Hardware As A Service. There a business model here? Your thoughts


#1

"A funny thing happened on the way to the forum…"
Right before asking my question here I found an article regarding HaaS that refers to Particle as an example.

What I want to do. And my question.

I want to create and operate a HaaS business within my local metro area. Clients would be industrial businesses. Devices would be Particle powered and located throughout a geographical area. The data gathered by these devices and associated software would enable the businesses to monitor these remote sites, which they can’t currently do in-real-time. These companies currently send field techs out to each location for physical inspection. That’s expensive.
Point being. Save them money and they’ll pay for the service.
My thoughts are, to sell the devices outright would be too expensive for companies to take the leap.
But, if it were a service contract on a monthly fee basis, then I’d likely get more interest.

What do you think? Have you had any success with this model? Or know anyone who has?
If not, why not?
Is this an over-complicated approach?

Thank you for considering my questions.


#2

It would be interesting to make the hardware devices generic enough (even if it added cost) so that you could re-use the same hardware for each client instead of creating custom hardware each time. Not sure if/when the economics would work out tho


#3

Sounds interesting! What kinds of hardware devices do you see a need for with local businesses? We’re always curious to learn about more use cases and would love to hear feedback about ways that businesses could get value from Particle-connected hardware.

Let us know how we can support!


#4

This is also known as Product-Service System (at least in Industrial Design academia). You should do some research because there are several types of business models related to PSS.

I believe it has to be conceived as more of an ecosystem and not just a single product for it to work properly and be economically viable.

This is nothing new and has been around for a long time, even before been called HaaS.


#5

Thanks for the replies. Research done. Thought given. Of course this type of model is being done. Kindle Fire. Cell phones. Kuerig. And the link @Joaquin provided points to some industrial uses.
I suppose that if they weren’t making money, they wouldn’t do it. So, question answered.
If you can save/make a business money, they are generally interested in that.

I’d still love to hear from anyone here who is actually doing this as a business and making money at it.

Perhaps the better question to ask and information I need to gather is this.
Given the following assumptions:
-The product/service saves a business $x and that amount is meaningful to them. Not trivial.
-No additional training for their staff. Easy to adopt.
-No device installation they need to perform. That’s my job.
-A reliable solution that is non-invasive. Also, does not induce risk into the system.

Question: Mr/Mrs. decision maker(or reader of this post). If I could save your business $x per month, what would that be worth to you?

Or, put another way. If you were developing a product/service that would save a business $x. What would you price that product/service for?

Really like to know your thoughts.

Thank you


#6

I’d say it depends on the amount saved. If I can save $500 a month by paying you $50, that’d make sense. If it only saves me $100 a year, and for that I have to maintain contracts, have someone rummage through by business installing things, and doing I-don’t-know-what to get things up and running, then perhaps it’s not worth the hassle.

It depends. If they need high resolution data, as real time as possible, across multiple devices, then the infrastructure for that is going to be more expensive. You need to cover those costs.
High risk situations also warrant a higher price tag. If your thing could ‘secure’ some expensive machinery ($100k+) then that’s worth more than a sensor that’ll tell you to water the plants.

Take a look at how Particle itself tiers its pricing, higher price for higher quality of service.

So both questions really depend on the situation. What value does your product bring to the business you’re trying to sell to. Is it a gimmick, a nice-to-have, a make-things-easier, or a mission critical piece of hardware?

A gps tracker for your pet has arguably lower risk than one for shipping containers carrying perhaps millions worth of goods. Both things functions virtually the same, but the value you add for the containers is much higher than that for Mr. Fluffy :wink:


#7

Thanks @Moors7. Boy, you drive a hard bargain :fearful: $50 to save $500? :grinning:
My original post didn’t get very specific, because I thought it would over-narrow the discussion. Too use-case specific.
Basically, I’m talking about a B2B scenario within an industry where 6% to 10% net profit margins are typical. 12% if you are really humming along.
And the devices would be set up at locations that are geographically decentralized, requiring physical inspection. Labor = cost. We wouldn’t be draping wires all over your building.
The service/device system I would provide is intended to save on labor, which is a relatively large contributor to operating expense.
My thoughts, using $500 monthly savings would be something like.
$150 cost saves you $500. Roughly a $.30/$1 ratio.
Or, $250 cost to $500 savings. $.50/$1 ratio.

Likely this is a topic for another forum altogether. Thought I’d ask the always helpful community here anyway, in case there were some developers, using Particle products, that have used a value based pricing model with their hardware/software solutions.

Thanks


#8

I 100% agree on the opinion that it needs to be a huge savings to make it worth it if the only real advantage is price. Most businesses get very set in their ways and it needs to be an overwhelming good deal to get them to change their processes.

