RESEARCH REPORT
As a service, at your service
Reinventing the high tech company of tomorrow with as-a-service models
5-minute read
October 3, 2024
In brief
- Enterprise customer IT and technology spend increasing in 2024, moving from hardware to IT services and software, driven in part by generative AI.
- High tech companies transitioning to as-a-service models, improving customer value and operational flexibility despite legacy system challenges.
- Adopt as-a-service models featuring customer outcome-focused offers, new go-to-market operating models: culture shift, upskilled talent and agile IT.
50%
of executives believe they can meet their publicly stated ARR goals, while 48% do not.
97%
of executives believe generative AI can expedite the organization’s strategic shift toward ARR and AaS models.
85%
of executives believe AaS offerings will be a complementary revenue stream – at the expense of current offerings.
75%
of respondents agreed or strongly agreed legacy technology hardware companies will no longer exist unless they begin acting more like software companies
Dynamic or bust: The new market reality
“Worldwide IT spending is expected to total $5.26 trillion in 2024, an increase of 7.5% from 2023, according to the latest forecast by Gartner, Inc.”1 Enterprise customers are increasing their spending on services and software while postponing hardware purchases such as networking equipment, servers and data centers in anticipation of cloud and AI-based advancements. As a result, a larger portion of this spend is projected to be allocated as operating expenses (OpEx) rather than capital ones (CapEx). This shift has significant implications to their strategies, operational practices and buying patterns.
With enterprise customers increasingly redirecting their IT budgets toward services and software, particularly software-as-a-service (SaaS), high tech companies must adopt a sharply focused, customer-centric strategy to remain competitive. Aligning business strategies with operational goals is not just beneficial but crucial for capturing a significant market share in a rapidly transforming industry. By synchronizing their strategies with market demands, high tech companies can not only address current needs but also lay the groundwork for future growth and success in a dynamic and evolving digital marketplace.
To understand the complexities involved in transitioning to a more integrated business model, we conducted a survey with 300 high-ranking executives across 14 countries. Among these participants, 64% were C-level leaders from a variety of sectors, including networking equipment, enterprise technology, Software & Platforms, medical equipment and consumer technology. They delved into critical issues such as business and customer experience, annual recurring revenue (ARR), as-a-service (AaS) offerings and the technologies necessary to facilitate a seamless transition.
Adapting to the evolving market and customer needs is not just about change; it's about embracing new paradigms and crafting customer-centric strategies.
Deb Garand / Managing Director, High Tech
Shifting paradigms: Embracing the as-a-service (AaS) model
High tech companies are undergoing a reinvention as they shift from traditional one-time product sales to AaS offerings. For the customer, this strategic shift provides continued and superior value year over year. For the high tech players, this has positively impacted on long-term revenue, customer retention and overall customer life-time value.
Yet, despite the benefits of shifting to new models that bring high tech players closer to the customer and their demands, they face significant internal challenges. A striking 85% of executives are concerned that AaS models might cannibalize their existing offerings. The same percentage of respondents believe that the success of implementing these models depends crucially on their sales force's readiness to adopt new ways of selling.
Our research also showed that executives are cautious about the financial benefits. 76% of respondents think these new models could be just as profitable, if not more so, than their traditional setups. These factors raise an important question about whether high tech companies are truly prepared for such a transformation.
Generative AI integration: A strategic transformation
As high tech companies shift toward AaS models, generative AI plays a crucial role in accelerating this transition. It influences everything from marketing (digital and campaign), sales (enablement and opportunity management), operations, finance and more importantly customer success (onboarding, adoption and renewals). All of these will combine to drive recurring revenue. 97% of executives believe generative AI will accelerate the adoption of AaS models and help achieve ARR goals. Bringing all of these aspects together, this technology allows for analysis of customer behavior, effectively aligning products and services with customer needs.
Mastering customer value: Strategies for success
Our research shows a split in confidence among respondents about achieving their publicly stated ARR goals with current strategies: 50% believe they can meet these goals, while 48% do not.
The shift to an AaS model is a strategic move to meet modern customer expectations, transcending traditional product lifecycle constraints. This approach emphasizes customer outcomes and fosters deeper, value-driven relationships. Our survey revealed that a staggering 98% of respondents believe that a company's products and services are vital in defining these relationships with customers. And in turn, aligning offerings with customer needs is crucial to achieving ARR goals.
It is crucial to understand that while offerings are central to customer value, they are just one component of a successful strategy. When combined with go-to-market strategies and modernized IT, they enable rapid adaptations in response to customer feedback and market shifts. To remain agile, successful high tech companies should focus on these key areas:
Customer-centric strategies
Move from transactional to relational customer engagement by redefining offerings, marketing and sales.
Modernize IT infrastructure through a digital core that supports the redesigned model by integrating fit-for purpose technologies, breaking down silos in commerce and back-office systems.
Move from emphasizing product features to customer outcomes, focusing on value and benefits.
Train talent across offering development, go-to-market, sales and IT to achieve common goals in the redesigned AaS model.
A Vision for the future: Setting new horizons
By adopting these strategies, high tech companies can not only adapt to the changing market dynamics but also position themselves as leaders in the as-a-service era, ensuring sustainable growth and competitiveness in a rapidly evolving digital landscape through continuous reinvention.
1Gartner ® Press Release, Gartner Forecasts Worldwide IT Spending to Grow 7.5% in 2024, July 2024. GARTNER is a registered trademark and service mark of Gartner, Inc. and/or its affiliates in the U.S. and internationally and is used herein with permission. All rights reserved.