From products to services: how OEMs build revenue with servitization

In the era of product interconnectivity, advanced data management, and cloud-powered analytics, businesses are exploring multiple strategies to foster growth and improve revenue generation.

Among others, a paradigm shift gaining momentum is servitization, a strategic move towards offering services alongside traditional products. Companies pivoting towards servitization provide customers with a service that is functional to the use of the product. In return, they gain insights into customer usage patterns and product performance, useful for better serving existing clients, expanding markets, and driving profitable revenue growth.

What is servitization?

Servitization is the transition from selling products to selling services accessible through the product. Delivering a combined product and service offering provides increased value to the user and introduces a recurring revenue stream for the provider. The service-based revenue model goes beyond mere product transactions: income is not only generated from the product alone but also from the related services. 

The as-a-service concept is quietly becoming the norm. Think of TV streaming services, the ink for printers is supplied automatically based on their (remotely monitored) usage. There are many contexts in which consumers pay for the outcomes rather than owning the product. From their perspective, subscribing to a product outcome is far better value than purchasing it and offers a better customer experience. For providers, servitization mainly means finding a way to monetize assets – and the data they generate – throughout their entire lifespan, rather than relying solely upon their sales.

OEMs turn to servitization

The shift to servitization is highly evident in the B2B manufacturing space. Pivoting from the traditional model of manufacturing and selling hardware to a product-as-a-service (PaaS) model, manufacturers open up new ways to generate value for customers and themselves. This change involves shifting the perspective from an open-loop system - where contact is limited to the transaction and data on customer usage escapes the manufacturer’s reach - to a closed loop in which the relationship with the customer extends over the long term. Closing the loop manufacturers know how their products are performing, how efficiently customers are using them when they are nearing a breakdown, and a wealth of information useful both for optimizing service delivery and for designing future versions of the equipment. 

Servitization is built upon smart and connected products. Data-capturing and analytical tools ensure real-time collection, storage, and analysis of the data sets outsourced equipment produces daily. OEMs can monetize this information by turning it into subscription-based services to offer to their clients. For example, an OEM producing heavy equipment can “servitize” machines by offering a pay-per-use subscription. The customer gains access to expensive equipment while being charged upon usage, and benefits from optimized support services based on the data he produces. He might receive spare parts for the machinery, take advantage of remote assistance and predictive maintenance interventions, and get insights into the production process to optimize equipment utilization.

Three (plus two) competitive reasons driving servitization adoption

OEMs are gravitating towards servitization for compelling competitive reasons. 

  • Increased equipment reliability - Remote sensors gather data about equipment operations. With the help of artificial intelligence and machine learning, manufacturers can better understand this and develop optimized strategies for managing available assets. They can also embed monetizable monitoring and predictive maintenance services, proactively addressing issues before they occur, maximizing uptime, and reducing overall maintenance costs. Consider an industrial air conditioning OEM collecting real-time data from thousands of deployed, connected air conditioners, analyzing telemetry for anomalies. Upon detecting faults, the system initiates workflows in field service management apps for timely repairs. This approach not only enhances customer service but also informs design improvements based on real-world operational insights.
  • Stronger brand value - OEMs can embed services that increase the value customers get from products. They can package insights generated from the data gathered through embedded sensors and advise customers on the best way to optimize the performance of their processes, maximize production, and reduce costs.
  • New revenue streams - The subscription fee itself is an added source of revenue. However, by using smart, connected products to gain a deeper understanding of customer experience, manufacturers can leverage insights to develop new services. This allows them to constantly improve their service portfolio, meet growing customer demands, and remain profitable by generating new revenue streams.

Service-bundling also benefits those taking advantage of the offered services. 

