Successfully navigating the XaaS buyer journey (identify, land, adopt, expand, renew) creates significant challenges for both legacy and relatively new tech firms. Established tech companies must evolve, often by abandoning traditionally successful practices that would ultimately hinder revenue growth in a XaaS environment; newer, “born-in-Cloud” companies must focus on expediently driving to scale and profitability in their go-to-customer capabilities and the supporting operations and enablement. Both challenges are particularly daunting in the midst of increasing competition and empowered customers. Alexander Group has identified five core challenges facing the tech sector that winning organizations must address to not only survive, but thrive in 2018.
Challenge 1: Lowering Cost-of-Customer Acquisition
In the modern tech environment, customers are much more empowered with information. Tech buyers increasingly utilize social tools and personal networks to gather information prior to seeking out a seller. XaaS has triggered a revolution in customer buyer behavior as a more diverse set of line-of-business buyers become relevant prospects and targets in addition to traditional IT buyers. Also, customers increasingly want to experience products and solutions in their own environments prior to making a full purchase commitment.
Challenge 2: Building an Enhanced Revenue Growth Engine
According to AGI research, only 18 percent of a company’s five-year revenue is recognized at initial booking of a XaaS sale. Even if a subscription contract is guaranteed at signing (and especially if the commitment is variable or consumption-based), the vendor must devote resource and attention to driving adoption, renewal and expansion in a XaaS environment to monetize the value of subscription deals. As barriers to exit and solution-switching decline, tech companies must be more vigilant in driving continuous, quantifiable business value to customers. The days of “ship it and forget it” are over.
Challenge 3: Leveraging Channel Partners
As described in Challenge 2 above, tech vendors must establish a more substantial post-sales presence with customers to grow subscription revenue. This enhanced post-sales vendor footprint causes disruption of traditional relationships between vendors and partners.
Challenge 4: Getting Acquisitions Right
The emergence of XaaS has accelerated the already robust pace of acquisition in the technology space. Legacy vendors frequently choose to acquire emerging competitors rather than organically building competitive solution adjacencies. The rapid pace of acquisition creates its own set of challenges for vendors.
Challenge 5: Navigating ASC 606
One of the most important changes to the technology industry slated for 2018 is the movement to ASC 606 FASB regulations for the recognition of revenue and cost associated with recurring revenue service contracts. As ASC 606 takes hold, Alexander Group increasingly assists clients in determining the impact of ASC 606 on both coverage and compensation of marketing, sales and services resources.
While it is evident that 2018 holds great promise as a high-growth year for XaaS companies, the competition for mindshare and relevance has never been more fierce.
Grappling with the five challenges will be a key determinant of success or failure for tech vendors navigating this changing environment.
The experts at the Alexander Group can help tech organizations of any size grow market share and top-line revenues by harnessing the power of effective go-to-customer coverage and compensation. Contact a Technology practice leader.
Subsequent articles in this series will discuss the challenges in details, as well as the implications for revenue leaders, sales organizations and tech companies in general.
Read Part 2 in this series.