The world is witnessing a fundamental shift from owning machines to pay-per-use models. Many of us use Netflix, Canva or Spotify instead of purchasing licenses. The rise of the Equipment as a Service (EaaS) model is changing and will disrupt the way we access and use equipment, from the aircraft industry to agriculture, healthcare and many more. The equipment as a service model has been pioneered by companies such as Rolls-Royce in 1997, which provides engines and other equipment to airlines on a pay-per-use basis. This allows airlines to focus on their core competencies of transporting passengers and cargo, while outsourcing the maintenance and repair of their engines to a specialised provider. This model has proven successful for Rolls-Royce, as it allows the company to generate a predictable stream of revenue and maintain close relationships with its customers.
The adoption of the equipment as a service model and the rise of the machine outcome economy reflect a broader shift in the economy towards services and outcomes, rather than the ownership of physical assets. There are several factors driving the shift towards the equipment as a service model and the machine outcome economy.
1. Flexibility with financial risk minimisation
Many customers are seeking a more flexible business model that allows them to pay for what they use, rather than making a large upfront investment. This is particularly true in industries where demand is seasonal or unpredictable, as it allows businesses to scale up or down as needed. In addition, the equipment as a service model allows businesses to focus on operational expenses (Opex) rather than capital expenses (Capex), which can help streamline their cash flow.
2. Declining profit on sales for OEMs
In many industries, profit margins on equipment sales have declined, making it difficult for businesses to generate a sufficient return on investment. As a result, companies are seeking ways to generate additional revenue streams through after-sales services such as spare parts, technician support, and maintenance services. The equipment as a service model allows companies to generate a predictable and high-profit revenue stream through recurring fees.
3. Connectivity infrastructure and IIoT adoption
The proliferation of connectivity infrastructure in the form of 4G, 5G and the adoption of the Industrial Internet of Things (IIoT) have made it easier for businesses to remotely monitor and manage equipment. This has led to a shift in economics, with companies increasingly outsourcing the production and maintenance of equipment to specialised providers, rather than managing these tasks in-house.
The equipment as a service model has the potential to disrupt not just traditional sectors but has fundamental change the upcoming sectors with innovative business models. I think, it’s not just Drone-as-a-Service, Electric Charging as a Service but there are many industries which are going to adopt this.
In Agriculture, Construction, Healthcare, Manufacturing industry where equipment such as tractors, harvesters, cranes, excavators, MRI machines, CT scanners and CNC machines can be expensive to purchase and maintain. The equipment as a service model allows end-users to access the equipment they need on a pay-per-use basis, reducing their upfront costs and simplifying maintenance.
In the water and air purification industry, a company can provide purification equipment on a pay-per-use basis, rather than selling the equipment outright, could potentially disrupt the water treatment and air purification industry. For example, a company could lease water purifiers to households or businesses, allowing them to access clean drinking water without having to purchase and maintain their own equipment.
A company could lease refrigerators or air conditioning or cold stores to businesses, allowing them to access the equipment they need on a pay-per-use basis in the cold-storage industry. Drones, Cars, EV Charging Infrastructure are rapidly adopting this model in the shared economy for surveying, last mile deliveries and transportation.
According to a report by PwC, the global market for outcome-based contracts (also known as the machine outcome economy) is expected to reach $1.9 trillion by 2030. According to Deloitte, this industry will grow at a 40% CAGR YoY. This represents a significant opportunity for businesses and investors, as the machine outcome economy allows companies to focus on their core competencies and outsource the production and maintenance of the machines and technology they use to specialized providers. This can help businesses increase efficiency, reduce costs, and remain competitive in a rapidly changing economy.