Differentiate your solutions with Equipment-as-a-Service
Want to make it easier for customers to use your equipment, while building deeper relationships that deliver higher sustained margins? EaaS, or servitization, helps equipment makers reduce customers' TCO while shifting focus from one-off product sales to higher-margin services and parts.
Evolving to an EaaS business model is only possible when you stay connected to your equipment. But more than technology, it also requires changes to people’s mindsets and processes. First-mover enterprises are already creating strong competitive advantage where the rewards are significant. We like to think of it as the final step on the IoT maturity journey after exploring services including remote monitoring, smart field services and performance management.
Take a closer look at Equipment-as-a-Service
Equipment-as-a-Service (EaaS), also known as Product-as-a-Service, Machine-as-a-Service or servitization, is a business model in which equipment makers rent equipment to end users in exchange for periodic payments. By eliminating a single up-front purchase in favor of a fee for hardware and services, servitization can help manufacturers lower their customers' Total Cost of Ownership (TCO) and offer more flexible equipment acquisition options. Similar to the way technology companies are shifting to Software-as-a-Service (SaaS) subscriptions, customers who sign up for EaaS can fund equipment use with OpEx funds, freeing capital for other priorities.
Ultimately, EaaS can enable customers to pay for defined outcomes that better match their needs, while generating opportunities for equipment makers to offer high-margin services and enhance their products with data-driven insights.
EaaS helps equipment makers shift from a reliance on shrinking hardware margins to more profitable after-sale services and parts. At the same time, customers can lower their equipment Total Cost of Ownership (TCO) and receive more flexible equipment charges that respond to their changes in demand.
Bain & Company analysis2 has determined that for industrial equipment makers, the share of value creation associated with hardware is shrinking. Bain expects hardware to decrease from the average 31% of an equipment maker's profit today to 23% by the end of the decade. Remaining profit will come from software, services, and solution offerings that bundle equipment with software and services. EaaS is an efficient way to bundle high-margin services with high-performing equipment in a package that aligns with equipment customers' needs for lower TCO and more flexible equipment costs.
For equipment makers, an EaaS business model offers several advantages including:
The EaaS model delivers benefits to customers including:
Anticipating the challenges to adopting an EaaS business model means preparing for the path ahead.
First, equipment makers can face business challenges. Pricing an EaaS agreement can be difficult. This is especially true for equipment suppliers who want to move to a unit-based payment model because they must find a new way to define and measure value to the end-user. Embracing EaaS also requires transition to a new business model that has implications for distributor relationships. Manufacturers accustomed to receiving payment up-front for unit sales of equipment must be ready to delay revenue to later in the process, as customers use the equipment and services. Finally, financing is an inherent part of EaaS offerings; equipment providers need to create new relationships with finance institutions to offer a range of agreements for customers to choose from.
Second, equipment makers can face technical challenges to moving to an EaaS model. Cost-efficient operation requires real-time device management, scalable architecture to support big data management and sophisticated analytics, all integrated with field service and spare parts management. Equipment suppliers need to create additional business metrics to generate trusted equipment usage statistics for accurate billing, and automated billing software to enable more frequent, lower cost payments. In terms of risk management, EaaS suppliers need to assume operational risks that the customer formerly absorbed—so understanding and modelling these risks is necessary. This includes modelling environmental factors such as temperature, vibration, dust level, humidity and more.
The right approach to IoT-connected devices can help overcome many of these challenges. But every equipment supplier needs to understand the risks, and methods to mitigate those risks, as they consider adopting an EaaS business model.
Equipment makers should consider the skills needed to succeed with an EaaS business model, including:
The platform that makes it happen
Smart, connected products
4 steps to IoT maturity
Deploy predictive maintenance services
Advance your sustainability goals
IoT Buyer's Guide
Smart products. More value: How product managers succeed with IoT