Companies were shifting to as-a-service IT even before the pandemic boosted the value of flexibility and the second Deloitte Everything-as-a-Service (XaaS) Study shows adopters increasingly prizing the XaaS model.
Over the past decade, leaders have become increasingly taken with the idea of everything-as-a-service (XaaS).1 Across industries, organisations have looked to take more control over the enterprise IT they use and how they pay for it—and technology companies and internal IT departments have met that demand by shifting to a flexible-consumption model for providing products, capabilities and tools (see sidebar, “What is XaaS?”).2 As of 2018, analysts estimated the global XaaS market to be worth US$93.8 billion and forecast a compound annual growth rate of 24%, predicting that the market will surpass US$340 billion by 2024.3
The value of IT flexibility only rose in 2020, as the COVID-19 pandemic thrust the world into a time of unprecedented disruption, bringing on a deep global recession and dramatic workforce changes. As organisations have endured shutdowns, layoffs and furloughs—and in some cases hired employees back—their IT needs have fluctuated. Most notably, organisations suddenly found they needed new kinds of IT tools to support the vast number of professionals around the world shifting to remote work arrangements. Indeed, the 2021 Deloitte Global Human Capital Trends survey named “introduction of digital collaboration platforms” the most important factor for sustainability of remote work.4
And for companies in some industries, the disruption has created extraordinary opportunities to develop new services, such as cloud-based telehealth platforms. Early in the pandemic, Deloitte predicted that leaders would come to see the XaaS model—which gives organisations the ability to rapidly scale IT capacity, operations and associated costs up or down as needed—as key to companies staying resilient and nimble in these uncertain times.5
XaaS—everything-as-a-service or anything-as-a-service—refers to products, tools and capabilities that are delivered to users as services. For purposes of this article, we’re considering only enterprise IT as-a-service. Unlike traditional IT, which requires up-front purchase or licensing, the XaaS or flexible-consumption model allows customers to consume and pay for IT services based on what they need and use, typically through a subscription or pay-per-use. Some prominent types of XaaS include:
• Software-as-a-service (SaaS): Business applications delivered as a service—e.g., customer relationship management, messaging and collaboration, enterprise resource planning.
• Infrastructure-as-a-service (IaaS): Cloud-based provisioning of computing resources over the internet—e.g., servers, networks.
• Platform-as-a-service (PaaS): Platforms that provide the tools and environment to build, manage and run software applications.
• Hardware-as-a-service: Hardware components—servers, computers, devices, IoT sensors, etc.—that are borrowed rather than purchased. Managed service providers (MSP) install the hardware at a client’s site and a contract spells out terms—e.g., subscription costs, replacement terms, whether the provider handles monitoring and maintenance.
• Cybersecurity-as-a-service: Cybersecurity services that are integrated into corporate infrastructure on a subscription basis—e.g., authentication, antivirus, anti-malware/spyware, intrusion detection, penetration testing.
• Advanced/emerging technologies as-a-service: Advanced capabilities provided as services—e.g., AI-as-a-service, IoT-as-a-service, edge computing as-a-service.
Note that there can be overlap between these categories—for example, cybersecurity-as-a-service may be viewed as a specialised type of SaaS.