The way I also see things is that it’s never as cheap or easy as expected so why take the risk and hassle for not a lot of upside.


#9

This is an interesting post, as I am attempting to start a business doing what you are suggesting. I’ve been doing it for close to two years now. Here are some things I’ve learned for the ag and industrial market I know well:

  • Customers hate monthly service contracts. I’ve done somewhere between 50 and 100 formal and / or informal sales meetings. The people I’ve talked to overwhelmingly prefer to pay upfront for the product, and will pay more for the ability to pay upfront versus monthly. For example, I’ve had much more success with $1500 upfront than $20/month

    • I know all the arguments on why monthly service fees are awesome. They’re awesome for your business, but once I started to understand my customer, I found out that they’re not awesome for them
  • Finding something really valuable to solve is hard. I would agree with those in this thread that say $50 for $500. If its not a 10x value proposition, its probably not worth it for the company to change their business process.

    • That being said, though, I only found my more valuable propositions through attempting to sell the not so valuable propositions. You have to get started somewhere :grin:
  • Put some thought into your sales process and how you think the customer wants to buy your product. When thinking about my own business, I think in terms of analogies to other sales models. I think websites as a product is a good analogy:

    • Custom website designer == you design custom hardware and software for your customer and then turn it over to them
    • Squarespace == you provide semi custom hardware and a customizable software platform that allows faster and cheaper solutions
    • Facebook == you provide a very generalized hardware and software platform for them to use for not too specific needs

If anyone else here is doing something similar, I’d be interested to hear your experience!


#10

@McBuilder Thanks for the input. Businesses/industries that are “very set in their ways” are exactly those that I’d be focusing on, were I trying to come up with “something new” or valuable. Trying to sell products/services in a highly innovative market would be pretty tough I’d imagine. Especially when using relatively costly components, but great, ones like these.

As an aside, given the new pricing plan Here, which is understandable, hardware-as-a-service is really the only way to go IMHO. Unless, one aims to sell a kind of expensive product outright that requires the user to maintain a subscription of some kind. Not that there’s anything wrong with that.

Here’s a techcrunch article about this here in case anyone is curious.


#11

@hwestbrook Very insightful and educational, given your first hand experience.

people I’ve talked to overwhelmingly prefer to pay upfront for the product, and will pay more for the ability to pay upfront versus monthly.

That seems counter-intuitive. Is it that they don’t like the hassle of dealing with an invoice every month?
I’m targeting service companies that operate on monthly and semi-annual contracts already. Wonder if that would make a difference?

If its not a 10x value proposition, its probably not worth it for the company to change their business process.

That’s two votes for a 10x value proposition.

That being said, though, I only found my more valuable propositions through attempting to sell the not so valuable propositions.

Would you mind elaborating on this? Any example you could give?

Trying to educate myself on this, so really appreciate your input.


#12

It is the age-old cap-ex vs op-ex decision, this varies across industries, and over time.
Your target markets may be different than the ones @hwestbrook is familiar with, but you should be prepared for the possibility that you hear the same thing.


#13

On the month-to-month payment thing – it is actually not that counterintuitive once you understand the reasons a business may want to pay more upfront than monthly. @AndyW must have some experience with this, as he points out the cap-ex vs op-ex decision the company needs to make. I agree 100% with that, and I would strengthen it by adding the following anecdote about selling to individuals within a company that favors cap-ex.

Let’s say your customer is a farm manager for a corporate ag company. The farm manager is used to paying weekly/monthly for labor and other consumables like fertilizer through an established payroll or net 30 payment process. They are also are used to preparing and being approved for an equipment requisition on expensive equipment, like a tractor ($50K-500K USD). Any other expenses they may have they are probably required to put on their personal credit cards, to be approved and repaid by their boss who may may or may not be local.

With a monthly subscription, that farm manager would have to pay for my service with his personal card and then monthly get the bill approved. This is a huge hassle for this manager, and something he won’t even consider. The alternative is that he pays upfront by getting a equipment requisition; this may be slower, but its more straightforward and easier once approved.

On an example between a regular product and a 10x product – I am not really willing to get into this, both because I don’t think giving an example could help that much AND I would have to write a lot to explain AND I am still figuring this out myself…


#14

+100 on the ‘bundle your charge into an annual price’ - monthly billing is poison to many organizations, having worked with several online services we’ve always been told “get them to quote an annual price” and often it’s been a deal breaker when they can’t do that.

My other worry if I was you would be the hassle of sending engineers out to customer premises.
Ttheir wifi setup, or the 3g blackspots all around their premises, are suddenly your problem.

You might want to read over this - it’s written from the perspective of on-premise installs of SaaS products but a lot of the issues map well to hardware, I think.

http://blog.lusis.org/blog/2016/05/15/so-you-wanna-go-onprem-do-ya/