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As a service …..Ask the Expert webinar: January 5th 2017

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What is ‘as a service’?

Service Abbr.

Data as a service DaaS

Desktop as a Service

Energy Storage as a Service ESaaS

Function as a Service

Infrastructure as a service IaaS

IT as a service

Logging as a service LaaS

Mobile backend as a service

Network as a service

Payments as a service

Platform as a service PaaS

Recovery as a service

Robot as a service

Search as a service

Security as a service

Software as a service SaaS

Storage as a service

According to Wikipedia, as a service refers to something being made available over the internet to a customer as a service. Examples include:

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Why is ‘as a service’ taking hold?

►A logical extension of supplier responsibility for the delivery of results or outcomes

►A source of competitive difference / commercial innovation; an escape from ‘commoditization’

►An inevitable corollary to continued outsourcing and customer dependency on its suppliers

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January 5, 2017

Emerging Themes in Enterprise ‘As-a-Service’ Contracting

™

Stanton Jones, Research Director & Principal Analyst

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Defining the As-a-Service Market

Source: Q2 2016 ISG Index

Market Size in PerspectiveAs-a-Service vs. Traditional Outsourcing Market Size billions

550+

$100M+CoRevs

17% with

< $100MCoRevs

83% with

Across Functional Domains

leading SaaS Providers

The ISG SaaSMarket Basket

The ISG IaaSMarket Basket

Nearly 30leading

IaaS Providers

carriercloud firms

co-location firms

public cloud infra providers

IaaS$24

SaaS$51

Outsourcing$114

CombinedMarket

40%

$189

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As-a-Service vs. Traditional Outsourcing Markets

Source: Q2 2016 ISG Index

Comparing Global Outsourcing and As-a-Service ACV ($B)

The global SaaS and IaaS markets are trending upward with Infrastructure building at a more pronounced rate; Americas leads in As-a-Service growth.

Regional As-a-Service ACV ($B)

36%30%

24%19%20%

2Q161Q4Q3Q2Q151Q4Q3Q2Q141Q

$5.1 $6.1

$6.9 $5.5

$6.1 $5.1

$6.8 $5.8

$6.9 $6.6

$2.8 $2.6 $2.4 $2.3 $2.0 $1.9 $1.7 $1.6 $1.6 $1.7

2Q161Q164Q153Q152Q151Q154Q143Q142Q141Q14

Outsourcing ACV Global As-a-Service

Americas$1.8

EMEA$0.7

AP$0.4

2Q162Q152Q14$0.0$0.3$0.5$0.8$1.0$1.3$1.5$1.8$2.0

As-a-Service as a % of Combined ACV

As-a-Service ACV ($B) by Type

$1.0 $1.0 $0.9 $0.9 $0.9 $0.9 $0.8 $0.8 $0.7 $0.7

$1.8 $1.6 $1.5 $1.4 $1.1 $1.0 $0.9 $0.8 $0.9 $1.0

$2.8 $2.6 $2.4 $2.3 $2.0 $1.9 $1.7 $1.6 $1.6 $1.7

2Q161Q164Q153Q152Q151Q154Q143Q142Q141Q14

Global SaaS Global IaaS

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As-a-Service Barriers to Adoption

While as-a-service markets are growing quickly, significant financial, contractual and operational barriers still exist – many of which are a surprise to buyers.

RealityBuyer Expectation

Cheaper than on-premises

Contract will be on buyer’s paper

“Try before committing”

Transition assistance

Scale up and scale down easily

On-site security audit & pen testing

Dictate data location; no changes

Traditional benchmarking

Negotiate price

May be more expensive

Contract on supplier paper

“Commit then try”

Self-service data exports

Depends on delivery model

Rely on 3rd party audit(s)

Changes; customer can limit to region

Transparent pricing

Manage consumption

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Theme #1: Key Terms

► Summarized Question: Based on the adoption of As-a-Service offerings at your company over the next three years, please indicate which contract terms will become more important over the next three years. Preliminary results are showing that service levels and warranties, price and price

changes, and performance guarantees will become increasingly important to as-a-service buyers over the next three years.

► Selected respondent commentary on key terms: “Suppliers will have to be more forthcoming than they have in the past; it isn't just

about cost any longer.” “Pricing needs not to be subject to inordinate supplier-initiated increases once it

believes it has secured the business.” “As traditional control is lost, customers will look for what controls they can use to

ensure their services.”

Price and performance guarantees are becoming increasingly important.

Source: ISG & IACCM As-a-Service Study 2016

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Theme #2: Key Benefits

► Summarized Question: Please indicate the top three benefits of As-a-Service. Preliminary results are showing that increased business agility, better alignment

between supply and demand and reduced capital costs are the primary benefits of As-a-Service.

► Selected respondent commentary on the benefits of As-a-Service: “Reduce the political weight of IT” “Simplification and immediate access to business data” “Focus on core competencies”

As-a-Service benefits are heavily weighted to the business, not IT.