XaaS can be delivered in a variety of ways, such as on-premise (i.e., managed in one’s own data center and either subscription-based or running in a private cloud), third-party hosted (i.e., a vendor hosts the service), or public cloud (i.e., provided by a “public cloud” company). And there are some instances of XaaS that run as “hybrid cloud,” whereby some aspects of the service run on-premise and others are delivered via the cloud.6
Against this tumultuous backdrop, in Q4 2020 we conducted a new edition of Deloitte’s Everything-as-a-Service (XaaS) Study—surveying 600 IT and line-of-business professionals responsible for XaaS at large US organisations where at least 15% of enterprise IT is consumed as-a-service (see sidebar, “Methodology”). Just as with our previous survey in 2018, our goal was to explore how companies gain value by adopting XaaS, including motivations, outcomes, challenges, preferences and practices. This time, we also wanted to assess what may have changed in the interim and determine the effect of the pandemic. We uncovered key insights:
The COVID-19 pandemic is accelerating the shift to XaaS. The transition from traditional IT to XaaS—already well underway in 2018—continues to transform the enterprise IT landscape as we had projected and shows no signs of slowing.7 Three-quarters of our respondents report that their organisation already runs more than half of its enterprise IT as-a-service.8 XaaS seems to have won enterprises’ hearts, minds and wallets. Remarkably, the COVID-19 pandemic is further fuelling the transition: Leaders view XaaS as helping them create new solutions or business models to thrive in the new normal and they’re backing up that view by increasing their XaaS investments.
Organisations use XaaS to unlock business agility and create a competitive edge. The strategic trend our 2018 study discussed—using XaaS to boost business agility as well as to reduce costs and improve workforce efficiency—continues unabated. In particular, adopters are leveraging XaaS to access cutting-edge features and technologies, accelerate innovation and get their products and services to market faster. The vast majority of adopters report that XaaS has helped them create new business processes, products/services, and business models and has even changed how they sell to their customers—and six in 10 say XaaS gives them a competitive edge (unchanged from 2018).
As service-based IT becomes ubiquitous, competitive advantage may become harder to maintain. One sign that the playing field may be levelling: More than eight in 10 of our respondents say their companies already use software-as-a-service (SaaS), infrastructure-as-a-service (IaaS) and/or platform-as-a-service (PaaS)—and nearly everyone plans to adopt them within the next two years. Deloitte believes there are two key activities that could help adopters gain and sustain a competitive edge:
• Adopting emerging XaaS capabilities. Companies that move beyond the usual as-a-service suspects and leverage XaaS for advanced or emerging technologies may be able to stay a step ahead of the game. Examples include “intelligent edge” services and new hybrid services that combine on-premise services and cloud.9
• Overcoming persistent challenges. The same concerns we identified in 2018—data security, integration and cost—continue to hinder efforts to scale up XaaS efforts. And while the vast majority believe their customer experience is better with XaaS than with traditional IT, adopters express little allegiance to their current XaaS vendors. Adopters are seeking more consultative relationships with their providers that can help them conquer their ongoing issues.
XaaS providers should become partners in their customers’ success. Major technology companies recognise the power of the as-a-service model and have announced plans to shift the majority of their portfolios to XaaS in the coming years to fuel their future growth.10 The model means that customers don’t have the same vendor lock-in as with traditional IT, however and providers should be mindful that customers can move to greener pastures if they feel they’re not getting optimal value from a solution or vendor. To succeed with XaaS, it’s critical for technology companies to foster deeper engagement with their customers and help them achieve success with their as-a-service solutions.
In the pages that follow, we explore these study highlights, along with implications for both XaaS adopters and providers.
To obtain a cross-industry view of how organisations are adopting and benefiting from as-a-service enterprise IT, Deloitte conducted the Everything-as-a-Service (XaaS) Study, 2021 edition, surveying 600 IT and line-of-business (LoB) professionals from US-based companies in Q4 2020, during the COVID-19 pandemic. All respondents were chosen from organisations that consume 15% or more of their IT as a service and were required to have responsibility for enterprise IT and specifically for XaaS—for example, spending, strategies, deployments and/or vendor selection/evaluation.11
Respondents are evenly split between IT and LoB professionals. Sixty-three percent are C-level executives: CEOs, presidents and owners (32%); CIOs and CTOs (24%); and other C-level (7%). Ten percent are senior VPs/VPs/business unit heads, 16% are senior directors/directors and the remaining 11% are senior managers/managers. In terms of company size, 16% have annual revenues of US$100 million to US$500 million, 30% have revenues of US$500 million to US$1 billion, 34% have revenues of US$1 billion to US$5 billion and 20% have revenues of US$5 billion or more. Six industries are represented: Technology, media and telecom (25%); energy, resources and industrials (23%); consumer, retail and automotive (22%); financial services (16%); life sciences and health care (9%); and education (5%).
