Differentiating companies make pricing a regular process.

Pricing success yields outsized financial performance gains

ProfitWell also reports that a 1% increase in pricing can yield an 11% increase in profitability. Companies that regularly track, manage and update pricing strategy on a monthly or quarterly cadence are best positioned to capitalize on this opportunity.

Pricing is multifunctional

Yes, there are likely pricing-specific roles and functions in place, depending on the company. For example, at growth-stage companies, pricing is a CEO decision. But pricing as a capability touches all elements of the organization — product, finance, marketing, sales and operations — when bringing an offering to market. It’s critical to have consistent, standardized data on the market to facilitate multifunctional organizational decisions.

Pricing insights are a deal accelerator for sales teams

Conversational intelligence provider Gong reports that win rates are highest (42%) when pricing is discussed in the first sales call. Sales is a critical stakeholder for competitive and market intelligence. Arming sales teams with the right pricing intelligence to discuss pricing and address competitive pricing questions early yields deal wins.

Pricing pages are where customers buy

Pricing pages are the most important landing spot for customers and are where offers are positioned to convert web traffic into trial, free or paid users. In B2B SaaS, not having transparent pricing is a red mark on a vendor. This will become  true for telecom, IT services and other sectors too. Customers want to understand pricing during their evaluation, before engaging with sales, and this requires an understanding of how to structure and position pricing publicly.

Pricing is tedious and time-consuming to normalize and compare

There are hundreds of potential pricing models and packaging models. Companies in the same space may price and package completely differently across multiple dynamics. Normalizing pricing and packaging models for comparison is hard to do at scale without a repeatable, consistent framework and taxonomy (like we’ve built for XaaS Pricing).

Pricing changes constantly

We started collecting XaaS Pricing data in October 2021, and since then, nearly 35 companies have already made demonstrable changes to price points, pricing models and/or packaging strategies. XaaS Pricing is the Wayback Machine for the “as a Service” ecosystem, with real-time updates and tracking to ensure companies stay on top of peer pricing changes.  

As inflation rears, will it throw off SaaS and ITO operating models

Who today has experienced a long-term economic inflationary period?

Inflation is very much in the U.S. news as it reaches 40-year highs. This means a person has to be near the end of their professional careers to have experienced the previous inflationary period. One of the authors dimly recalls his economics professors trying to parse what, at the time, was called stagflation, which impacted the United States in the 1970s. Oil price shocks drove up prices, while unemployment remained high. Inflation previously had been explained as too many dollars chasing too few goods and was generally assigned to economies overheating because of very low unemployment rates.

Today economists seek to assess economic fundamentals to predict whether this inflationary spike will be temporary or persistent. Factors suggesting a short-term spike revolve around the well-publicized supply chain disruptions coupled with record savings levels during the pandemic when discretionary spending on things like travel and restaurant meals was greatly hindered and retail spending shifted from in-store shopping to e-commerce.

On the other hand, some economists point to persistent government deficits due to pumping money into the economy. Given various regulatory and economic uncertainties, that money has been sitting on the sidelines. Further stock market run-ups in valuation have been attributed to investor money seeking higher returns that can be achieved in traditional savings and bond ownership because of low interest rates on these conservative investment instruments.

Partisans will selectively mention these factors to explain away or criticize the current economic climate. Businesses, on the other hand, have a recently dormant financial risk rearing its ugly head that can dramatically impact long-term financial forecasting.

So what are the technology company business models where inflation has near term impact?

Transaction-based businesses in  the IT industry will be able to follow traditional methods of passing costs on to the customer. But, for those business units working from Anything as a Service (XaaS) subscription models, ITO contracts and infrastructure managed service agreements, the near-term impact could be more acute.

Cloud-enabled SaaS models are a relatively new phenomenon as Industry 4.0 gains momentum. Proponents of these business models also assert that legacy business model metrics and analysis do not apply given the majority of selling expenses are recognized in the first fiscal quarter of multiyear agreements while the revenue is then recognized ratably over the contract term. As such, the financial spokespeople for these business models lean heavily on relatively new business metrics — annual recurring revenue (ARR), net dollar revenue retention and lifetime customer value — that chart a forecast course for when operating profits will materialize.

ITO contracts have had a somewhat longer evolution, starting as multiyear deals where vendors could reap greater profits as operating costs declined due to the increased automation of the overall monitoring and maintenance. These contracts then moved to shorter-term durations and, more recently, have stipulated cost decreases over time such that any operating costs savings created by the vendor are passed along, or at least shared with, the customer. The ITO market has likewise seen a shift or rebranding of these customer offers into infrastructure managed services to pivot the contract model to be more in line with SaaS constructs.

