Posts

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.

Hardware as a Service: 4Q21 insights from TBR’s Data Center team

Sometimes referred to as DaaS (Device as a Service), XaaS (Anything as a Service) or consumption-based models, hardware subscription offerings have become abundant in the market as vendors compete to build lasting customer relationships.

Join Principal Analyst & Practice Manager Angela Lambert and Senior Analyst Eric Costa Wednesday, Nov. 10, 2021, for a discussion on trends emerging among hardware subscription services.

Don’t miss:

  • Key developments and new offerings entering the market
  • TBR’s forecasted market growth
  • Differences in the market dynamics for PC subscription offerings versus data center offerings
  • Drivers and inhibitors that we expect to impact market expansion

Register today to reserve your space

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]i.com.

WEBINAR FAQS

Is the IT hardware market ready for Hardware as a Service?

Hardware as a Service — or maybe you call it PCaaS, DaaS or XaaS — is basically referring to bundling some type of hardware (e.g., phones, PCs, servers) with life cycle services and charging a recurring fee over a multiyear contract. The customer never really owns the hardware, and the vendor takes it back at the end of the agreement.

Sure, it’s not a new concept. But the solution hasn’t exactly taken off like a rocket ship, either. So, is it going to? Maybe. Its initial speed may be more like a Vespa than a SpaceX Falcon, but there are a few things working in its favor.

Why do buyers want it?

  • Retiring hardware is a huge pain. I have talked to IT leaders who have literally acquired warehouse space solely to store old hardware they have no idea what to do with.
  • Making it easier to stay up to date with tech. Management can no longer deny the negative impact on morale brought by an unattractive, slow and/or unreliable device.
  • Automation & Internet of Things (IoT) usher in new capabilities. Who doesn’t want to make managing hardware easier? Hardware as a Service is basically IoT for your IT department. Device management features like tracking device location and health are key functions of many IoT deployments and is a core selling point of Hardware as a Service offerings.

Why do vendors want to sell it?

  • Business models are changing. That darn cloud computing had to come along and change expense models, not to mention make it easier to switch between vendors. From Spotify and Netflix to Amazon Web Services and Salesforce, “as a Service” is second nature to IT buyers in both their personal and professional lives.
  • Creating stickiness. Hardware is more often perceived as “dumb” with the software providing the real value. If you’re a hardware maker (or a VAR), you need to make the buyer see your relationship as one that’s valuable and service-oriented versus transactional.
  • Vendors desire simplicity. Most vendors will tell you they have been building similar enterprise service agreements on a one-off basis for years. These new programs will hopefully create swim lanes to make it faster and easier for partners to build solutions.

Buyers are used to monthly SaaS pricing models, but that’s not really what creates the main appeal for Hardware as a Service. Buyers really want the value-added services and fewer managerial headaches.

So, how’s it going?

As someone who manages several research streams, I get to peek at results from a lot of different studies. Here are a few snippets of things I’ve heard and seen in the last month or so.

  • Personal devices: It certainly seems like there’s the most buzz around PCs, with Dell, HP Inc. and Lenovo all promoting DaaS offerings. I have also heard from enterprises doing initial DaaS pilots with as many as 5,000 PCs, but we seem to still be in very early stages of adoption. Both PC vendors and their channel partners are beginning to report “legit” pipeline opportunities tied to DaaS.
  • Servers: Either outright purchasing or leasing servers is still the overwhelming choice of purchase method for about 90% of IT buyers recently surveyed by TBR. Perceptions that an “as a Service” model will be more expensive in the long run is the main customer concern to date that vendors will need to address via emphasizing the value-added life cycle services.
  • Hyperconverged infrastructure (HCI): A bundle of hardware and a services bundle? This is the bundle of bundles! Not too many HCI vendors are openly promoting an “as a Service” pricing model at this point, but 80% of current HCI buyers in TBR’s most recent Hyperconverged Platforms Customer Research indicated they are interested in a consumption-based purchasing model, particularly to enhance their scalability. About 84% of those surveyed are using HCI for a private or hybrid cloud buildout, so maybe a more cloud-like pricing model make sense. Make no mistake, interest is not synonymous with intent, but it’s safe to say these buyers are at least paying attention to their purchasing options.

My general verdict is that things are still moving at Vespa speed. PCs have a head start over data center hardware based on the concerted go-to-market efforts of the big three OEMs and a consumption model that more closely aligns with the consumer services we’re used to. The second half of this year will be an interesting proving ground to see if the reported pipeline growth is converted to actual customers. Depending on how that goes, maybe we’ll see the data center guys making more serious moves in this space.

What do you think? Add a comment or drop me an email at [email protected].