In today's rapidly evolving technological landscape, the traditional boundaries of technology products and services are being transformed by XaaS – or "Everything-as-a-service" – business models. XaaS now serves as the preferred consumption model for software and tech-enabled applications. XaaS refers to the delivery of various offerings over the internet for a recurring subscription fee. Common XaaS examples include Software-as-a-Service (SaaS), Infrastructure-as-a-Service (IaaS) and Platform-as-a-Service (PaaS). XaaS model provides several benefits for both customers and vendors of technology. Customers enjoy lower IT costs, higher levels of flexibility and scalability, and faster access to advanced technology. Vendors, on the other hand, benefit from increased revenue predictability, stronger customer relationships, and faster time-to-market.
Successful XaaS transitions can bring significant valuation increases for enterprises. While enterprises start their XaaS journey with product transitions, it is only one part of the transformation. Realizing full potential of XaaS can require a complete a business and operating model change for enterprises. At AlixPartners, we help clients across industries complete XaaS transformation through assessment, careful planning and disciplined execution with a focus on profitable growth.
Our expertise
XaaS is one of our key transformation pillars in the tech industry. We recently conducted a detailed XaaS business model transformation study from which we derived the following key insights:
PACE OF CHANGE:
It typically takes 4 to 6 years for a XaaS transformation, depending on the starting point.
However, given that many competitors are already operating full XaaS models, there is a growing need for enterprises to accelerate their own XaaS transformation.
VALUATION IMPACT:
Revenue multiple increases from 2x-4x of revenue to 5x-7x after a successful XaaS transformation.
Despite lower valuations in 2023, profitable XaaS companies have continued to outpace the market.
RECURRING REVENUE:
Valuation multiples tend to maximize after the transformation achieves 80%+ revenue rotation to recurring revenue (ARR).
Faster pivot to recurring revenue can accelerate enterprise valuation.
REVENUE GROWTH:
Valuation increase is highly correlated to continued revenue growth post transformation.
XaaS transformation must enable market expansion and growth, after initial slowdown due to changes in revenue recognition.
EBITDA MARGINS:
XaaS transformations need to maintain steady or improving EBITDA margins to end with increased valuation.
Successful transitions can improve EBITDA margins by 2 to 3% on average through operational discipline and efficiency improvement.
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