XaaS and the Future of IT — Part 1

I recently participated in a panel discussion on the topic of XaaS ("Everything as a Service") at IT Glue's annual GlueX conference.

Here’s a summary of some of the questions asked during my panel discussion along with my responses:

How lucrative is XaaS (“Everything as a Service”) and what trends are shaping the future of XaaS in the MSP industry?

Even though the as-a-service/managed services model isn’t new, research suggests it’s at the beginning stages of an exponential growth spurt. A report from Markets and Markets predicts it’s going to increase by more than $105 billion (to nearly $258 billion total) between 2017 and 2022, representing a CAGR (compound annual growth rate) of 11.1%.

Like we’ve seen with the BYOD (bring your own device) and personal cloud storage (using Dropbox and Google Drive at work) trends, consumers’ buying preferences are the primary drivers behind the as a service trend. More people value access and outcomes to ownership. Instead of buying albums or even digital downloads, many consumers prefer subscriptions to iTunes, Amazon Prime, Spotify, Pandora or YouTube Premium, which give them access to a vast array of music choices. More companies are migrating to subscription plans to avoid paying for hardware and software licenses upfront (CapEx). Plus, they’re avoiding having to hire IT admins to manage everything and buy new equipment every three to five years. A software (SaaS), infrastructure (IaaS) or platform (PaaS) subscription allows them to pay a fraction of the cost and never have to worry about depreciation costs or IT labor costs. They can focus on running their businesses.

What is the impact on an MSPs’ overall business valuation when implementing an aaS solution?

Whether your exit plan involves passing your company down to a family member or selling it to the highest bidder, building a recurring revenue business tends to not only create less stress (i.e., more predictable income for you as well as your employees), it increases your business valuation significantly. According to an article in the Harvard Business Review, recurring revenue businesses are worth 16 times more than break-fix or project-based companies (i.e., one-time revenue). Even more conservative estimates posit that owners with recurring revenue can expect a payday of 6 to 8 times EBITDA (earnings before income, taxes, depreciation and amortization).

What are the easiest routes-to-market for MSPs wanting to develop/expand their XaaS stacks?

Start with the three core offerings that all of your customers need, regardless of their size or vertical market, such as:

  1. Remote monitoring and management (RMM)
  2. Backup and disaster recovery (BDR) and
  3. Security

XaaS (“Everything as a Service”) Journal was created to help VARs and MSPs educate themselves about specific technology services like these core offerings (and 40+ other services). Check out the RMM, BDR and Security as a Service pages to learn why your customers need these offerings, how difficult it is to get started selling each one, key vendors (and side-by-side comparisons), expert advice on next steps to take, pitfalls to watch out for and more.

What’s the biggest challenge MSPs run into with selling XaaS?

One of the biggest challenges I hear from MSPs new to selling IT as a service is with their salespeople. If you pay your salespeople on straight commission, it only makes sense they’re going to focus on deals that give them the most substantial paychecks. If you want them to sell subscriptions, you can’t expect to pay them 10% of the monthly cost of an Office 365 subscription. There are a couple of things you have to consider. First, your salespeople need to learn how to be more consultative, so they don’t just sell Office 365 as a standalone, but they should bundle spam filtering, archiving, migration services and other complementary offerings. Additionally, when they do land a customer, you’ll need to reward them financially upfront. Here’s an article that goes into more depth about this topic, which I think you’ll find helpful.