Why ‘as-a-service’ models will reign in a post-pandemic world

It’s hard to think ahead when we are up to our necks in the misery and fear of a pandemic, but every CEO should be focused not just on how to survive, but how to thrive in the COVID-era. I say era because this is not a passing phase, but a new reality.

COVID is accelerating many societal and technology shifts and reversing others. The COVID-era is a technology-driven era with widespread and often forced adoption of trends like work-from-home, online retail, pickup/delivery services, entertainment-as-a-service, telemedicine (well, tele-you-name-it), and machine-learning. Embodied in this change are deep behavioral shifts that, even given a decade, might never have reached these proportions. Enabling nearly all of these shifts is an “… as-a-service (XaaS)” capability be it data, infrastructure, platform, software, or experience. XaaS was already on it’s way to becoming a juggernaut, with a market value of $93.8 billion in 2018 and projected to triple to $344.3 billion by 2024, but it’s now on a whole new COVID-triggered upswing.

These XaaS enabled remote service paradigms are here to stay, maybe not at today’s artificially enforced levels, but to a significant degree all the same. Everyone now knows the perils of work-from-home, but they know the benefits too. As the COVID-era continues to require social distancing for some time, we can’t all go back to the cramped office. And why should we? I hate to see the airline industry in turmoil, but I can’t say that I’ve missed air travel. Now everyone knows just how easy it is to get your groceries or your food delivered, and contactless at that. I miss the big screen, but I’ll settle for great content, 65” TV, and homemade popcorn if I can share the experience with all my friends wherever they are.

But the current change is not just a digital transformation to cloud and consumerized applications, it’s also a behavioral transformation. Forward thinking businesses are seizing this unprecedented opportunity to pause the growth/execution treadmill and imagine a new value/ideation opportunity. Whole teams have been liberated from soul-destroying wash-rinse-repeat cycles and are free to think through new ideas. For better or worse, companies are also leaner and more agile, having been forced to transform their business in order to thrive.

Adapt both your product and your experience

So, what do CEOs need to re-imagine in their business going forward as we enter a new XaaS powered world? First and foremost the COVID-era is a direct-to-consumer world where you may be literally bringing your offering right into the consumer’s home. For B2B, that means an acceleration of the consumerization of the enterprise and often means a self-serve experience with a consultative sales model. Your offering needs to be consumable over the internet. Not only do your products need to be available as-a-service, but so does your experience. Some call it experience-as-a-service. Paid or free, it’s about helping customers understand how to leverage your offering to meet their own transition. Self-serve models are the most scalable but rely heavily on great product experiences.

In the B2C world, your brand needs to align with the values of your customer and those values have changed. Given the increased and more intimate role that many XaaS businesses are taking, consumers expect brands to have societal responsibilities to ensure their products are delivered fairly and without compromise to any workers. COVID has raised awareness of inequalities and is garnering a movement toward societal fairness. Your brand is everything in a direct-to-consumer model and you need to build trust by investing in the customer experience and delivering value, often without immediate gain. It’s time to un-gate content and extend trials to relieve the pressure in your sale-cycle which is clearly now a buy-cycle with the consumer in control.

Flexibility and agility are paramount for both you and your customer to scale an offering in terms of both demand and supply as each new business waxes or wanes. Clearly, XaaS will help scale the delivery of your product or service up and down, but the economic consumption needs to be flexible too. That means flexible pricing. Annual plans may need to revert back to monthly. Prices may need to depend on consumed metrics. In an ideal world, your pricing might even be pay-for-performance in some form, sharing the risk alongside your customer.

The big picture factors shaping the COVID-economy

While there are of course many different factors at play here, these are the four that are having an immediate impact on the need to adopt XaaS and the business of XaaS itself:

Remote services: The shift to consuming products and services remotely has been dramatic and immediate. Overnight, 80% of healthcare is now delivered as telemedicine, driven by COVID, but enabled by a change in regulations that allow healthcare providers to charge for telemedicine services. All education, from pre-K to post-graduate, shifted to online, globally, practically overnight. CEOs must determine how to consume their products and services over the internet or enabled by it. The winners will be those who can maintain or even build on the social, peer-to-peer experience enjoyed in face-to-face transactions but now delivered online. Think Netflix Party, which turned every viewing experience into the social peer-to-peer interaction that people were craving.

Data science: Artificial intelligence (AI)I, machine learning (ML), and augmented reality (AR) have entered the mainstream conscience. Every day we have been subjected to models and predictions. Everyone has come to understand the critical role of data on a huge scale. The need for testing and contact tracing in the US has raised our perception of the role of AI so that we now understand its potential at a national scale in the same way they do in China. While applications will surely be opt-in, privacy is on the back burner for most, even in Germany. As CEOs innovate on new value propositions, AI, ML, and AR offer some of the most creative ways for CEOs to transform their value proposition to something more consumable over the internet. Think Kinsa digital thermometers, which opened up its aggregated data to track the spread of COVID in your area.

Globalization: With COVID, we have come to understand the perils of globalization. National security is sometimes threatened by critical parts of a supply chain being under foreign control. There is a strong desire to localize key parts of manufacturing into automated and more agile manufacturing pods at home. It may not mean more manufacturing jobs, as robotics and automation will surely play a big role in reducing human skills, but it will mean more jobs up and down the value chain while improving our security. Think Ford and GM, which responded to the urgent need for ventilators by reimagining their manufacturing processes with social distancing and robotics to minimize contact while accelerating production and getting a steal on the rest of the world for reopening their facilities.

Business models: All of this change will strain the traditional “growth at all costs” value creation model prevalent in most XaaS businesses. Enterprise value may come at a slower burn for some or breathtakingly fast for those who can seize the market. Capital requirements will change. Interest rates will likely stay low, so CEOs could shift capital raises to self-sustaining revenue-based-financing models and more forgiving debt vehicles with government support. We are seeing further democratization of capital funding from the privileged few to a more socially concerned mainstream through crowdfunding and the lifting of regulations investments below $25 million. This opens up broader participation of the public and family offices in investments that can be directed to specific areas like underserved communities to encourage the entrepreneurs who are ready to participate in the emerging COVID-era market.

COVID has forced many ill-prepared businesses and processes to digitally transform at warp speed. Some did well: Zoom went from 10 million to 200 million daily active users without a hitch. Amazon has become the essential gateway to retail and saw a 26% year-over-year increase in Q1 2020 net sales, a staggering rate of $10,000 per second. Others struggled. Old COBOL-based government systems failed to meet the seismic shift in demand and the people suffered.

Stop for a moment and try to imagine life in this pandemic without the internet. The internet is the foundation of a successful shift to a COVID-era economy. XaaS powers the internet and a great deal of the services we’re now relying on to continue functioning economically and socially. It would be nice to talk about precise forecasts, but the truth is we just don’t know how the COVID-era economy will truly manifest. We only know that it won’t be what it was.

David McFarlane is a Board Member and Instructor for the MIT Enterprise Forum Cambridge and Venture Partner of VC firm Converge Venture Partners.

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