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...
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.
Common XaaS examples include:
Software-as-a-Service (SaaS)
With SaaS, software applications are hosted on the cloud and provided to end customers over the internet. Users can access the software through a web browser, eliminating the need for installation or maintenance.
Infrastructure-as-a-Service (IaaS)
IaaS provides companies with fundamental IT infrastructure components such as servers, storage, and networking. This allows customers to deploy and manage virtualized IT resources on-demand, scaling up or down as needed.
Platform-as-a-Service (PaaS)
PaaS provides a platform for developers to build, deploy, and manage applications without the need to worry about infrastructure. It offers development tools, middleware, and database management systems.
Storage-as-a-Service (STaaS)
STaaS provides scalable and flexible storage solutions to businesses, eliminating the need to maintain on-premises storage infrastructure.
Security-as-a-Service (SECaaS)
SECaaS offers security solutions on a subscription basis, providing businesses with protection against cyber threats, data breaches, and network vulnerabilities.
Database as a Service (DBaaS)
DBaaS offers database management and hosting services in the cloud. Users can access and manage databases without dealing with the physical hardware or software installation.
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:
100+
companies reviewed
52
companies analyzed in detail to study the effect of XaaS transformation on revenue and valuation
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 & pricing
- Compelling offers and differentiators
- Consumption pricing model for new and existing customers
- Direct, partner and marketplace pricing approach
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 & services
- Customer onboarding
- Service delivery tools, metrics, and methods
- Establish incident protocols
- Migration and deployment support
- Partner services enablement
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 routesading
Internal Processes
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 & 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.