When inflation was last a top-of-mind economic consideration, most IT was on premises and operated by company personnel. TBR seriously doubts strategic scenario planning for these new subscription consumption models prior to perhaps late 2020 anticipated the current inflationary levels and their potential operating impact.

What is the immediate inflationary risk to XaaS and ITO business models?

SaaS models take several years to generate profit in what is variously described as the flywheel effect or the force multiplier effect. Increased labor and utility costs beyond forecast and tethered to long-term contracts will add several percentage points of operating costs to these models. In this sense, the newer the SaaS operating model the less risk it will have to cost structure as it has less renewed revenue. TBR expects the more mature the SaaS model, and greater amount of accrued or committed revenue, the more adverse the bottom-line operating impact.

The ITO market, on the other hand, has shown persistent declines, resulting in consolidations and divestments to profitably manage eroding streams traditional ITO vendors seek to convert into managed services agreements. The inflation impact on costing will amplify the need to infuse these business practices with more automated capabilities or increased low-cost (typically offshore) labor as offsets. Still, the operating profit declines in this space will likely worsen unless vendors seek to negotiate incremental cost increases that customers may or may not be willing to accept based on their own issues with cost containment.

What go-forward tactics are in the technology vendor toolbox to mitigate inflationary impact?

Inflation is not new, but the operating models prevalent now were not around when we last experienced it. Business strategists still have a blend of initiatives they can embrace to preserve their operating models and their customer relationships:

  1. Market education: Transparent declarations on the cost impacts to the vendor business and any suggestions of sharing the burden with customers can preserve customer loyalty.
  2. Customer research in existing brand perception. The XaaS Pricing team has a very good blog outlining the Van Westendorp Price Sensitivity Meter and its applicability setting B2B SaaS pricing strategy. That research methodology can assist vendors in level setting where they stand with customers on the value perception and give pricing strategists a line of sight into how much room they have within their brand perception for implementing price increases.
  3. New contract language for price increases: The historic quiet period on inflation, coupled with the innate reality within technology of “faster, better, cheaper,” has customers expecting price reductions for IT that will require true customer education around inflation as an offset to those prevailing market expectations. This will not help with the inflationary impacts on the existing contracts that must be honored, but can establish a new go-forward pricing model that can take into account a business risk largely dormant for the better part of 40 years.

Inflation as a business risk will persist for the foreseeable future. TBR will be assessing it closely as public companies report their earnings and release their financial filing documents.

Going will be tough for IT firms relying mainly on cost advantage

“Boz Hristov. Professional Services Senior Analyst, Technology Business Research, Inc, said vendors may have to demonstrate pricing agility to retain clients. If the incumbent is not offering/thinking of ‘sweetening up the deal’, there is likely a competitor knocking on the door ready to do so.” — The Hindu Business Line

Virtualization flips the axis on technology monetization and adoption

An exclusive review of TBR’s ongoing market analysis and tailored services frameworks

Technology monetization strategies continue pivoting from transaction sales to subscription sales predicated on building viable consortiums to generate the ecosystem flywheel effect. There has been an obvious shift in the consumption of basic compute resources from capitalized instances owned and maintained by enterprises to software-controlled, multicloud environments delivering “cloud economics” to traditional environments. Join TBR analysts Geoff Woollacott and Bryan Belanger as they analyze this shift and its expected impact on the market.

Virtualization and ongoing price point reductions shift internal IT departments from the role of security guard — rationing finite, costly resources — to the role of concierge — articulating the art of the possible to line-of-business users. In short, technology adoption will increasingly become a people problem addressed through consensus building around companywide business rules, while hardware has become a loss leader, as have some advisory services, to generate the long tail of sticky subscription services.

Don’t miss:

  • The general state of the technology monetization fabric and its disaggregation into discrete services components
  • The ongoing convergence of services providers, and the strengths and weaknesses of the conventional business models all struggling with the same pivot to participate in ecosystem flywheels
  • Common challenges needing market testing, given enterprise customers become increasingly unforgiving of monetization and service missteps

 

TBR webinars are held typically on Wednesdays at 1 p.m. ET and include a 15-minute Q&A session following the main presentation. Previous webinars can be viewed anytime on TBR’s Webinar Portal.

For additional information or to arrange a briefing with our analysts, please contact TBR at [email protected].