It is no secret that as-a-service models are on the rise across the technology sector, and the Channel is increasingly finding customers are preferring to procure their technologies in this way.
For Simon Blackwell, CMO, TelcoSwitch, more organisations are embracing subscription services simply because consumer purchasing habits are being replicated in the business world.
He said, “Subscription models have become a way of life in both B2C and B2B, as there has been a shift from ownership to usership based procurement. In 2023 over 75 per cent of B2B businesses were subscription-based and in nature, according to data we’ve sourced. Where solutions can be instantly deployed at scale, that’s only set to continue.”
The rising popularity of subscription-based offerings can also be attributed to the perceived lower risk of these commitments.
Tony Martino, CEO, Tollring, said, “Subscription services means lower risk for end customers. It enables organisations to try new services more affordably, without any long-term contracts or setup costs. It also enables greater flexibility, so organisations can change subscriptions as their business evolves and only pay for what they need.
“For providers, the low-risk element means these services are far easier to sell. Cloud-based services are also faster to deploy with reduced disruption and less operational IT complexity.”
Adrian Sunderland, CEO, Jola, agreed with that perspective. He said, “Subscription services allow organisations to benefit from new technologies and services without having to spend large amounts of capex. It also allows them to scale up or down, which is invaluable for organisations facing seasonal demands.”
Scott Wilkie, channel account director, Agilitas, added, “Subscription-based business models have become increasingly popular in recent years, everything is purchased as-a-service from Netflix and Spotify to cloud storage and Microsoft 365, and Channel companies have had to evolve to support this market need.”
Wilkie discussed the subscription economy index (SEI) and how software-as-a-service (SaaS) is the fastest-growing sector within it. He said SaaS outperformed other sectors in cumulative revenue growth in 2022, with 12.3 per cent revenue growth on average across the year.
He added, “As SaaS has been around for decades, businesses within the SEI are now focused on optimising the subscription model via leading-edge practices in customer success, using advanced techniques to acquire and retain customers, deliver measurable value, and create opportunities for expanding their relationships.”
Shaan Sood, head of international marketing, Sangoma, pointed out six key benefits of moving to subscription services: predictable revenue, faster revenue growth, scalability, cost efficiency, building relationships, and financial predictability.
She said, “Subscription-based business models create a predictable and recurring source of revenue. This allows for better financial forecasting and planning for future growth. Subscription services also offer scalability benefits to both organisations and customers.
“Customers can scale their usage or access according to their needs, while organisations can adjust their resources and offerings based on demand.
“Offering subscription services allows companies to avoid significant upfront investments in infrastructure. The model also brings in a consistent flow of revenue, providing financial predictability for organisations. This stability allows them to plan and invest in sustainable growth strategies.”
Brendan Hourihane, senior director, Freshwave, explained his view that the flexibility associated with subscription-based offerings particularly suits the mobile market.
He said, “Subscription services provide organisations with valuable flexibility and agility. Our customers want to be able to have a public or private 4G/5G network delivered for a flat monthly fee over a period of time with all the service and support included, so they really like the as-a-service model.
“With all the tech support included as a managed service it gives them peace of mind that specialists are on hand to ensure that the network runs smoothly and allows the in-house IT team to work on value-added tasks for the organisation.”
Hourihane highlighted the ease of making upgrades as a key advantage. He said, “This approach also means that at the end of the contract term they can upgrade to the newest technology if they want to, allowing them and their staff to benefit from technological developments without having to make a big financial outlay at the start of the contract.”
Responding to market changes
This movement towards subscription services inevitably means change for the business models channel companies operate on. Nathan Marke, COO, Giacom, discussed how channel companies can successfully move from a transactional model to a relational one.
He said, “The as-a-service model dramatically impacts channel business models and is underestimated by many, but it’s a survival journey that all need to undertake.
“Moving from selling one-off products and services to composing and offering ongoing services with clear outcomes means that channel companies have to shift from a transactional model to a relational model, building long-term relationships with their customers and provide them with ongoing value and support.”
“This is the essence of the shift from reseller to MSP. It requires channel companies to rethink and redesign almost everything. That could include their value proposition, revenue streams, cost structure, and customer engagement strategies.”
The good news is that subscription services can work well for channel companies. Sunderland, from Jola, said, “Subscription services generally work exceptionally well for channel companies because we’re all used to supplying services such as fixed line and mobile on a monthly recurring basis, often with some term discount to reward loyalty.
