As the services industry begins moving into the as-a-service era customers look for providers that change their traditional services to make them elastic or consumption based. We at Everest Group have spent some time studying this, and we believe there are three key ways to change take-or-pay (fixed costs oriented) services and make them elastic (pay as used). One or even a combination of all three ways are present in the services model that customers now demand.
1. Multitenant sharing
Customers benefit from a provider sharing its capacity among multiple clients. AWS and Salesforce are classic examples of this elastic type of service. They redeploy servers or capacity when not in use to other customers and therefore achieve an extremely high utilization rate. In fact, arguably, AWS has over 100 percent utilization rate because it can charge customers for capacity when they’re not using it, yet can use that capacity for other clients. The model is much like an airline selling more seats than its actual capacity.
Repeatable process automation (RPA) or robotics spins up a virtual robot to do the work and then shut it down again. This fundamentally aligns a customer’s costs with usage and thus makes the service elastic.
3. Change purchasing method
The third way customers can have elastic services is to change their purchasing so that they only buy services as they use them. An example of this would be changing the way a customer acquires software, switching from enterprise licenses to consumption-based licenses where the customer pays for the software only as they use it. A note of caution here for customers: Although this makes the service elastic to you, there may be a stranded cost to your provider, and that cost may be embedded at a higher cost to you in your cost structure. So be careful about overly using the purchasing mechanism to make a component of your IT service stack be elastic.
Although customers can use these three methods separately, it is also beneficial to look for service providers that use a combination of all three methods to make a material difference to an entire service line to make the service far more flexible and consumption based to meet your needs.
We have not uncovered other mechanisms to make a provider’s service line elastic, but we are very interested to know if you have discovered another way to achieve elastic services. Please post your comment and share your experience.
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