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Microsoft
Less sales, higher revenue 

Product-as-a-service

April 24, 2018

With a product-as-a-service model, you have the opportunity to secure ongoing sources of revenue, create stronger, longer-term relationships with your customers and as a result, increase your market share.

Manufacturers usually sell machines or systems as a one-time transaction. Only sometimes do they have a maintenance or service agreement with their customers. While this has worked well in the past, it bears the following risks in today's world:
 

  • The high investment cost of machines and therefore the capital commitment prevents the decision to buy – so a competitor wins the race and gets the customer.
  • Market players with a greater service orientation obtain the service and maintenance agreements you missed out on – revenue is lost and so is the chance of a continued relationship with the customer.
  • Competitors with customer-oriented billing models are gaining market share – traditional manufacturers are losing market relevance.
Product-as-a-service business model

What is PAAS?

A product-as-a-service (PAAS) business model is the answer to the aforementioned problems. Manufacturers combine physical products or systems with the required services and with flexible billing models. The one-time transaction is replaced by a lease agreement with regular billing based on time or other quantitative measurements. Rather than owning the machine or system, it is provided to the customer for use. The customer no longer has the responsibility associated with owning the machine.

What are the positive effects of PAAS?

  • The price and the capital commitment are eliminated as barriers to the purchase decision – creating an opportunity to increase market share
  • The relationship with the customer grows stronger and lasts longer
  • Instead of a one-time transaction, you create a long-term revenue stream – ideally over the entire lifecycle of the machine or system.
  • The provider of a PAAS model positions itself in the market with a clear USP

 

How to prepare for the product-as-a-service offering

Manufacturers who want to offer a PAAS model supplement their business processes – or change them entirely. A strong service orientation and organization are just as important as changes in sales, billing, and accounting. And it is inevitable to implement a well working asset management system. It is important to note that standard Manufacturer IT systems, especially ERP systems, are not designed for the PAAS business model. You have to learn how to handle flexible billing models that fit the needs of customers. A product-as-a-service offering is also a step into the world of the Internet of Things (IoT). Monitoring is required not only in terms of monthly billing, but for billing according to the actual use of the machine or system. Recording punching or pressing cycles, strokes, revolutions, or concrete usage times not only lays the foundation for subsequent, reliable billing, but also for predictive maintenance. This ensures customer satisfaction in the long run.

Interested in offering a product-as-a-service model?

Get in touch! We'd be happy to help.

John Bertolino

Sales & Marketing Director
+1 412 788 9494

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