The ‘dematerialization’ economy, coined by Robert Tercek, largely describes the movement across markets from physical products to ‘as a service’ often as digitalised solutions. This can take many forms, for example the move from record ownership to music streaming and in the corporate world the transition from up-front software and hardware purchases to ‘Software as a Service’ and ‘Infrastructure as a Service’ business models.
Frustratingly, this ‘Everything as a Service’ (XaaS) trend seems to be synonymous with the ‘new digitalised solutions’ and as such is typically written about alongside companies such as Amazon, Netflix, Uber, Airbnb etc. However, if you look across the wider market, and some business which are very much more traditional in nature, it is interesting to see just how far this trend really goes…….we really are in the age of ‘dematerialization’ where nearly every transaction and company is being impacted and traditional markets are being disrupted by players that are embracing XaaS business models.
In business, it is clear to see the benefits of using XaaS, especially with recently commercialised business models such as ‘Software as a Service’ and ‘Infrastructure as a Service’. These models allow companies to scale rapidly, without significant upfront expenditure in equipment and safe in the knowledge that their infrastructure can scale in line with their businesses. These solutions, now very much mainstream, allow end users to take advantage of huge levels of day to day flexibly and allow companies to focus on their core service offering.
After all, if a business is selling coffee why would they be experts at setting up a data centre, implementing fail-safe unified communications or ensuring their data is secure from ransomware and compliant with GDPR. The trend these days is to opt for ‘as a service’ solutions provided by the experts – companies such as Wavenet (leading unified communications business ‘UCaaS’) or Redstor (leading data management provider focussing on disaster recovery and back-up solutions ‘DRaaS’).
Paul Evans, CEO and co-founder of Redstor: “We pride ourselves on offering a frictionless cloud based service to customers. Our ‘as a service’ model, wrapping in proprietary technology, requires minimal outlays and knowledge from our customers..…..we believe this gives us a significant advantage over our larger, legacy competitors whose offering requires both significant customer investment and knowledge to implement and maintain the services.”
However, it is important to note that the XaaS trend is in fact happening across multiple industries, from financial services and insurance, right through to car ownership, manufacturing, food solutions and even corporate training. By embracing XaaS business models companies can develop new ways of serving traditional markets in a way that allows them to scale quickly and maintain a clear competitive edge. Corporate training is a great example as the market leaders now offer ‘learning as a service’.
Whereas traditional corporate training is delivered on-premise face-to-face, businesses such as Learnlight offer language and cultural skills training through proprietary cloud platforms enabling employees to learn whatever, whenever and wherever – these business models create customer efficiency savings and significant levels of scalability for both the supplier and the client.
Benjamin Joseph, CEO and co-founder Learnlight: “We saw the opportunity to provide a market disruptive service by offering our learners the opportunity and most importantly the choice to teach themselves, join group classes or opt for one-to-one training solutions anywhere and at anytime they want. As we have tutors all over the world plugged into our ‘as a service’ offering there are always tutors on hand to fit in with learners’ schedules, anytime day or night. Compare this to the traditional model, which still covers over 90% of the corporate training market, where a tutor provides onsite training during business hours which creates inefficiencies for all parties.”
The downside for these ‘as a service’ frictionless models is that the flexibility and ease of use provided to the customer typically goes hand in hand with an ability to switch between suppliers with greater ease than in more traditional up-front asset purchase models. This just means that ‘ease of use’ and customer service levels need to be closely monitored and demonstrably market leading to maintain high levels of customer retention. This will certainly go some way to explain the increased usage of metrics such as Net Promotor Scores, which are often front of mind for CEOs and founders of ‘as a service’ businesses.
Overall, across all B2B markets, expectations of asset ownership and access to services have evolved. It remains clear that the market is embracing a new frictionless consumption model. With this fundamental change in the mindset of the purchasing decisions of users, we believe those companies that embrace the change, rather than support outdated ownership models will become the market leaders in their field – furthermore, the adoption of XaaS business models naturally leads to increased scalability and associated increases in profitability; features which are highly attractive to investors.
Beech Tree Private Equity are keen to partner with an ambitious management teams who have plans to drive growth and profitability and who are disrupting markets having developed new or evolved their traditional business models by implementing XaaS.