The COVID-19 pandemic has given rise to rapidly changing IT needs and an urgent need for companies to become more nimble to survive.12 The new reality is demonstrating the value of XaaS and accelerating the shift away from traditional IT. Research suggests that, by Q2 2020 in the midst of the pandemic, as-a-service revenues were outperforming product revenues at many technology companies.13
Our 2018 survey found that organisations had already shifted a considerable proportion of the enterprise IT they use to XaaS and we projected the transition would continue (figure 1).14 Our estimates have essentially been realised: In 2020, 75% of our respondents reported their organisation consumes more than half its enterprise IT as-a-service (with the remainder being traditional, nonservice-based IT), up from 71% in 2018. And 25% reported over three-quarters of their enterprise IT is XaaS, up from 16% in 2018. IT spending reflects the transition to XaaS as well, with nearly half reporting that their organisation allocates at least half of its IT spending to XaaS.
The XaaS model’s flexibility—allowing organisations to quickly scale IT usage and costs up or down as needs change and to acquire new kinds of IT capabilities—makes it an important tool for helping organisations not only survive the current crisis but position themselves to thrive in the postpandemic era. Indeed, over the next few years, these organisations plan to go all-in on XaaS: By 2025, 87% expect to consume more than half their enterprise IT as-a-service—and almost half expect to consume more than three-quarters as-a-service.
Given the economic uncertainties brought on by the pandemic, it’s unsurprising that analysts have predicted annual IT budget reductions from 5% to 11%, depending on industry.15 Cloud-based services represent one bright light, however, remaining a top IT budget priority.16 Deloitte analysts recently predicted a resilient market for cloud—a critical as-a-service enabler—noting that lockdowns and work from anywhere have increased demand.17 They estimate that cloud revenue growth will exceed 30% from 2021 through 2025 as companies move to the cloud to cut costs, increase agility and fuel innovation.18
Our study findings corroborate this optimism: Eighty-one percent of adopters agree that the pandemic has accelerated their organisation’s shift to XaaS from traditional IT and 55% report that the crisis is causing their organisation to invest more in XaaS than they had planned to (figure 2). Indeed, these leaders view XaaS as essential in these pandemic times:
• Eighty-six percent believe XaaS is critical to strengthening their organisation’s response to business/workforce challenges caused by the pandemic (46% strongly agree)
• Eighty-eight percent believe XaaS will be crucial as their organisation recovers from the pandemic (43% strongly agree)
XaaS helps organisations respond to pandemic-related challenges in a variety of ways (figure 3), most importantly by helping them create new solutions or business models to thrive in the new normal. When the pandemic began, one Florida health system found itself in urgent need of a platform that could handle virtual employee health screenings, remotely connect clinicians with patients and support virtual engagement between family members and hospitalised patients. The organisation chose a mobile-enabled, cloud-based telehealth system and was able to start rolling out these capabilities within days.19
The number-two way XaaS helps is by enabling organisations to maintain employee productivity and engagement; many remote working professionals are by now all too familiar with cloud-based tools for enhancing communication and collaboration within remote teams, such as videoconferencing, messaging and project management applications, which have surged in use during the pandemic.20
And the number-three way XaaS helps is by reducing IT costs: Usage of XaaS systems—and associated costs—may be scaled up or down as needs change and that flexibility can help control costs in uncertain times.21 The pandemic may be accelerating XaaS adoption, but it’s likely that service-based technologies—and some of the associated behaviours—are here to stay.22
More than ever, adopters recognise the importance of XaaS to their business success and feel strongly that service-based IT will be critical to leading in the postpandemic era. Eighty-two percent currently view XaaS as “very important” or “critically important” for their business success—an increase from 70% in our 2018 survey (figure 4). The portion that regards XaaS as critically important increased from 16% in 2018 to 22% today—and is expected to more than double (to 50%) over the next two years. Furthermore, eight in 10 adopters see XaaS as critical to the digital transformation of their company (43% strongly agree).
