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December 8, 2016updated 15 Aug 2022 12:55pm

What it is: XaaS

Peter Thomas, chief operating officer of the Leasing Foundation, gives an overview of new technologies that will impact the leasing industry. This month’s focus is XaaS

By Verdict Staff

Peter Thomas, chief operating officer of the Leasing Foundation, gives an overview of new technologies that will impact the leasing industry. This month’s focus is XaaS

What is it?

We are probably all familiar with the software-as-a-service model – or SaaS – where instead of buying, installing and maintaining software, the software is licensed on a subscription basis and is hosted by the provider, and where users access software using a web browser. Any kind of software can be provided as a service, including office software, messaging, payroll, database management, CAD or human resource management software.

It is also referred to as ‘cloud computing’, which is how most of us will know it. ‘The cloud’ became mainstream around ten years ago when Amazon Web Services launched its Elastic compute cloud (EC2). As consumers we are familiar with lots of as-a-service products: movies-as-a-service (Netflix) or communications-as-a-service (mobile network, voicemail, messaging and handset from Vodafone).

Although we think of this as a new thing, the as-a-service model dates back to the 1960s when IBM and other computer mainframe companies provided what was then called ‘time-sharing’ – computing power and database storage provided remotely. Later, in the early days of the dotcom boom, companies called Application Service Providers (ASPs) arrived with the same proposition: pay a subscription to an application accessed via a website.

Increasingly it is not just software that is provided as a service: third-party vendors provide end-to-end services for hardware too – relieving customers of the need to own any assets at all, including PCs and servers that run the software. It also removes the burden of setup, training, maintenance and disposal of hardware and software. The benefits for businesses, especially in terms of IT, are obvious: consistent cost outlays, no need to manage assets, scalability up or down to meet changing needs, no need to allocate internal staff to manage hardware and software, a simpler procurement process, and the ability to have the most up-to-date technology.  

The as-a-service model is now ubiquitous – one of the latest examples being Microsoft’s Surface-as-a-Service model that enables business customers to pay monthly to lease Surface devices, accessories, software, services and support. Users can choose a 12-, 24- or 36-month Surface contract, and each bundle is configured for the customer with a mix of devices, software and support as needed.

There are now many as-a-service models in technology that try to meet the different needs of organisations: IaaS (infrastructure-as-a-service) where the provider takes care of the datacentre, the networking, the server and storage, and all customers see and pay for is a virtual server on which to install an operating system and software; PaaS (platform-as-a-service) where providers manage the operating system and database, allowing customers to develop their own software on the platform – examples include Salesforce’s force.com platform; DRaaS (disaster-recovery-as-a-service) where a provider copies and hosts physical or virtual servers to allow customers to recover data when disaster strikes; and CaaS (communications-as-a-service) or NaaS (network-as-a-service). Many companies such as Mailchimp or Sendgrid that run high-performance mail servers, or Stripe and PayPal that make payment processing easier, are as-a-service companies.

So we arrive at the idea that anything can be provided as a service – what is now called XaaS (X-as-a-Service) pronounced ‘zaas’.

This not a new idea to the leasing and asset finance industry, based as it is on the ‘use without ownership’ model. The difference is that it takes a relatively old leasing model – the one that Xerox has operated for copiers for a long time, outcome-based pricing – and brings it up to date and for a wider range of services, all enabled by data generated by new digital technology.

What impact will it have?

XaaS is set to change many industries, but perhaps where XaaS – with its mix of technology, data and outcome-based pricing – is starting to take hold most obviously is in transport.

Online ride services such as Uber and Lyft are not only shifting the landscape from ownership to transport-as-a-service, but also using the data gathered from customers to provide more sophisticated outcome-based pricing. There are many companies in this space, all offering a different spin on transport-as-a-service, such as Seattle-based startup Joule that allows subscribers to lease a variety of cars without any time limit: when the car needs maintenance it can be exchanged for another. Tesla, with its vast trove of data on cars and drivers, will also move towards outcome-based pricing – for example monthly payments that change not just based on usage, but on your willingness to allow your Tesla to autonomously rent itself while you are on holiday and your car is idle in the driveway, or on your willingness to consume media offered by Tesla and its partners while you drive, or are driven by, the car.

The model is set to expand to other services too. For example, a warehouse that used to buy or even lease forklift trucks will now pay a fixed fee for a number lifts per day, and the lift truck supplier can use the data collected from movements to provide suggestions about improvements to warehouse design, product locations and logistics processes – creating additional revenue streams. In fact, any business based on a combination of products, parts and service will be impacted: Product purchase, consumables and maintenance contracts can be replaced with a monthly fee based on negotiated outcomes. Customers like this model because it transfers risk and capital investment to the seller; sellers embrace the opportunity to develop deeper relationships by locking in maintenance.

One driver of XaaS is the vast amount of data that can be collected when assets can be equipped with sensors. In agricultural machinery, for example, John Deere is developing new technology such as a steering-wheel replacement that takes over machines so they cut more exact swaths across fields. Combined with sensors, wireless communications and cloud-based applications, the aim is to improve crop yields by more precise planting and harvesting. John Deere’s cloud-based services allow it to view, manage and control data gathered in the field showing where equipment is and what it is doing – all impacting use and payment for the machines.

Why is it important?

In an XaaS world, businesses compete on ability to deliver measurable results to customers, rather than just selling the most product.

For customers, most XaaS services can be up and running immediately – there is no lengthy procurement process and you simply sign up often without even talking to a human being; plugging services together – for example, integrating Mailchimp’s mailing software with Eventbrite’s event software – is a one-click operation because both provide application programming interfaces (APIs) that allow the seamless exchange of data. There is usually no need for minimum volumes to use XaaS services: For small numbers of transactions they are free, at least for trial periods and for limited functionality. XaaS also has huge implications for innovation in industries that have long-remained mired in traditional models. As companies become more comfortable using XaaS, more niche services flourish, more quickly, each catering to quickly emerging customer needs. The tools available to develop XaaS software also mean much shorter development times, and less of a need for highly specialised engineers and programmers to build XaaS offerings.

What does this mean for leasing and asset finance? Expect to see more XaaS startups providing niche services that erode the value proposition of existing businesses in the industry. Just as in consumer banking – with startups like Atom or Mondo up and running as mobile-first financial institutions in months – we can expect to see technology-enabled companies that embrace the business models and implications of XaaS and apply them to asset finance.

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