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:

1. Integrating, maintaining and even operating equipment remotely: By connecting machines to the industrial IoT, equipment makers can include remote condition monitoring, predictive maintenance and performance optimization as part of EaaS offerings.
2. Data from installed equipment: Before EaaS, once a machine was sold and out the door, the data from that machine was gone. In an EaaS model, equipment makers have access to operational data, enabling them to analyze performance of installed equipment. This data enables more efficient design and operation of smart equipment going forward.
3. Lower barriers to customer acquisition: A machine that may never have been sold can now be deployed with EaaS. With greater flexibility in pricing and a lower price point for entry, customers are able to acquire and use manufacturing equipment that would have otherwise been prohibitively expensive or otherwise ineligible for purchase.

The EaaS model delivers benefits to customers including:

1. Reduced capital expenditure: Purchasing manufacturing equipment is a capital-intensive expenditure that presents a barrier for manufacturing customers. EaaS provides an opportunity to fund equipment with OpEx instead of CapEx. Customers benefit from lower up-front costs, while ensuring they have control over the production process and the quality of products manufactured. 
2. Data-driven insights: In many EaaS agreements, the equipment maker provides equipment and production benchmark data to the manufacturing customer to help optimize machine utilization and productivity. The accuracy of the benchmarked data can help manufacturers integrate data-driven strategies that optimize productivity, which delivers benefits including cost savings and greater efficiency. 
3. Lower operating costs: As a part of EaaS, the task of maintaining manufacturing equipment, updating software, firmware or hardware is the responsibility of the equipment maker. This cuts down on the operational expenditure of manufacturers and helps manufacturers focus on their core operations. 

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:

Designing a service: Your field service and support teams need to be empowered to maximize the OEE of the customer’s assets in the field. This means that they need the tools to monitor, analyze and update performance data and operating settings so they can schedule and execute on part replacements and predictive maintenance.

Selling a service: The tools, incentives and bonus structures that incentivize sales teams to win large but infrequent capital deals rarely work when sales teams pursue smaller and more regular service subscriptions. Sales leaders must move the organization from hunting one-off deals to farming recurring revenues.

Supporting a service: An ongoing service relationship requires equipment makers invest to become both high-touch and customer-obsessed. Contact center staff, field service engineers and the broader ecosystem of parts suppliers must focus on delivering customer-centric outcomes. This extends to product design: an initial investment in more expensive components or a more easily serviced design may reduce long-term costs if it means fewer or shorter field service engagements.