Business models and SaaS: 2023

How innovation in business model design is driving growth strategies

“Business models and SaaS: 2023” We live in a digital age with 2.5 billion bytes of data generated each day. This data explosion, coupled with the shift to cloud-based technology, is generating business model innovation, leading to greater resilience, competitiveness and growth for organizations.

The average business model’s life span has decreased from 15 to five years in the last 50 years. Organizations must be flexible and adaptable to changes in technology, market trends and customer expectations to survive in this fast-paced environment.

The success of an organization depends on the ability to implement new  to these changes. Innovation in the business model can lead to additional revenue streams, market share expansion, and increased profitability. Unexpected and surprising benefits are also possible.

What is a business model? What is business model innovation?

Business models are the foundation of how a company creates and delivers value. There are many dimensions to business models. They include key offerings, target markets, company resources and the business value chain. These are all important components in driving company growth strategies.

Business model innovation occurs when existing models are altered, or new ones are created. Often triggered by advances in technology and digitization, new business models such as “everything-as-a-service” or “anything-as-a-service” (SaaS) and subscription-based and are undergoing rapid adoption to help support the business’s strategic vision and ultimate success.

Amazon is a classic example of innovation in business models. The company launched as an online bookstore in 1995. It soon began offering other services, such as free shipping and Super Savers. The company’s growth included cloud computing (Amazon AWS), eBooks and streaming services (Amazon Music and Amazon Video) over 10 years (2005 to 2015). In 2015, the company’s market capitalization had surpassed that of Walmart. Amazon created or modified new business models for its strategy every time it expanded its product or service offerings

Today’s business model innovation: SaaS, the rise of subscription-based models and business models

Based on the industry and business strategy, many factors influence how businesses operate and what kind of innovation occurs. Businesses are always innovating to provide customers with new products and increase revenues. New parents may subscribe to reusable diapers instead of purchasing disposables. Rolls-Royce offers engine maintenance and replacement services for business jets. Automotive companies also offer car subscriptions and parcel delivery as a service.

The examples above mirror the growing trend towards implementing “everything-as-a-service” – or SaaS – and subscription business models, a popular type or form of XaaS. These digital business models result from product/service digitization and the global shift towards cloud-based technologies.

These terms are important, and here are their basic definitions:

• What’s everything as service? This is what SaaS means. It refers to software as a Service (SaaS), platform and as a Service (Paas), infrastructure and as a Service (IaaS), but it isn’t limited to the tech industry. Everything is now available as a service.
• What is a subscription– Based business model? A subscription-based model is a type of SaaS where customers subscribe to products or services on an ongoing basis. It’s similar to renting. This model generates recurring revenue either monthly or annually for the business. This model focuses on customer retention rather than acquiring to increase the lifetime value (LTV). 
• Other types of SaaS include monetization based upon the volume of usage – also known as the outcome – as both fixed- and variable-price approaches.

Why is the subscription business so popular today?

“Business models and SaaS: 2023” Subscription-based models are growing due to several factors, including digital and cloud technology advancements. Selling as a service is much more lucrative. Apple was a hardware seller when it first entered the market in the 1970s. The company launched its first service, the App Shop, in 2008, selling third-party apps for its iPhone and iPod Touch. In 2019, the company’s services business had a gross margin of 63.7%. This is almost double its product division which had a 32.2% margin.

A subscription-based model also provides companies with predictable revenue that is stable and predictable, which is particularly important during periods of uncertainty, such as a pandemic.

Third, the customer perspective makes sense for those who are sensitive to capital spending or are reluctant to make large capital investments. Service-based models eliminate the need for companies to make large investments during turbulent times and allow them to access new products and services at a low cost. This can be a huge advantage for small and medium-sized businesses, allowing them to access new tools that will help them compete and grow.

