Editor’s note: Rob Bernshteyn, the CEO of cloud-based spend-management company Coupa*, has authored a book on this topic—“Value As a Service: Embracing the Coming Disruption”—that is available as of today. The book is published by Greenleaf Book Group Press.
First there was SaaS—software as a service. Then there was PaaS—platform as a service, and IaaS, infrastructure as a service. Now it’s trendy to talk about XaaS, in which ‘X’ stands for anything and everything as a service. As XaaS comes to fruition in any number of industries, we are approaching the final frontier of the “as a service”: Value as a service. I couldn’t be more excited.
What is value as a service? The idea is simply that customers will need to focus far less on the details of how a service is delivered to them. They will primarily have to focus on the value of what is being delivered. This is a deep and existential disruption that will change the way people and companies think about and use information technology. Customers will need to worry far less about the ‘how’ than the ‘what.’
By the box and by the hour
Throughout my 20-year career in enterprise software, I’ve been frustrated by the fact that the industry as a whole pays lip service to driving measurable value for customers. But before SaaS came along, the business model was set up not to benefit the customer, but rather the companies providing the software and the service.
The original enterprise software company model was to sell on-premise products and charge large upfront fees. These early enterprise software products were complicated, and customized for each buyer, so the customer needed to hire expensive specialized consultants to make them work. Then the software company came back with a maintenance charge to keep taking more and more money from the customer. How can there be a focus on measurable customer value in this model, when incentives are so misaligned?
The consulting model was to charge by the hour until the software was working. That typically took people flying in from various parts of the world, having long meetings, staying at hotels, charting processes in PowerPoint and Visio, plotting Gantt charts and having steering committee calls and exchanging long email strings. I know. I used to be one of them. The consulting company was incented to stay as long as possible, and here too misalignment was rampant.
The software companies and consulting companies all got paid, often regardless of whether the customer realized any real value. Many customers didn’t, at least nothing in remote proportion to the time it took and the resources expended. Customers have reached the end of the rope with this situation, which is why so many have and continue to shift to cloud-based, as-a-service delivery models where incentives are aligned for all parties.
Reframing the conversation
This shift to as-a-service delivery models is the conversation we’re having now, because a lot of organizations still haven’t made the shift, or are still in the early stages of their as-a-service transition. But really, most industry experts would agree that we’re already at the point where the shift to SaaS is a given over the medium to long term.
The time has come to reframe the conversation to talk about what lies ahead. How can we start to think about the ‘what’ rather than the ‘how?’ This value conversation should involve alignment between software companies, employees, partners and customers. It needs to start now because massive SaaS technology deployments are being undertaken, often without a clear focus like this in mind. Without a relentless focus on value, they’re likely to deliver the same subpar results we’ve seen in the past, only via a newer medium.
In just about every company, where information technology has been deployed, the focus on the ‘how’ instead of the ‘what’ has left plenty of room to squeeze wasted time and energy out of systems and processes. But VaaS is not just a question of becoming more efficient. It’s about using information technology to support operational efficiency as a key competitive differentiator.
The B2B chain
As markets become more global, product lifecycles are getting faster and commoditization is happening much more quickly. Once a product is on the market, competitors from all over the world come in and profit margins move toward zero. On this global stage, there are arguably fewer dimensions of differentiation. One of the primary areas becomes how operationally efficient you are at getting your product or service to market.
Behind every product and service, there’s a sequence of people and processes coming together to deliver it to the end consumer. If you buy a Yoplait yogurt for example, that eight-ounce cup of strawberry, fruit-on-the-bottom yogurt in your hands is the end point of a chain of business-to-business transactions powered by information technology.
Every company is trying to optimize their part of the chain, but they can no longer afford to spend millions of dollars on software and consulting services that take years to deploy and most importantly don’t deliver quantifiable value. XaaS alone is not the answer, and neither is focusing on the price of XaaS itself. The answer lies in focusing on the ultimate value of any XaaS initiative, thus thinking of it from a VaaS perspective.
The road to value
In more mature industries, we already have a value-oriented focus. In weight loss, for example, the value is simply that you eat this particular food and thus lose three pounds a week resulting in a measurable overall targeted weight loss by the end of a full program. Then, additional value drivers are exposed, including running and walking without knee pain, and wearing a stunning A-line dress at your daughter’s wedding. You have more energy. Your health is better. Maybe your life expectancy is even increased. Any difference in cost between weight loss program providers pales in comparison to the value that is created–assuming that the value is in fact created.
This kind of value discussion is just now starting in the enterprise software world. Until relatively recently, we didn’t have the cloud, we didn’t have the open APIs, and the thoughtful, user-oriented interfaces we have today. We also didn’t have the incentive to make things easier because there was a lot of money to be made while keeping things complex.
The only choice left
In the world of enterprise software, I believe there will eventually be no other choice than to focus on delivering value as a service. A business can pay $3 million and own the software and all the risk, or they can pay $1 million a year, and partially share risk. That’s an important shift with the XaaS model, but only a step along the way to the ultimate VaaS orientation.
The real value comes, for example, if you subscribe to a $1 million per year VaaS and use it to achieve $30 million in direct savings annually and $20 million due to process efficiencies over a say three-year timeline. It’s when you subscribe to VaaS and aim it at a particular problem and target a particular measurable outcome.
That’s not commoditizable. That’s legit value creation and expansion. That’s the type of VaaS company that can stand the test of time. That’s a company that’s not only delivering for customers. That’s a company that is working toward delivering value for their shareholders, their partners, and their employees.
People want to do business with them, because transacting with them is results-oriented. People want to work there, because they’re not slaves to old systems and processes. They’re informed and enabled by systems to be much more creative. There’s much more flexibility in their day-to-day lives. There’s less of a process orientation around endless planning, charting, meeting, and emailing and more of an outright results orientation toward productivity and value creation.
I believe that value as a service is the coming disruption. It will be the final frontier of the ‘as-a-service’ model. It will be the ultimate competitive playground. The disruptive forces of a VaaS world appear to be right in front of us, if only we dare to look at them, rather than look away.
*Denotes a current or former Battery portfolio company. For a full list of all Battery investments and exits, please click here.
This post originally appeared on the Coupa corporate blog.
A monthly newsletter to share new ideas, insights and introductions to help entrepreneurs grow their businesses.