Is XaaS Too Good To Be True?

The model for the delivery of digital services has been a one-way street for several years as organizations have increasingly procured solutions as a service.

Traveling down this street has become relentlessly faster to the point where we have moved beyond isolating services — such as software or infrastructure — and we now refer to Everything-as-a-Service or XaaS.

It’s a trend that makes compelling sense for many organizations. They want to dial their consumption of services up or down depending on their need, and the model gives them cost-effective access to some of the best and most innovative solutions in the marketplace.

Used judiciously, XaaS can boost an organization’s agility and help drive scale while keeping down internal costs regarding people and technology. It’s the ultimate outsourcing strategy, theoretically leaving the company to focus on what it does best in its core business.

It has given rise to the idea of “servitization,” where XaaS is built on the idea that an organization takes any IT solution offered by a vendor and turns it into a product and adds its services using a wholly hybrid and digital approach.

Expanding functionality

Smart and connected products are also at the heart of XaaS. The model enables smoother data exchange and analysis and can unlock greater value for end users and entrepreneurial producers.

We live in a world with exponentially expanding functionality, and XaaS goes across traditional product boundaries to enable new business models and use cases.

The popularity of XaaS was underlined by the recent Equinix 2022 Global Technology Trends Survey, where 71% of the 2900 global respondents said they were moving to XaaS.

“If you’ve ever been involved in an IT shop that charges back for the services it provides, you know firsthand the joys of defending the IT invoice to the managers whose cost centers have to pay the IT bill”

Asked why, 65% said it would simplify their IT infrastructure, 56% said it was because they wanted flexibility, and 54% said it would provide an enhanced user experience.

The other findings in the Equinix report put the XaaS trend in a different perspective. Companies are accelerating their digital investments, and XaaS is the fastest and most convenient way to do it. Organizations are moving geographies, opening up new markets, and looking to grow fast.

Nearly half — or 47% — said they planned to use the cloud to expand globally, with more than a quarter planning to do so using OS-less services. 47% also said they were focusing on co-location neutral solutions to facilitate their increased digital deployments, while 59% would increase their investment in interconnection services.

These trends play into the rise of XaaS, a market Equinix says grew 13% in the second quarter of 2002 to USD14.1 billion worldwide. This growth was down on the quarterly average growth rate, primarily due to the situation in China, but shows a picture of a market on the rise.

According to Fortune Business Insights, the pandemic lockdowns have spurred the adoption of XaaS in industries such as e-commerce, healthcare, retail, manufacturing, and life sciences.

The XaaS trap?

So, is there a downside?

According to a critique of XaaS from ITC Consulting, there certainly is.

XaaS, says ITC, is “the final nail in the coffin of what was once an important development in IT architecture, turning it into little more than an IT charge-back algorithm.”

“If you’ve ever been involved in an IT shop that charges back for the services it provides, you know firsthand the joys of defending the IT invoice to the managers whose cost centers have to pay the IT bill,” the critique says.

“Just imagine how much more joy you’ll be adding when the bill for cloud bases services turns out to be higher than what they’ve accustomed to paying for on-premises services when everything they’ve heard about the cloud is that it costs less.”

While acknowledging that there are “good and valid reasons” for provisioning through the cloud, ITS says that all too often, the business case for XaaS “seems to be full buzzword compliancy, not being the means to ends that actually matter.”

All of which is probably good advice for digital leaders to ponder as they consider any journey to XaaS, which is supposedly driven by value and digital enablement. 

Meanwhile, vendors are marching on with XaaS. Most recently, Hewlett Packard Enterprise has unveiled a new partner program to support XaaS.

“Partners will be able to reach new markets and unlock new revenue streams by choosing to deliver any way they need to, whether on-prem, cloud, or hybrid,” the HPE press release says.

The ITS critique is that XaaS is a potential trap laid by vendors who don’t believe that clients should have much of their digital capabilities.

Market momentum would suggest that this is not the widespread view. It should be a reality check for organizations as they embrace the XaaS model in their rush for digital transformation.

Lachlan Colquhoun is the Australia and New Zealand correspondent for CDOTrends and the NextGenConnectivity editor. He remains fascinated with how businesses reinvent themselves through digital technology to solve existing issues and change their entire business models. You can reach him at [email protected].

Image credit: iStockphoto/ALLVISIONN