Digital technology has fundamentally changed the way business engages with customers. It allows a continuous connection, which transforms both the relationship and the nature of what is delivered.
We call this The XaaS Effect because the phenomenon first emerged in the IT industry. XaaS (pronounced X-ass) became a catch-all acronym for the various forms of IT that can be delivered as a service — Software-as-a-Service (SaaS), Infrastructure-as-a-Service (IaaS), even Disaster-Recovery-as-a-Service (DRaaS). But its impact today spreads far beyond IT into every industry, and XaaS stands for Everything-as-a-Service.
Continuous digital connection
Before we all became connected by modern digital technology, time and distance separated businesses from their customers, creating an invisible wall between the two. Customers would place orders or sign contracts, and the business would deliver their products and services in response. But for businesses, the process was rather like throwing your wares over a wall — you hoped nothing came back, because that meant you had a problem. If all was well, you rarely heard back from the customer until the time came to reorder. If things were OK but not great, you might lose the customer next time but never know the reason why.
Creating a digital connection between a business and its customers transforms this relationship, breaking down that invisible wall and replacing it with a continuous channel of interaction, as shown in the graphic above.
Software vendors were the first to discover this when they started using the Internet to deliver Software-as-a-Service (SaaS) at the turn of the century. At the time, most people believed this was just a different way of delivering the same product at lower cost. The hidden XaaS effect of that continuous digital connection between the business and its customer only became evident as the software vendors began to evolve their products in response to this new environment.
Engage, monitor, improve
What these SaaS pioneers discovered is that continuous digital connection enables a three-stage virtuous cycle, which iteratively adds new value to the relationship over time:
- Engage. The customer is directly connected to the business every time they use the product or function.
- Monitor. The business can see how all of its customers are using its products or services, and proactively fix any problems.
- Improve. The direct connection allows the business to update its software or offer new capabilities.
So instead of throwing a product out into the market and only realizing there's a problem when it starts coming back — or never knowing until one day the customer stops returning your calls — a digital connection makes it possible to spot problems and fix them right away. This fundamentally transforms how businesses operate and engage with their customers. Instead of merely focusing on throwing as many products as possible across that invisible wall, businesses shift their attention to the customer experience and helping them achieve better outcomes.
This is better for businesses, because it's a more efficient way to build better products and services, and deliver them faster to their customers. And it's better for customers, because businesses are more engaged in ensuring they continue to get value from the products and services they're paying for.
At the heart of the XaaS Effect
What was true for software is now proving equally relevant to all kinds of other products and services as they become connected, from elevators to insurance, and from home heating to earth moving. We discuss many real-world examples in our newly published diginomica d·book The XaaS Effect, now available as a free download. But if you just want know the essence of what it's all about, then the graphic at the top of this article sums it up.
The heart of the XaaS effect is this virtuous cycle that emerges when businesses create a continuous digital connection to their customers, and then harness it to iteratively engage, monitor and improve the customer experience.