Product-as-a-Service is an up-and-coming phenomenon gaining in market acceptance. But it’s precisely the services that make it valuable. Here robots as an example.
I recently looked at five press releases for industrial robotics marketing studies. They covered the next five to seven years and predict the market growth rate at between 4.6% and 17.5% with an average CAGR of 10.3%.
I also found a 2018 research report predicting the growth of Robotics as a Service (RaaS) at a CAGR of 23% by 2026. I also read a number of reports and articles stating that the RaaS market is still in its early days and the idea of RaaS is quickly catching on with Industrial and other robotics markets.
My conclusion is that whatever forecasts you believe, the number of robots installed under the RaaS model will be a significant and growing percentage of all robotic sales. And that makes sense to me. Here’s why.
First, some definitions
Services – all the activities supplied by a vendor that are required to specify, install, support, and remove a product.
RaaS – Robot as a Service. A business model designed to create a recurring revenue stream for the seller by providing the most cost-effective solution possible to create value for the buyer. RaaS suppliers frequently bases their fee on a price per outcome basis. This may mean total operating hours per period, pieces produced per period, or pieces handled per period.
Operating lease – a contract that allows a lessee to use a product without transferring ownership from the lessor. The cost is an operating expense (OpEx) and not a Capital Expense (CapEx) and the equipment does not become an asset and appear on the balance sheet.
Why is RaaS such a big deal?
- With a RaaS contract, there is usually no down payment or end-of-contract balloon payment.
- In most cases, your monthly payment is based on the amount of work the equipment performed.
- The variable contract is usually less than or close to your operating cost before the robot. For example, if the robot replaces someone who is paid $20.00 per hour plus benefits, etc. (assume another $10.00), your robot will generally cost you less than $30.00 per hour. If you are paying by the piece for the robot and the output is greater than the person it replaces, then your operating cost may be greater than before, but your cost per piece produced will be less.
- There are no additional costs or fees beyond the agreed price. This is a really big deal. If you purchase a robot, here are many of the Services you will pay for separately that are included in your agreed price in the RaaS contract:
- The supplier/user relationship changes for the better. The supplier is no longer a vendor; they are a complete partner. Both you and the supplier make money when the equipment is producing shippable products. The more the robot works, the more both parties earn!
- Think about the early days of IBM and mainframe computers. In those days the salesperson, who was really an account manager, would get fired if the equipment lease was cancelled. IBM did that because they knew how important it was to have their team’s goals perfectly aligned with their customers. RaaS (and other XaaS businesses) achieve the same results by employee linking pay with user’s outcomes.
- For the RaaS model to work, the user will generally have to share operating data with the supplier. For example, if you pay a certain amount for each unit produced, then the supplier has to have real-time access to units the robot worked on. The implication of this is frequent invoices which may vary from month to month because of variable usage.
In conclusion, it is the services that add extra value to the end-user and makes a RaaS business model both cost-effective and desirable.
This article first appeared in Industry Today. Published with permission from the Author
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