To get to the level of XaaS adoption they expect to see by 2025, the organisations we surveyed are making considerable XaaS investments. On average, they’re spending US$20 million on XaaS in the current fiscal year—and the overwhelming majority (69%) plan to increase investment in the next fiscal year, by an average of 23% (figure 5). Only 6% plan to decrease their investments and a quarter plan to keep investments steady. As one might expect, organisations with greater annual revenues invest more heavily on average and are slightly more likely to plan investment increases.
The surveyed organisations are deploying many different kinds of XaaS, either within selected departments or across their organisations (figure 6), including software-as-a-service (90% use it today), platform-as-a-service (84%), infrastructure-as-a-service (83%), cybersecurity-as-a-service (81%), hardware-as-a-service (79%) and advanced/emerging technologies as-a-service (72%). (For definitions, see sidebar, “What is XaaS?”) Near-universal adoption of these types is expected within the next two years. While not yet as widely used across organisations as the other types, advanced/emerging technologies as-a-service (for example, AI-as-a-service and IoT-as-a-service) represent significant and growing markets.23
To obtain a more granular view of how XaaS is utilised, we asked the surveyed IT professionals to tell us how they run their organisation’s workloads. Across a wide range of enterprise workloads, about eight in 10 say they tend to run them as-a-service, or as an even blend of traditional IT and as-a-service IT (figure 7). Financial systems are the sole area where over one-quarter (26%) say they still tend to run them more as traditional IT. Workforce productivity and collaboration systems are the most likely to run as-a-service: Forty-seven percent of respondents say they run those workloads more often as-a-service—followed closely by customer relationship management and mobile, both at 46% and enterprise resource planning at 45%.
Organisations are embracing the XaaS model. The professionals we surveyed are more than twice as likely to view XaaS as better than traditional IT across a wide range of IT attributes: advanced features and functionality, reliability and performance, ease of management, ease of obtaining the right IT skills to deploy/manage, data security and customer experience (figure 8). Remarkably, organisations prefer XaaS 3.3 times more than traditional IT for providing advanced features and functionality. With service-based IT, companies need not endure long procurement and installation cycles to test and use the latest advancements.
What has propelled XaaS into a favored model for purchasing and consuming IT? Adopters are targeting—and largely achieving—dual goals: increased operational efficiency and enhanced business agility (figure 9).
Operational efficiency remains a strong motivation for XaaS adoption. Top objectives include flexibility—the ability to quickly scale IT capacity, operations and associated costs up or down as needs change, increased workforce efficiency and ease of deployment. As service providers take on more responsibility for IT installation, upgrades and maintenance, an organisation can free up its own IT staff to work on higher-value tasks.
But organisations aren’t merely focussed on process improvement—they’re using XaaS to advance their business agility. Leaders’ No. 3 and No. 5 XaaS objectives are “access to cutting-edge features/technologies” and “accelerated innovation.” With providers pushing out regular updates to their services and making the latest technologies available, users can more easily access and start using leading-edge capabilities. In fact, 82% of our respondents agree that XaaS has accelerated experimentation by allowing their company to rapidly try out and evaluate new solutions. And recall from figure 6 that 72% of respondents already use advanced or emerging technologies as-a-service. Looking deeper, we learned that 66% use IoT-as-a-service and 53% use AI-as-a-service, many of them via cloud. Rather than take on the risk and cost of buying complex new technologies and hiring rare expertise to deploy and customise solutions, organisations can leverage the investments and know-how of savvy technology companies and get a jump-start on innovating their own products and services.
