Service as a Product Gains Ground

March 27, 2017
As manufacturers look for new ways to satisfy customers and increase revenue, Internet of Things technology is enabling more opportunities for new service business models.

Though there has always been an element of service as a product, it has been accelerating in recent years and could become the dominant method of delivery for sophisticated goods over the next several years. The question being asked by manufacturers is: Do consumers want a product or do they want the service that the product delivers? Do consumers want to buy a device and use and maintain it or would they prefer to pay for the actual use they get from it?

A car lease is a traditional example of this in the consumer world. Consumers get a car to use and effectively pay for the miles they drive. The repair and maintained costs are covered in the lease fee paid. That same concept can now be applied to almost anything a consumer uses. The increasing robustness of the Internet of Things (IoT) has made it possible to monitor more closely the operation and failure of appliances, and to do predictive and preventive maintenance.

There are three main reasons for this shift. The first is to provide better service to the end user. The second is to provide additional revenue for the manufacturer. Third is the fact that the technology made possible by IoT also makes it possible to sell service as a product. The price of sensors and actuators has come down over the past few years, making implementation cost-effective. Global manufacturing competition has reduced the prices and margins on many items. To make up for the reduced profit of selling the items, it has become important for manufacturers to develop new sources of revenue built around aftermarket service. To make this happen, they have looked for ways to connect and engage with a customer base that has higher expectations for service and support, but is less loyal, given all the choices of brands and suppliers they can chose from.

Major companies—John Deere and GE being two prime examples—pioneered service as a product early on, and have been experimenting with the business model for years. But now others are rapidly joining the trend. Philips Electric is working on reducing the cost of lighting and light bulbs by selling light as a service and including all the costs involved in delivery to the consumer. International Data Corp. (IDC) estimates that 40 percent of the Top 100 manufacturers will provide service-as-product platforms by 2018.

The options in service as a product will no doubt grow beyond what we presently visualize. Service as a product starts with sensor-based products that continuously feed information about product usage and condition to manufacturers. The manufacturers can then leverage the data for a variety of purposes, from delivering proactive and preventive maintenance to creating entirely new service-oriented business models. It is in their interest. If they can provide the right mix of services at the right price, it can also be in the best interest of their customers. Time will show us how these trends will work out.

These same questions can be and have been asked by all the major automation manufacturers as well as manufacturers of other products. Automation is generally made up of hardware, the software that runs on the hardware, and the customized configurations for the software that make the end users’ actual production lines operate the way they are supposed to. Hardware has become a commodity. The control software, while containing more intellectual property (IP) than the hardware, is still a low-margin sale in many cases.

The real value comes in the application software written for each end user. Certainly, Industrial IoT, artificial intelligence and intelligent analytics provide power and information that are unprecedented. Implementation and maintenance of these value-added applications make it more difficult for end users to support their own plants and more likely that selling service as a part of the product will become the trend in automation as well as in other industries.

Bill Pollock is president and CEO of Optimation Technology Inc., a certified member of the Control System Integrators Association (CSIA). For more information about Optimation, visit its profile on the Industrial Automation Exchange.

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