Source: ISG & IACCM As-a-Service Study 2016

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Theme #3: Key Risks

► Summarized Question: Please indicate the top three risks of As-a-Service. Preliminary results are showing that data location and changes / discontinuation of

services are the key risks that concern as-a-service buyers.

► Selected respondent commentary on the benefits of As-a-Service: “Losing control of the contractual terms, performance monitoring, and valuable in-

house contract expertise” “Risk of supplier acquisition by hostile party” “Inadequate data protection and liability with supplier for data loss”

Data access, data location and service continuity continue to viewed as top as-a-service risks.

Source: ISG & IACCM As-a-Service Study 2016

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Theme #4: Risk Reduction

► Summarized Question: Please indicate the top three steps you take to reduce As-a-Service contract risk? Preliminary results are showing that inserting addendums (like security policies) and

avoiding moving sensitive data/IP are the primary ways that buyers are reducing as-a-service risk.

► Other selected respondent commentary on the benefits of As-a-Service: “We pay for additional encryption at various levels” “Drive for use of our cloud template, which disclaims applicability of supplier ‘click

agreements’“ “Limit term; reserve IP rights to company's requested modifications” “We secure very high level provider executive involvement in governance”

Although far from perfect, inserting addendums and avoiding sensitive data/IP are primary ways companies are reducing as-a-service risk.

Source: ISG & IACCM As-a-Service Study 2016

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Theme #5: People and Process

► Preliminary results show a near-even split between respondents that are: Formally analyzing the changes in people, process and technology that will be needed

in order to exploit As-a-Service offerings. Embedding contracting and commercial management staff into business units to help

them evaluate, negotiate and manage As-a-Service relationships. Using external experts (counsel, consultants, etc.) to help us evaluate and negotiate

As-a-Service contracts and relationships.

► However, preliminary results also show that a majority of organizations have NOT: Trained their staff on how to evaluate, negotiate manage As-a-Service relationships.

Contracting functions recognize the transformation, but have not yet trained staff to address the shift.

Source: ISG & IACCM As-a-Service Study 2016

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Theme #6: Signing Provider Agreements

► Summarized Question: What are the primary factors that would lead you to sign a supplier’s contract documents? Preliminary results are showing that improved business outcomes, decreased time to

execute business processes and better features/capabilities are the reasons that companies would consider signing a supplier’s contract documents.

► Summarized Question: What are the primary factors that lead you to sign the supplier’s contract documents? In reality, preliminary results are showing that pressure from executives or a line of

business is the dominant reason companies sign suppliers paper, followed by better business outcomes and faster processing time.

Gaps exist between why companies would (in theory) agree to sign a provider’s contract vs. why they actually did sign it.

Source: ISG & IACCM As-a-Service Study 2016

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Theme #7: Standardization, Cost and Benchmarking

► Preliminary results show strong agreement that: Effectively managing consumption of a service will become much more important

than negotiating the supplier’s price. Using standardized services will significantly reduce total cost of ownership.

► However, preliminary results also show a strong disagreement with the following statements: Given how standardized As-a-Service offerings are, benchmarking contract prices will

become much less important. Given how standardized As-a-Service offerings are, benchmarking contract terms will

become much less important.

Respondents feel that managing consumption will be more important, that TCO will improve, and that benchmarking will continue in importance.

Source: ISG & IACCM As-a-Service Study 2016

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Theme #8: Outcomes and Smart Contracts

► Readiness to contract on buyer’s business results. When asked about readiness to contract based on business results, preliminary

results indicate a large majority of respondents feel that neither they, nor their providers, are ready to contract based on their business results.

However, approximately 20% of respondents felt they were ready to build a relationship based on their business results, but providers were not ready.

► Defining a Smart Contact as, “An agreement whose execution is Automatable by computer, although some parts may require human input and control, and enforceable by either legal enforcement of rights and obligations or tamper-proof execution.”: Preliminary results are indicating that the primary focus will be on the automation of

contracts, from less than 20 percent today, to over 40 percent in 2020.

Respondents are generally interested in business outcome related contracts, but don’t feel that they, or their providers, are ready. Smart contracts will emerge over the next three years.

Source: ISG & IACCM As-a-Service Study 2016

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Wrap Up

We invite you to participate in our survey: https://www.research.net/r/ASASERVICE Your responses will be kept confidential and will only be used in aggregate. Feel free to reach out to me on Twitter @stantonmjones to continue the discussion. Thank you!

www.isg-one.com

Information Services Group is a leading technology insights, market intelligence and advisory services company, serving more than 500 clients around the world to help them achieve operational excellence. ISG supports private and public sector organizations to transform and optimize their operational environments through research, benchmarking, consulting and managed services, with a focus on information technology, business process transformation, program management services and enterprise resource planning. Clients look to ISG for unique insights and innovative solutions for leveraging technology, the deepest data source in the industry, and more than five decades of experience of global leadership in information and advisory services. Based in Stamford, Conn., the company has more than 900 employees and operates in 21 countries.

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