According to GreatAmerica, an NSCA Business Accelerator, there are three big reasons why as-a-Service is more attractive than ever.
1. Millennials are changing the way we buy and sell.
U.S. Millennials have officially surpassed the Baby Boomer generation in terms of size. This generation grew up during a time when it became possible to carry the Internet around in your pocket. Each year, as they grew up, Millennials also watched technology improve – and, each year, Millennials expected something better as a result.
Millennials have overtaken Baby Boomers in terms of workplace numbers as well, becoming IT managers, CIOs, and CFOs. These up-and-coming decision-makers have been used to paying monthly for technology since they landed their first jobs in high school. Because of this, they naturally embrace emerging technology and understand the value of adopting and buying according to the as-a-service model. If they can’t quickly accomplish tasks due to poor technology, they’ll upgrade.
2. Today’s most valued companies own few assets.
Think about the companies that have taken the world by storm. Uber is the world’s largest taxi company – but it owns no taxis. Airbnb is the world’s largest provider of accommodations – but it owns no real estate.
A recent Harvard Business Review article examined the 2015 S&P 1500 Index, which is a mix of small-, medium-, and large-cap stocks. After separating the index based on industry sector, each industry’s average Net PP&E (property, plant, and equipment) was calculated as a percentage of total assets. In other words – how much stuff do these companies own? Then, each industry’s average revenue multiple was also examined. The findings: It turns out that industries with high revenue multiples have low percentages of physical assets.
So what does this tell us? Digital disruption has already happened. Many of your customers may begin to see no value in owning technology. This allows their technology environment to evolve at the pace of technology evolution.
3. Recurring revenue is the name of the game.
GreatAmerica recently shared a five-year financial model developed by Service Leadership that compares outcomes of different sales approaches. (See it here.)
By transitioning from pure product resales (cash sales on equipment) to Hardware-as-a-Service, a five-year projection shows product gross margin growth to be somewhere around 140% as compared to growth of 35% on cash-only sales.
Did we miss something on this list? What do you think is driving the as-a-Service model?
Image by: renjith krishnan