What is a Technology Enabled Service?

Your business is a technology enabled service if:

You consume and create technology whether it be physical infrastructure, hardware or software, which you design and configure into a solution delivered to an end user customer.
The service you deliver to your customer consists of bits and bytes, 1s and 0s. You don’t deliver any form of physical good to your customer.
Technology is the primary input into the service you offer, rather than labor.
The services you offer are available to your customers on-demand.
You charge using a recurring-revenue billing model, including subscription, transactional and other utility (volume of usage) based billing.
Your business’ success is dependent upon your customers’ success using your services.

The stack of technology-enabled services businesses include infrastructure as a service (IaaS), platform as a service (PaaS) and software as a service (SaaS) businesses. The “as a service” delivery model is transforming every business that designs and sells technology or consumes technology as an input. Consider the transformation taking place in each of the following areas:

Legacy and Tech-Enabled Delivery Models
Category	Value-Proposition	Legacy Delivery Model	Tech-Enabled Delivery Model
Software	Application features	On-premise software	Software as a Service (SaaS)
Computing	Processing power	On-premise servers	Cloud Computing (IaaS)
Data Storage	Information warehousing and access	On-premise storage	Cloud Storage (IaaS)

In each case, the value proposition was once delivered to the customer in the form of a one-time sale/license of a product; either physical goods or on-premise software. Technology-enabled services are replacing the physical/on-premise delivery model with on-demand delivery models. The benefits of the technology-enabled services model to customers are myriad.

A Brief History Lesson

In his now famous Wall Street Journal Essay titled Why Software is Eating the World, Mark Andreesen is famously wrote:

In short, software is eating the world.

In a much less celebrated speech I heard at GigaOm’s Structure ’09 Conference, one of the conference keynotes, Russ Daniels, then with HP said:

Everything is a service.

The latter inspired me to write a 2009 blog post titled The Future is in Services. The ideas expressed by these essays, quotes and blog posts are as relevant today as they were when they were first written and spoken about. Our perspective is that software companies aren’t eating the world, but that technology-enabled services businesses certainly are.

Benefits of Technology-Enabled Services

While technology plays a key role in enabling the displacement of legacy delivery models with their technology-enabled services doppelgangers, the trend itself is not fundamentally about technology. Rather, the trend toward technology-enabled services is driven by customer demand for a better delivery model. The benefits of the technology-enabled services delivery model include:

Capital Efficiency
Technology-enabled services are more capital efficient than their traditional delivery model counterparts. With TES, customers do not have to shell out capital to make up-front purchases of hardware and software to set up an in-house version of the service. Rather, the customer pays to access the service offering as the service is consumed over time. This serves to amortize the cost of the service over the life of its use, rather than accelerating the costs into a current period. It is often said that technology-enabled services like SaaS are less expensive than their traditional on-premise delivery counter-parts. In my experience that is not typically the case. Often times, the total cost of ownership for a technology-enabled service is higher. That said, there is no arguing the fact that the technology-enabled service delivery model is more capital efficient for customers.
Operational Simplicity
Buying, operating, maintaining, upgrading and supporting hardware and on-premise software infrastructure places an incredible burden on an IT department. For most IT departments, these functions are neither core nor strategic. Shifting responsibility for performing these functions from the IT department to a TES provider significantly reduces the operational complexity of the IT department. The burden is shifted to the TES provider, who should be purpose built do be expert at these functions. Significant efficiency is gained in the process and cost savings accrue through the TES provider’s achievement of economies of scale, which no IT department can achieve on its own.
Accelerated Time to Benefit
Generally speaking, it is faster for a customer to implement a technology-enabled service than to implement in a traditional hardware or on-premise software implementation. As a result, the customer is able to benefit from the features and capabilities of the technology enabled service faster.
Flexibility and Integration
Technology-enabled services are typically easier, cheaper and faster to configure than their in-premise counterparts. In addition, technology-enabled services are very flexible. More and more, technology-enabled services are deeply integrated with other technology-enabled service platforms through standard web-based API sets.
Accessibility
Technology-enabled services, particularly SaaS feature browser-based accessibility, making them accessible from any place where a user can find an Internet connection. While the accessibility of these systems presents security challenges in some use cases, the benefits typically far outweigh the downside.

The benefits of the technology-enabled service deliver model are significant for customers. TES is not a panacea for customers. Issues like security and vendor-lock in are frequently cited. But by and large, the benefits of the TES delivery model far outweigh these disadvantages. The trend of user adoption of the TES deliver model is undeniable. Whether the value proposition is cloud computing, software as a service or the myriad other styles of tech-enabled business, the tech-enabled deliver model is on the rise.

Tech-Enabled Services Make for Attractive Investments

Tech-enabled service businesses make for attractive investments. Those tech-enabled services that find a durable product-market fit in a large market segment are able to create significant value because of their fundamentally attractive characteristics.

Recurring Revenue Model: The recurring nature of the revenue models deployed by tech-enabled services businesses translate into a high degree of predictability and scalability.
High Operating Leverage: Because the primary input into tech-enabled services is technology (rather than labor), tech-enabled businesses enjoy gross margins between 60 and 90 percent.
Scalability: Technology-enabled services business have the ability to scale to become significant in size, due in large part to the fact that they serve customers from a shared and relatively homogenous infrastructure.
Expansion Opportunities: Tech-enabled businesses are often able to expand into adjacent markets by adding additional products and services that complement a core product offering. Adjacent market opportunities add potential growth opportunities for an already highly scalable and attractive business model.

Successful technology-enabled services businesses are found in almost every segment of the economy.

Other Resources on Tech-Enabled Services

Not much has been written about tech-enabled services, although each of its sub-categories (e.g. cloud computing, SaaS, etc.) is well covered. The following list of readings may be helpful to those seeking to learn more about TES.

ACG Partners: Technology Enabled Services (TES)

Emergence Capital: What the Heck is TES?

What is a Technology Enabled Service?

A Brief History Lesson

Benefits of Technology-Enabled Services

Capital Efficiency

Operational Simplicity

Accelerated Time to Benefit

Flexibility and Integration

Accessibility

Tech-Enabled Services Make for Attractive Investments

Other Resources on Tech-Enabled Services

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