Consider how cloud-based computing and AI services have played a starring role in combatting COVID-19. A team of scientists at an Australia-based biotech firm used cloud-based AI and supercomputing to model the coronavirus spike protein and rapidly develop a vaccine candidate, progressing from design to human trials in just five months—a process that usually takes up to 15 years.24 The research group has used the same cloud-based supercomputing programmes to model multiple coronavirus proteins in 3D and rapidly screen existing drugs for possible effectiveness against them, identifying up to 80 potential drug treatment candidates. Cloud-enabled Al is helping combat the pandemic in other ways as well: Researchers are using machine learning to de-identify patient data at scale, so that it may be used for research; natural language processing, sentiment analysis and machine learning are used to analyse calls to health care call centres and automatically prioritise them based on urgency; and predictive analytics services are being used to better understand the medical supply chain and predict shortages before they happen.25
XaaS is delivering on the promise of both operational efficiency and business agility, with about half of adopters reporting they’ve “significantly achieved” each goal and another 40–47% reporting they’ve “somewhat achieved” each. One outcome that lags a bit behind the others is reduced costs, with only 44% of adopters reporting they’ve significantly achieved this. Interestingly, however, cost reduction has dropped in importance, from the No. 4 goal in our 2018 survey to nearly last in 2020.
The boost XaaS can give to innovation is wide-ranging: Eight in 10 agree that adoption of XaaS has led their organisation to reinvent business processes, develop new products/services, invent a new business model and even change how they sell to customers—and for each of these, a bit more than a third strongly agree.
With these dramatic impacts, it may be no surprise that six in 10 adopters say they’re gaining competitive advantage through their use of XaaS—and that one-quarter report their lead is “significant.” But with XaaS rapidly becoming ubiquitous, adopters may have to work harder to differentiate themselves.
Continually monitoring the market for new and innovative XaaS solutions appears to give adopters an advantage: Thirty percent of them say XaaS helps their organisation establish a “significant lead,” versus 19% of organisations that aren’t keeping up with new developments. For example, edge computing—which combines hardware, connectivity and artificial intelligence—is a relatively newcomer to XaaS.26 Of course, keeping up with new tools and capabilities is just a start and utilising them is critical to stay ahead of the game. Twenty-seven percent of enterprises that use advanced or emerging technologies as-a-service (in select departments or organisationwide) say XaaS helps them carve out a significant lead, versus 19% of companies that aren’t using them. This advantage also holds when we look at specific kinds of advanced technologies (figure 10).
Despite enthusiastically embracing the XaaS model, 93% of adopters report challenges scaling up their XaaS efforts. Chief among them are concerns around data security and privacy, inadequate IT skills to deploy and manage XaaS, concerns about unpredictable costs, and difficulty integrating with other systems; these surpass challenges relating to regulatory compliance, product features, vendor-related problems, migration strategy and accounting (figure 11).
It’s worth noting that data security, integration and cost also topped the challenges list in 2018. The persistence of these issues, combined with the concern about lacking the right internal IT skills, suggest that relationships with XaaS providers deserve to be strengthened. Organisations may need to engage more meaningfully with their vendors to address issues they have struggled to conquer alone.
When it comes to the overall experience of being an IT customer, there’s good news for XaaS: Fully 83% of adopters agree that XaaS has improved their customer experience (39% strongly agree). And a majority (53%) believe XaaS is better for their customer experience than traditional IT, while only 24% prefer traditional IT.
However, when it comes to specific relationships between customers and providers, it’s complicated. Our study reveals there’s work to be done to establish stable, long-term provider/customer relationships. Across the various kinds of XaaS used, only three in 10 adopters are satisfied to stay with their current XaaS providers, with the remainder open to exploring new relationships (figure 12). That doesn’t necessarily mean that switching would be easy: Three-quarters agree that data portability issues make it difficult for them to switch from one XaaS provider to another even if they want to (30% strongly agree).
