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Manufacturers eye product as a service as new cash cow

For some, making a thing and selling it is so 2000-whatever. Instead, those companies are creating ongoing revenue streams on after-sales services.

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PRODUCT AS A SERVICE is a delivery model some manufacturers are using to make more money from the things they make. Instead of selling a piece of industrial equipment to a buyer, for example, a manufacturer might loan it and then charge for services like repairs. The strategy relies on sensors and devices connected to the Internet to maintain communication among users, manufacturers, products and service providers. So when a pipe bursts, it can alert the manufacturer, which sends out a replacement -- along with the bill.

The buzz: A printer out of ink? A cartridge is on the way. Advocates say that instant gratification keeps customers happy and helps stave off social media flare-ups. Longer term, product as a service could lead to whole new lines of business and a rejiggering of price-performance equations. Rolls-Royce and GE already charge for power by the hour on their jet engines. And market researcher IDC says some leading manufacturers generate 50% of their profits from after-sales services.

The reality: Next in a long line of as-a-service schemes, product as a service won't be an easy win. Most analysts say manufacturers have much work to do building the IT infrastructure to capture, analyze and act on all that incoming data. And customers may balk at paying for services that used to come standard, or at least grumble about it. Remember getting free meals on domestic flights? Maybe not; you're probably too peeved about having to pay for baggage.

Driving profits


This was last published in June 2015

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