“The only channel business model that could get disrupted is traditional hardware and perpetual software sales funded by leasing.
“Nowadays, many companies that would have had a PBX in their office and a bunch of servers, switches and firewalls in their comms room or in a datacentre will very likely have replaced everything with the private or public cloud equivalents.”
Moving to a new business model that suits subscription-based services can require adjustments to a company’s sales and marketing efforts.
Tom Chedham, business development manager, Candio, explained, “As channel companies make the shift towards the as-a-service model and away from offering one-time products, this will also mean a shift towards a recurring revenue stream. This change in model will force businesses to adapt their approach to sales and marketing.
“There will be a need to create fresh strategies that focus on long-term customer relationships, as well as an emphasis on continuously providing value-added services that grow with the needs of each individual enterprise.”
Dr Lucy Green, CEO, Larato, said the move towards as-a-service has been a “huge shift” for providers. She explained, “The lower barrier to entry for customers, wealth of new solutions and 24/7 demand culture means that the most successful MSPs have been working around the clock to expand their own portfolios and knowledge, hold customers’ hands, appease the big players like Microsoft and try to integrate their as-a-service solutions into whatever legacy solutions their new customers wish to sweat.
“For traditional providers which would like to move over towards this type of model, it’s no easy job with the process for quote to cash changing dramatically and perhaps unfavourably for many providers until they can get their operations streamlined with as-a-service in mind. The adaption makes sense if done well but I advise any going down that root to consider that they aren’t simply adding to their portfolio.”
Green emphasised the need for channel companies to shift their offerings together with the customer journey and employee experience.
She added, “Some due diligence needs to take place to consider the opportunities and threats to make this work. Some analysis will show for example, that if that’s the plan, wisely choosing industry verticals to target and services to launch first will be the difference between make and break.”
Channel companies will also need to focus attention on their ability to act as a trusted advisor for customers to help minimise potential risks from subscription-based services.
Iain Sinnott, head of international carrier sales, Enreach for Service Providers, said, “Resellers need to reposition their role from vendor to technology partner, focusing on the challenges of the customer instead of service or product features.”
When asked what innovations he is seeing across the as-a-service market, Marke, from Giacom, said, “In my opinion as-a-service is the fastest changing market that has ever existed in IT. MSPs and vendors are constantly developing new technologies and solutions to meet the evolving external environment coupled with changing customer demands and expectations.
“Gen AI is clearly the biggest talking point, with every software vendor tying its offering into one or more of the large language model systems. [Those systems can] allow them to enhance the intelligence, automation, and personalisation of their solutions, by providing insights, recommendations, predictions, and optimisations.”
Marke emphasised the boundless possibilities for subscription-based services. “It’s not just AI. We see IoT, edge, blockchain, 5G and VR/AR all being super-hot, very exciting, and creating significant opportunities for forward thinking channel partners.”
Candio’s Chedham also expects AI to make its mark on the subscription economy. He said, “One of the biggest innovations to impact the as-a-service market is introduction of AI. With AI integration growing increasingly popular in as-a-service products, we can expect this technology to scale and evolve.”
Adam Wilson, director of strategic partnerships, Vonage, also pointed to AI as an area of opportunity. He said, “AI is set to be integrated into as-a-service models across the board, and there are many different use cases for the technology.
“We’re really excited about conversational AI, which is improving chatbot functionalities, from triaging queries to the appropriate agents, to conversing with customers in a natural and authentic manner. Similarly, AI is being used to improve speech analytics and decision making.”
Barriers to entry
As-a-service offerings are now dominating the software market, but this model is also disrupting the hardware market. Wilkie, from Agilitas, explained why the impact on the hardware market has been slower.
He said, “SaaS has been such a dominant business model over the past decade. It eliminates the need for end-user investment in costly infrastructure and maintenance, passing all of that to the SaaS provider, reducing the management and administration burden on businesses and enabling them to focus on their core competencies.
“The same demand for as-a-service exists for hardware services, but where SaaS has a relatively low setup cost for the provider, hardware-as-a-service providers have much higher barriers to entry. It requires not only investment in the hardware, but also a service-focused architecture, warehousing, logistics, and repair centre.”
