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How Subscription Models Make Businesses More Resilient
RELAYR
Equipment-as-a-Service can provide OEMs with a sustainable business model to increase resiliency.
contributed by Guneet Bedi, Senior Vice President of Global Sales, Business Development, relayr
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ovid-19 has been a wake-up call for OEMs to enhance their resiliency against unanticipated threats and disruptions. According to an executive report by relayr commissioned with the research firm forsa on the manufacturing industry’s mood, the majority (60%) of industrial companies report being affected by the crisis, and they’re looking for ways to adapt. While the pandemic is an extreme example, there are various ways of dealing with unforeseen crises or fluctuations that will help your business remain stable—or even grow—during times of change or uncertainty. Currently, many of the executives relayr surveyed are taking measures to reduce costs, whether internally or for their customers, ensuring their customer structures are balanced, and looking for opportunities to change business models. The latter is what we’ll focus on today: changing business models. More specifically, on subscription models or equipment-as-a-service (EaaS).
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What you should know about EaaS In the simplest of terms, EaaS allows you to offer machinery on a pay-peruse basis. It’s taking a business model pioneered by software companies and applying it to heavy-duty industrial machinery. In doing so, your finances become stable and predictable, and your operations become more efficient. In the OEM space, equipment is often costly, yet the price only represents a fraction of the total cost of ownership. The bulk of the cost then comes from support, repairs, maintenance, and value-added services. In fact, more than 75% of the cost of machinery comes from the cost of operations and maintenance of the asset. From an OEM perspective, that means you’re not participating in the most significant percentage of ownership cost. This is especially true if you haven’t invested in advanced technology, like the industrial internet of things (IIoT), artificial intelligence (AI), and predictive analytics, which give you the ability to connect machines and remotely diagnose issues.
On the flip side, your customers are paying a lot of money upfront. And they’re only likely to reach back out to you if something fails or there’s downtime—which is not a scenario conducive to relationship building. Instead, EaaS bridges that gap. The sum of the whole is better for everyone, making EaaS a win/win business model for OEMs and customers alike. As seen in the chart on pg. 33 from Bain & Company, EaaS models help reduce the total cost of ownership for customers, while almost doubling the revenue for OEM businesses. This arrangement also allows more touchpoints with your customers throughout the lifecycle, as opposed to only when things break down.
How subscription models provide a higher level of resiliency The graph from Zuora’s latest Subscription Economy Index™ on pg. 34 shows how resilient companies are those with recurring revenue streams. These subscription-based companies grew their revenues around five times faster than S&P 500 company revenues and U.S.
OEM Off-Highway | NOVEMBER/DECEMBER 2020
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11/16/20 11:34 AM
