Changing the Mindset – Monetization Models in Manufacturing

Everyone is talking about everything-as-a-service in IoT and the advantages of value-based pricing which is less connected to the physical product than to the value derived from its use.

We asked Houssem Ben Abderrahman, Major Account Manager at Flexera, what trends and challenges he is seeing in the European manufacturing industry.

We hear a lot about Everything-as-a-Service. Can you share some market observations and tell us what’s really happening in the industry?

Many manufacturers are in the midst of digital transformation projects and are redefining the way they are selling and marketing products. We talked to a robotics company that is trying to monetize motion – moving things from A to B – rather than robots. Traditional automotive companies transform into mobility providers. And in the areas of smart cities and smart buildings we hear a lot about lighting-as-a-service and energy-as-a-service.

Some might think these trends are only driven by the big global players in the industry, but that’s not the case. I talked to many midsized businesses that are well advanced in this field and see a big chance to tap into new markets or increase their share with models that provide new services and lower entry barriers for enterprises or consumers with a smaller upfront investment.

What pricing models are you seeing?

There is a lot of talk about bundling device, software, services and data into a pure subscription offering and some manufacturers are doing that already. We also see other approaches that I would divide into two main trends:

  • Some manufacturers don’t want to abandon their device-based pricing. They will continue to sell hardware on a perpetual basis and move to hybrid models: additional advanced software-enabled features are offered on a subscription basis and consumption-based models are used for capacity like number of files processed, numbers of gigabytes used etc.
  • Others disrupt their former pricing models altogether and come up with new ways. A company in building automation for example doesn’t sell products anymore. They monetize their whole set of offerings based on customer savings (time, energy etc.). They basically get a share of the savings which is a pure value based model.

Sounds like a big move for traditional manufacturers. How do they manage?

That’s quite a journey for some as it requires a change of mindset – in the management team, in the employee base and for customers as well. It’s a move from a pure product-centric view to the appreciation of the outcome and the value derived from hardware, software, data and connected services. It’s not always easy but it helps if the executive team has a clear vision and strategy of the future and embraces this change.

Not all manufacturers are there yet, in fact far more than 50% still rely on a pure hardware-based model, but the ones that are making the move are quite successful and ahead of their competition. So I would say it’s worth it.

Thank you, Houssem!

Categories: General, Industrial Automation, License Models

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