Analysis: XaaS is a slow burner

The provision of business process and application functionality via
a hosted multi-tenanted delivery model, nowadays widely referred to as
the “as-a-service” delivery capability or XaaS, straddles both software
product and IT service business models, says Dr Katy Ring of analyst
firm Bathwick Group.

No single type of company really has much of
a heritage in supplying this capability to enterprises. A handful of
pure-plays, such as Salesforce.com have the most experience, but even
they can see the need to partner with IT services channels to deliver
integration and professional service capabilities. Vendors such as HP
and IBM might appear perfectly positioned in that they own both
software and service businesses, but they still have to get the
business models and sales channels aligned internally. In sum, XaaS is
in many ways a Year Zero proposition for vendors as they evolve their
businesses to accommodate its growth. It will require new business
processes and structures on the part of the vendors and new approaches
to IT procurement, budgeting and planning by enterprises.

The adoption of XaaS delivery will evolve steadily over the next
decade, becoming mainstream in a few areas but taking much more time to
dominate in others. Consequently, although XaaS (embraced within the
current Cloud Computing zeitgest) is the IT industry’s poster child for
the global recession, uptake will be less dramatic than many
commentators suggest as the market makes sense of the best ways to
consume and pay for different types of IT.

Indeed, I believe many people are actually looking in the wrong places
for evidence of the “paradigm shift” in IT consumption to XaaS. This is
probably because the web-enabled multi-tenanted model first came to the
industry’s attention in the late 90s under the tag application service
provider (ASP). And since then the focus has been on provision of
business applications as-a-service.  Over the past decade, both Oracle
and SAP have sought to develop the model at a pace that suits their
licensing revenue recognition and share-prices. And, during that time,
the success of pure-plays such as Salesforce.com and NetSuite has kept
that focus on the business application market. But actually, the real
growth for XaaS has been in the steady adoption of infrastructure
as-a-service on the one hand in areas such as server hosting, storage
and, most recently, workplace services and business process platforms
within BPO contracts on the other. Indeed, Bathwick is of the opinion
that enterprise business application suites will be one of the last
areas where XaaS will become a mainstream delivery proposition.

However, adoption of XaaS delivery is particularly interesting at the
moment because it moves IT budget discussions from a capital
expenditure to an operational expenditure conversation. This is because
the model frees up cash in the short term as there is minimal up-front
investment requirement, and, consequently, it provides access to new
technology and technology refreshes that may be unavailable to
companies otherwise. Niche business application areas required to
support new organisational strategies may well be mired either in a
capital expenditure freeze or in the complexities of bringing an
acquisition into the fold. These are good areas to introduce in which
to consider introducing an XaaS approach to business application
delivery. So do think beyond the major application vendors as there is
probably an XaaS solution for most areas of IT functionality but it may
well be provided by a small pure-play ISV. However, if you already have
a good set of outsourcing relationships, your service providers may
well be interested in working with you to deliver the functionality you
require via this model, acting either as a service aggregator, or
providing the functionality themselves. It is certainly worth
discussing, as many IT service providers are currently building out
their XaaS portfolios.

For example, BT is not yet a major player in the enterprise SaaS market
but it is developing offerings for this market and the approach it is
taking is to blend the infrastructure layer provided as a service, with
a business process utility play. Consequently, during 2009 it will be
entering the enterprise market with a business process platform
offering. The company’s BT Mosaic platform delivered as a service in
the Media and Broadcast sector is one of the first of these solutions.
Customer references are already available for BT Mosaic with ITV
providing a case study:  ITV opted for BT Mosaic because as a managed
service because, “it mitigated both the high cost of building a bespoke
solution and the inherent challenges of making disparate technologies
work together effectively."

BT is currently trialling services to
assess service consumption patterns in other sector-specific areas and
will have cost-benefit analyses by year end.

If you are
interested in joining the trials BT is looking for: large
multinationals with an understanding of the business process to be
addressed (one that is supported by non-core applications), and that
are open to trialling these apps in a BT hosted environment. For more
information contact: BT’s John Gillam or Neil Lock.

Dr.
Katy Ring is a Principal analyst with the Bathwick Group -
www.bathwick.com, developing Bathwick’s new Global IT Services research
programme. Highly regarded internationally as an analyst with
insightful and challenging views on the development of the IT services
market, Dr Ring has been in the IT industry for 21 years. During this
time she has been engaged to review European business strategies in the
outsourcing and managed services markets working with small executive
teams in both vendor and end-user organizations. Dr Ring has also
written dozens of reports on the IT software and services markets on
topics including: Remote Infrastructure Management, SOA, On Demand
service delivery, Software as a Service and Hosted Services.

Dr Ring holds two degrees: an Honours degree in politics, philosophy
and history from the London School of Economics and a PhD in the
popularisation of science from the University of Kent at Canterbury.