When “as-a-Service” is just debt in disguise
The case for “as-a-Service” is always sung the same way. No more heavy capital expenditure. No more humming server rooms, dusty racks, or engineers nursing old tin through another quarter. Instead: clean contracts, smooth monthly payments, and the appearance of agility. Boards hear efficiency. CIOs hear simplicity. Investors hear recurring revenues. Everyone hears freedom.
But the accounts are blunt. Under IFRS 16, if the kit is dedicated to you, it belongs on your balance sheet. Right-of-use asset. Liability. Debt. It may not appear in the capex line, but it still sits there - depreciating year by year, with interest running alongside. The cash burden is not erased; it is only redrawn.
The decisive line is mutualisation. True services are pooled, multi-tenant, elastic. Each new customer strengthens the economics for all. That is why real SaaS companies like Office 365 or Salesforce deserve their multiples - every tenant improves the model.
Without pooling, the logic collapses. A private ERP instance, a single-tenant cloud, a bespoke “aaS” contract in networks or transport - these look like services but behave like leases. The economics don’t scale. Each customer requires its own asset. And when suppliers present “aaS” offerings without pooling, they are not selling service. They are selling financing.
That distinction matters on both sides of the table.
For investors, it is a warning: not every “aaS” revenue stream is SaaS. True SaaS delivers pooled infrastructure, recurring revenues, fat margins and annuity-like renewals. That deserves a premium. Non-pooled aaS delivers project revenues, depreciation schedules and re-sold renewals. That does not.
For boards, it is a test of honesty. When the CIO pitches “opex substitution,” the right question is: is the infrastructure truly pooled? If not, the balance sheet will bear it. And when executives propose selling aaS to customers, the board should be just as sceptical. Without pooling, the offer is either unattractive - or it reduces to vendor financing. And if your cost of capital is higher than your customers’, financing them is not strategy. It is weakness.
The rule travels across industries: fleets, factories, real estate. If you alone use the asset, don’t call it as-a-Service.