While 83% of adopters believe their XaaS providers are committed to helping them achieve successful business outcomes with their solutions, only four in 10 strongly agree—which suggests there’s plenty of room for providers to focus more intently on helping their customers be successful. With so much potential to lose existing customers to pastures perceived as greener, it’s essential for XaaS providers to critically examine how they can better address customer needs and differentiate themselves. And adopters—some of which may feel stuck between vendor discontent and switching hurdles—also have an interest in improving their existing relationships.
What are XaaS adopters seeking? To establish and maintain long-term relationships, organisations most want providers to guarantee reliability and performance (for example, uptime and responsiveness), offer integration with other XaaS solutions, help optimise their utilisation (that is, help them understand the full solution, prevent underutilising services and suggest additional or alternate services) and provide strong data security/privacy safeguards (figure 13). Furthermore, they’d like providers to offer easy-to-access innovation services. It’s clear that adopters are getting less help than they would like: At best, only four in 10 report being extremely satisfied with their current vendors’ ability to provide these attributes. This is likely a major reason why adopters are so willing to entertain switching.
This “relationship wish list” should spark déjà vu: We’ve seen that data security/privacy concerns and integration difficulties are among the top challenges to XaaS adoption. And another top challenge—cost—is intimately related to optimising utilisation: To control costs, customers want to ensure they’re not paying for services they don’t know about, don’t need, or don’t know how to use. A recent Flexera cloud study reported that 56% of organisations find understanding the cost implications of software licensing for the cloud challenging and that, consequently, their cloud spending outruns budgets by an average of 23%, with 30% of their cloud spending “wasted.”27 In our survey, we asked organisations what percentage of the capabilities of a purchased XaaS solution they typically use and the results were startling: More than four in 10 companies use less than half of the capabilities of their XaaS solutions and only 23% use three-quarters or more (figure 14). That’s a lot of potential functionality lying fallow—and a great opportunity for savvy providers to show their customers how to get more value out of a solution.
Eighty-two percent of adopters agree their organisation could achieve better outcomes if their XaaS providers behaved more as consultative partners.
There’s clearly work to be done to reimagine and develop mutually beneficial, value-based relationships between XaaS providers and adopters that are consistently focussed on customer success.28 Adopters want vendors that will work with them to address their challenges—particularly around integration, optimisation and data security. Moreover, two-thirds of adopters indicate their XaaS providers could do more in these areas:
• Regularly advise them about how to improve use of their services—for example, remind them of functionality they’re not using or suggest additional or alternate services
• Continually improve services based on what they learn from an organisation’s usage
Indeed, 82% of adopters agree their organisation could achieve better outcomes if their XaaS providers behaved more as consultative partners; 34% strongly agree.
The enterprise IT landscape has been shifting to XaaS for quite some time and the transition is being accelerated by changing IT and workforce needs brought on by the pandemic—effects that may be with us for the foreseeable future. Adopters believe service-based IT helps them achieve both workforce efficiency and business agility, including easy experimentation with advanced technologies and accelerated innovation. For many, these advantages provide a competitive edge—one that may prove harder to keep as XaaS becomes ubiquitous. Our study makes it clear that many adopters are still grappling with challenges and looking to their service providers for help. Building deeper, consultative partnerships dedicated to customer outcomes appears critical to forging greater success with enterprise IT as-a-service.
We’ve seen that enterprise IT is increasingly becoming an XaaS world and that embracing service-based IT confers many business benefits. However, organisations still face hurdles to scaling up as-a-service efforts and stronger, outcomes-focussed partnerships between adopters and providers may help unlock greater value for both parties.
Deloitte has guided myriad companies through the transformation to XaaS models. We have deep
knowledge of consumption-based business models and their challenges and we can help you think through the implications of the business decisions you will need to make as you transition to a
pay-per-use model. At the same time, a holistic customer success strategy enables organisations to shift to a customer-centric mindset for succeeding in the XaaS world, resulting in satisfied
customers who drive long-term growth and profitability. Deloitte’s approach is focussed on helping
clients think through the model, capabilities, metrics, customer insights and tools required to
operate a successful customer success strategy.