  • Easy and predictable costs - Subscription-based or pay-per-use models provide end-users with clear and predictable costs and allow savings on the purchase of the equipment. In addition, since equipment maintenance is mostly borne by the service provider, users can save from reduced or no maintenance fees.
  • No need for DevOps or specialized staff – Servitization often involves the manufacturer providing ongoing maintenance, updates, and support for the product. By offloading the technical aspects to the manufacturer, the end-user does not need to invest in training or hiring staff with specialized skills (such as DevOps professionals) and can keep focusing on its core business activities.

Architecting servitization of the machines with the right technology mix 

The adoption of servitization requires enterprises to proactively address change to fully harness its opportunities, many of which are rooted in technology.

To begin, manufacturers should implement products with seamless connectivity – sensors, IoT and edge devices supporting real-time capture of granular data from outsourced equipment and communicating with centralized systems. The convergence of these technologies with software-based platforms facilitates the transformation of field data into business-relevant, monetizable information. Enterprise-wide solutions equipped with agile software technology and analytics tools, including machine learning and artificial intelligence, provide manufacturers with the ability to collect complex data and derive actionable insights. Results can help to plan resources, manage assets, automate predictive maintenance, and more. 

Consider the realm of service and maintenance. OEMs harness real-time condition monitoring of the outsourced equipment to track and optimize machine performance and proactively plan servicing interventions. To deliver such predictive maintenance, service operations must be able to quickly ingest and process large scale telemetry data, with fast reaction times at the location of devices. The implementation of software incorporating AI and ML algorithms enhances the ability to process ingested data to promptly identify performance anomalies and issue alerts before unanticipated downtime occurs. Service operators can then execute quick, easy, and cost-effective machine fixes triggered by sensors and software algorithms. 

The more flexible and scalable the platform, the more the benefits for both the OEM and its clients. Beyond standard features like remote monitoring and AI-enhanced predictive maintenance, organizations overseeing a diverse range of outsourced machinery can share the platform with clients to unlock new synergies. For instance, they can allow them to integrate their devices or utilize the framework to develop custom applications, getting a share for each new featured device or app sold. This ecosystem becomes a source of valuable data on customer preferences which can then be further monetized. 

Clea: the smart choice for manufacturers adopting servitization

Organizations looking to implement a successful servitization strategy must invest in flexible technologies and software solutions. Clea stands out as a highly capable software suite that can help manufacturers take the first steps towards servitization. Clea provides a highly scalable and cost-effective solution for harnessing field data, managing devices, and facilitating the development of value-added services and advanced AI applications. From IoT communication and data orchestration to device and fleet management, up to a ready-to-use, extensible UI framework with advanced monetization features, Clea provides end-to-end capability to support all phases of servitization. 

Clea’s open-source and hardware-agnostic approach ensures compatibility with diverse setups, enhancing flexibility in implementation. All its middleware components are open source and offer robust integration capabilities, allowing deployment in any major cloud environment or on-premises, and supporting any kind of field device, including some microcontroller-based systems. Designed for extensibility and scalability, Clea supports the needs of increasingly large and complex fleets, providing the tools to extract value from field data and optimize the operation and management of remote assets. 

Above all, Clea is the enabling technology for selling value-added digital services and Hardware-as-a-Service and Product-as-a-Service solutions. Its extensive developer framework can be used to easily build value-added services and applications, and the Clea Application Framework enables marketplace-like features with a full-fledged monetization system. With Portal, the extensible IoT front-end from the Clea software stack, manufacturers can monetize the IoT by leveraging the application framework to develop, integrate, and resell edge or cloud applications within a subscription model.

Servitization is offering OEMs a new business model to increase profitability and differentiate themselves from the competition. Technology advancements that lead to data capturing, analytics, and data monetization play important roles in delivering the benefits of servitization to both OEMs and end users. To get started, relying on the right technology provider is essential to accelerate the design and development of business-critical solutions. A long-standing experience in guiding its customers in this journey is what makes SECO the perfect partner. Looking to transform your manufacturing business with servitization? Contact us today to learn how we can help you successfully transition.