Industrial equipment companies are in the middle of a massive transition. The Services part of their businesses are following the Remote Service Continuum to help customers improve their operations, achieve outcomes, and receive more value. TSIA research shows that more and more industrial equipment (IE) companies are offering their technology on an “as-a-service” or subscription basis.
Business Opportunities for Industrial Equipment in the Digital Age
TSIA's Remote Services Continuum.
Today, most of the products from industrial equipment and instrument manufacturers are smart, connected products. And, that “smartness” is increasing through the inclusion of additional sensors, increasing edge computing power and the capabilities to process and analyze a huge amount of data in the Cloud, creating digital value. This, in turn, creates a hybrid architecture of local storage and computing power connected to both the Cloud and vendors.
Today, most industrial equipment companies are good at monetizing hardware maintenance, but they are only at the beginning to monetize software support and maintenance.
This environment creates additional non-subscription-oriented business opportunities, such as:
- Maintenance contracts for hardware and software
- Security updates for each connected device (industrial equipment manufacturers are in a great position to monetize software updates and support)
- Cloud services to store and process data from products in the field
The Digital Value Chain
To capture this value, TSIA recommends building a Digital Value Chain to give data monetization the same level of focus as the value creation with products.
An example of a digital value chain.
What Customers Want
There’s a long-term trend occurring, where customers want their supplier to take more responsibility for helping them reach and improve their outcomes. Customers want to pay for products and services as they consume them and as they achieve their desired goals. This is described in the TSIA book, B4B: How Technology and Big Data Are Reinventing the Customer-Supplier Relationship.
This trend is creating a demand for subscription offers where customers can pursue a pay-per-use model.
On the Supplier Side
These customer demands are causing technology suppliers to rethink how they operate in a number of ways:
- IoT Enables Subscription Offers: Subscription offers require deep insights about the usage and behavior of the products being delivered in each vertical. The product lifespan and the need for spare parts, replacements, and consumables are highly dependent on the environment and how the customer is using that product. Increasing analytics capabilities can help to predict the product lifespan and service needs to keep the equipment running. So, more and more products can be offered as-a-service and as a subscription.
- Increasing Emphasis on Annual Recurring Revenues (ARR) by Executives, Owners, and Investors: Executives realize that ARR makes a business more valuable, and it makes revenues more stable and predictable. And, when you manage to achieve a low customer churn rate, it makes your business less stressful.
- Security Capabilities: For a lot of manufacturing executives, the threat of security breaches was the knockout argument to prevent product connectivity with vendors. Today, the risks are manageable, and the use of cloud services is common.
This makes the growth of subscription revenues in IoT faster than in SaaS (software-as-a-service).
Examples of Industrial Equipment Subscription Offers
Subscriptions in industrial equipment are different, and besides pure information services, are more than a pure cloud service or SaaS. Subscriptions for equipment means that you’re providing a product and adjacent services and the software to process edge computing on-site.
This shows that subscriptions are more than financing the product and leasing it, or even just a different payment method. There is always a service included to run and optimize the usage of equipment.
Here are some examples of how industrial equipment organizations can offer subscriptions:
Pure On-Premise Subscriptions for Hardware and Software
These include remote and on-site support. It’s the nature of physical products that they need to be provided on premise with adjacent services to run the equipment (such as managed technology-as-a-service) and edge computing.
Equipment components, like sensors or controls, need computing power on-site to ensure efficiency and low latency, which means a fast and secure reaction without delay through a cloud connection. Security functions especially require an on-premise installation. In many industries, security requirements do not allow connecting equipment with the Cloud.
Mixed Subscriptions
The main subscription offer found in the industrial equipment industry, this option is ideal for on-premise hardware and software enriched by cloud services to store and process data. Edge computing, enhanced by analytics capabilities in the Cloud, offer additional value. In this case the vendor collects relevant data from the connected install base and can learn from it. They can also leverage machine learning to provide predictive and prescriptive maintenance and define best practices on how to use the equipment.
Pure Cloud Services
This offer can be used as information services. For customers who prefer the CapEx model and industrial equipment companies which do not yet provide equipment as-a-service with a subscription model, information services can still create high value. Examples of this offer are applications which help the customers to optimize the usage of the equipment through visual dashboards and assisting them in improving results and the management of the asset.
Subscription offers for industrial equipment.
Additionally, we see subscriptions for standalone services like training as a subscription, or support for field engineers or consultants.
Tips for Creating a Successful Industrial Equipment Subscription Business
Based on TSIA research, here are some top recommendations you can use to get started in developing your subscription/as-a-service offer within your industrial equipment organization:
- Create service offers for both new products and for established products in the field. Product teams tend to give services away for free, but TSIA highly recommends including the Services team in the R&D process, especially in the approval of milestones.
- Standardization is the key to scale your subscription offers. Keep this in mind before you offer your first subscription.
- A successful subscription offers need to create a win-win situation for the vendor and supplier. Each offer needs to help the customer improve their outcome by consuming the services bundled in the subscription, like consulting, to improve the output and guaranteed availability of the equipment. For the vendor, it offers additional revenue opportunities like the consumables and the support, which are part of the subscription.
- Create value propositions for different targets—customer segmentation is the key to address each target in the right way. Create success stories to show the value to prospective customers.
- It’s a lot about internal sales. Show the contribution of subscriptions for the long-term success to fight commoditization of your core products.
- Product sales will not be able to sell subscriptions alone. A blended sales approach is required.
Learn More About the Connection Between Industrial Equipment and Subscription-Based Offers at TSW
At TSIA’s upcoming Technology & Services World conference, taking place October 21-23 in Las Vegas, I will be sharing TSIA research on this topic and other insights relevant to industrial equipment organizations. Register today to make sure you don’t miss out on great sessions like:
- “10 Ways to Deliver Better Service for Equipment Manufacturers,” presented by TSIA
- “Developing Digital Content for Hardware Services,” presented by Thermo Fisher Scientific
- “The Value of End-to-End, Connected Service in a Digital World,” presented by ServiceNow
Register today and get a discount on your ticket. I look forward to seeing you there!