The Empire Strikes Back in the Services World | Sherpas in Blue Shirts

I’ve been blogging about the changing world of services and how the growth is in the SaaS and BPaaS space. However, capturing SaaS and BPaaS opportunities is incredibly frustrating for large service providers, especially incumbents. Their efforts to win these deals often end up like David defeating Goliath.

That’s because, for the most part, customers select the new players in the SaaS and BPaaS space, like Salesforce and ServiceNow, instead of existing providers. This is similar to where we were in the dot-com era with startups threatening to sweep away the traditional players. Why is this happening?

Two frustrating challenges for providers

First, SaaS and BPaaS tend to originate in SMB markets, which is not where the revenue is for the large incumbent service providers; large enterprises adopt SaaS and BPaaS as point solutions. As point solutions, SaaS and BPaaS hold relatively modest opportunities for large providers’ growth and revenue.

Secondly, SaaS and BPaaS offerings are based on a different business model. The as-a-service business model requires a complete rethink of traditional service providers’ delivery systems. This forces providers to move to either a multitenant environment with all the implicit change management issues for clients, or to an automated vehicle that is likely still in the early stage.

Like the Star Wars movie saga, the empire will strike back

At Everest Group, we believe that now, as happened in the dot-com era, the empire will strike back. We think the way this will happen is through switching to an Enterprise IT-as-a-Service model. Borrowing from the Star Wars movie, we believe the dominant providers will strike back and reassert their role in services.

Instead of coming at IT services from a point solution and multitenant environment like SaaS and BPaaS, Enterprise IT-as-a-Service moves the entire service supply chain, component by component, into an as-a-service model. Rather than trying to have the entire supply chain operate on a single platform, it allows enterprises to migrate the individual components – data center, platform, talent factory, software licensing, etc. – into a supply chain model with components aligned with service lines.

Not all providers will be able to make this change, but those that do will be able to flourish and reignite their growth. The Enterprise IT-as-a-Service model favors large incumbent providers over startup SaaS and BPaaS providers.

SaaS models are most robust in SMBs. In the large enterprise, they manifest as point solutions, thus breaking the Dillinger principle – you rob banks because that’s where the money is. Service providers go after large deals in large enterprises because that’s where the money is.

Increasingly, the investment thesis on Wall Street favors the SaaS and BPaaS providers and rewards them with higher valuations because of their potential to disrupt industries. But we think the empire has a good chance of striking back. Traditional providers’ existing knowledge of the enterprise environment and ability to orchestrate the entire supply chain through the Enterprise IT-as-a-Service model will be favored over the SaaS and BPaaS players entering the market.

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