Examples of business model innovation and the SaaS

Manufacturing is a good example of the shift towards SaaS, also known as “servitization”. Manufacturers will currently offer access to their product versus marketing them (SaaS), bundled with associated services like maintenance and repair (subscription-based). Manufacturing companies all over the globe are now adopting SaaS models.

Benefits of SaaS

“Business models and SaaS: 2023” It is crucial to diversify and adjust business models to meet current market conditions. While there are obvious benefits for businesses, there are also surprising benefits that SaaS could offer to consumers. These advantages could have an even greater impact on how they make products and services and interact with customers.

These are the main benefits of SaaS subscription models for businesses:

• Growth through new markets and revenue streams
• Greater predictability and greater profitability
• Increased resilience and competitiveness
  

  

The benefits are clear from the customer’s perspective:

• Products and services with greater variety and better quality
• Customers and consumers will enjoy lower costs
• The shared risk with the service provider means lower risk
• Operation predictability and performance guarantees are more reliable

A broader view of the matter is that the transition to SaaS, and the servitization of products, can encourage a circular economy – particularly in the manufacturing sector. This sector sees a shift from creating products at a particular time to the continued usage of those products over a longer period. This shift in focus emphasizes quality, durability, maintenance, disposal, or recycling of the product.

“Business models and SaaS: 2023” Manufacturers will be able to ensure compliance and minimize energy consumption and carbon emissions by having greater ownership over their assets for a longer period. This also encourages the reuse of products and materials and recycling. This could even lead to new opportunities. This is a great example of how sustainability can make business sense in the electric vehicle industry.

Selecting the right business model strategy

Business models are different depending on industry and business strategy. There is no one-size-fits-all approach. Instead, consider your company’s unique needs and the growth strategies you plan to implement.

Common considerations include:

• Technology: Is the existing infrastructure capable of supporting the strategic vision for the company? Innovation in the business model requires connected products that can be connected digitally and even sensor-equipped.
• Data: Are your data centralized or distributed? Advanced data modeling and predictive capabilities are key to business model innovation.
• IT infrastructure: Is your IT core robust and flexible enough to share data across the value chain to support a range of models such as information technology/operational technology (IT/OT) collaboration?
• Pricing and Packaging: How sophisticated are your pricing and packaging models? These will need to be modified to accommodate a new business model.
  

  

Organizational support is also important. Innovation in the business model requires that the company and its stakeholders change their long-held business views. How easy will the company adapt to a customer-centric rather than product-centric business model?

Also, the business will have to change from a one-time (usually CAPEX) financial model to a recurring and OPEX model. This will impact compensation, margins, reporting, and other aspects – especially for sales. Will all departments support these changes, or will it take extra effort to get everyone on board? Do you have strong business relationships with partners who are open to collaboration?

Where to start when it comes to technology and business model innovation

“Business models and SaaS: 2023”  It can be difficult to know where to begin when trying to innovate your business model, especially if you already have a business with many customers, revenue streams, stakeholders, and other stakeholders.

Starting with a solid foundation using an intelligent cloud-based ERP system with embedded AI (AI) or machine learning is important. It would be best if you are looking for a system with the following capabilities:

• You can easily manage multiple contracts, which include different types and prices.
• Easy to create and implement subscription and regular billing models
• Recognize and settle revenue

Flexibility and adaptability are key features of an ERP system. They should be able to support contract changes such as price and contract duration. These billing capabilities are included in a good ERP system. They can also be added to an existing ERP system or licensed separately.

As your business model strategy matures, you can create additional revenue models like bill-based billing. Smart, connected products are required to facilitate the sharing and flow of data. This requires a collaborative asset network that allows data and processes to be shared.

Conclusion

In an age of increasing automation and artificial intelligence, choosing the best delivery model for your business is crucial. While public services such as Google Cloud may meet certain of your requirements, private cloud services provide better security and function.

SaaS offers many benefits to any size company, but it’s especially useful for small and medium-sized businesses cautious about their capital expenditures and finances. If your company uses IT services, SaaS can be a great choice.