The move towards as-a-service suits customers for a number of reasons. For Chris Angus, vice president for contact centre engagement, 8x8, the ability to access technology without huge upfront costs or having to commit to a long contract have been huge deciders amidst ongoing economic uncertainty.
He said, “The most obvious trend is the economic uncertainty we have all seen slow down some of the spending across the world. We’ve seen a huge shift towards customer retention recently.
“Channel partners who have previously offered on premise, or Capex models are now able to offer their customers the opportunity to stay with them as their chosen partner but switch to an opex-as-a-service vendor within their portfolio. Thus, maintaining them as a customer and reducing the risk of them seeking new innovations elsewhere.”
Blackwell, from TelcoSwitch, agreed with that perspective, but added some customers might choose to move to longer-term contracts if offered pricing incentives.
He said, “Shorter commitment options are a key driver that we have witnessed in the last year. We’ve noticed that a lot of partners taking the 30-day commitment use this as a proof of concept hook to win customers, and then shift those customers to a longer 36- or 60-month contract, in order to benefit from more aggressive wholesale commercials that bolster their profitability.
“For us, over 75 per cent of partners are taking 36-month commitments, showing that these longer commercial lock-ins continue to be attractive to the end customer looking for that price predictability.”
Blackwell also highlighted the importance of quick deployments. He said, “Speed of deployment is also key. As-a-service comes with an expectation of instant availability, so being able to deploy our product to the customer at a click of a button is a fundamental part of the offering. An added benefit of this for the partner is that they are then able to start billing that opportunity as quickly as possible, moving them from prospective to in-life customer.”
For Wilson, from Vonage, subscription-based services can support digital transformation objectives. He explained, “Digital transformation is the driving force behind the as-a-service revolution. Technology is now advancing at such a rapid rate, that tools and systems are considered legacy after five to ten years.
“It no longer makes business sense to make such large investments to own these techstacks, for them to become dated in such a short timeframe. The as-a-service model solves this problem, as organisations can subscribe to a technology, which passes on the infrastructure and running costs onto the third-party provider.”
Martino, from Tollring, added, “The as-a-service trend will continue to grow since it delivers the tools and capabilities organisations need to navigate the complexities of the modern business landscape. With subscriptions infiltrating our private lives as much as in business, this model is now a familiar approach.
“We are now in a subscription economy where the acceptance of this model is widespread and oftentimes expected.”
There is wide expectation that everything-as-a-service (XaaS) is becoming a reality for many channel companies, their partners and their customers.
Sood, from Sangoma, said, “XaaS is a growing trend where companies are shifting from product-centric to service-centric business models. This includes software-as-a-service (SaaS), platform-as-a-service (PaaS), infrastructure-as-a-service (IaaS), and other variations. XaaS provides greater flexibility, accessibility, and convenience for customers, driving its adoption across industries.”
Innovate and differentiate
There is huge opportunity for channel companies to use the as-a-service era as a foundation for the future of their business. For Wilkie, from Agilitas, long-term success rests on keeping your customers with you on the journey towards a subscription-based future.
Wilkie said, “Strong long-term customer relationships can make the process of setting up a subscription pricing structure easier, as connecting with customers just when it’s time to sell doesn’t work with subscription models.
“For ongoing success, the sales and marketing relationship must be nurtured. If the sales team is regularly checking in to make sure their solutions are meeting customer needs, the process becomes about excellent, long-term customer relationships and continually working to fulfil customer needs better.
“Ultimately, with the increasing popularity of subscription-based business models over traditional channel arrangements, Channel businesses will need to be ready to move to new processes in the year ahead.”
Channel companies will also need to ensure their offerings are delivering for customers. Sinnott, from Enreach for Service Providers, said, “The opportunities are everywhere but opportunity creation is no easier than in the past. The messaging must be clear and outcome focused.
“Current customers must be account-managed with a focus on generating tangible business outcomes for them. Support teams must help with current customer engagement and new business sales or marketing teams need to stop talking tech and, instead, have meaningful conversations around how they can help.”
Giacom’s Marke emphasised the opportunities that can be unlocked by embracing as-a-service, arguing channel companies can reach new heights. He said, “The as-a-service era is not a threat, but an opportunity, for channel partners. It is an opportunity to reinvent themselves, to innovate and differentiate, and to thrive and prosper.”
This feature appeared in our February 2024 print issue. You can read the magazine in full here.