INSIGHTS

The Everything-as-a-Service (XaaS) model aims to bring items to a business as they are needed, rather than forcing a business to pay ongoing costs for assets that are not in constant use. This saves capital expenditure, which can be particularly important if the equipment in question is only used sporadically and runs the risk of becoming obsolete before the end of its working life. The XaaS model makes equipment hire an operational expenditure, so cash is not tied up via equipment to a potentially evolving business model. In a world where business models need to be increasingly flexible, the XaaS concept is better for individual businesses because financial resources are used more efficiently. It is also better for the overall environment because equipment is being better utilised.

As a result, XaaS is now reaching further and has the potential to enhance several sectors well beyond software.

The development of cloud computing has meant that the XaaS business model has blossomed over the last few years, with, to name a few, platforms (PaaS), infrastructure (IaaS), and software (SaaS) all being offered successfully, and perhaps now predominantly, as a service. These various strands of technology have come to be encompassed in the XaaS model (which can also be known as Anything-as-a-Service), helping businesses to avoid being saddled with maintenance and upgrade costs or needing to invest in extensive IT support. Maintenance may be part of the pay-per-use model rather than arranged separately, so the customer can have it in a packaged deal upfront, enabling it to focus on its core business instead.

The numbers speak for themselves. A Deloitte study published in 2021 found that the majority of those who responded said that the Covid-19 pandemic had accelerated the adoption of advanced technology models in their businesses. Three-quarters of our respondents report that their organisation already runs more than half of its enterprise IT as-a-service. Over half said that Covid-19 had driven their businesses to invest more in the XaaS model than had been planned prior to 2020. And according to the IMARC Group, the global XaaS market is on course to enjoy a 26% compound annual growth rate (CAGR) during 2021-2026[1].

The success of the XaaS model in software infrastructure has led some companies to look at its potential application in other markets.

One example we find particularly interesting from an investment perspective, is the potential to apply XaaS to the manufacturing sector. There is considerable interest in the opportunity for companies to work with manufacturers to buy asset outputs rather than the assets themselves. It is an approach that allows manufacturers to offer a pay-per-use experience without customers having to make significant upfront investments.

With the increasing flexibility and transparency of software tools, the process can be managed efficiently and painlessly by third parties, enabling both the manufacturer and the end-user to get on with doing what they do best. Third parties can also manage and maintain data such as usage of equipment across multiple sites and make realistic peer group comparisons. This lets firms report on their environmental, social and governmental (ESG) responsibilities in more granular detail than has been possible in the past so that they can more easily see where they can make improvements.

It is an approach that can enable firms to move into a seemingly mature, saturated market, and change it, creating new competitive advantages by ensuring that financial resources and equipment are used efficiently.

From the supplier perspective, it also offers the opportunity to build long term relationships based on ongoing customer management rather than a single invoice generated every x number of years. This creates an ongoing relationship and opportunity with the customers to discuss the latest available equipment and potentially deliver new ways to help clients.

The development of the cloud has changed the structure of the software market, but it is also increasingly changing thinking around a far broader array of sectors. We expect its potential application in the XaaS sector to be particularly significant in new companies coming to market and looking to scale up.