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Machines-as-a-Service: This Trend Is Just Getting Started

A new report from Bain & Company illustrates why machines-as-a-service is a growing trend that will change the familiar equipment manufacturer business model.

Bain General

Industrial manufacturing verticals that are well-recognized as early adopters of advanced technologies, such as automotive and aerospace, have made big strides with software- and machines-as-a-service over the past several years. Until very recently, however, the same could not be said of other industrial verticals. COVID changed that perception—dramatically and rapidly.

The reticence in some industry verticals to allow third parties to remotely access equipment in their plants has largely vanished in the wake of nearly every aspect of operations going remote to at least some degree.

In fact, so much around this issue has changed so quickly that Bain & Company now expects that OEMs “will sell most equipment as part of bundled solutions” by 2030—including software and services, thereby reducing hardware’s share of total profits.

Machinery companies expect advanced services to produce 30% of their service revenue by 2024. Source: BainMachinery companies expect advanced services to produce 30% of their service revenue by 2024. Source: BainIn its “Global Machinery & Equipment Report 2022: Thinking Outside the Machine,” Bain states: “Industry 4.0 technologies are reshaping the business from one built around machines to one focused on services and integrated solutions. In some sectors, individual companies already generate more than 50% of revenues and 100% of profits with services. That trend is accelerating and will become the norm across the industry over the next few years.”

What this means for OEMs

Many equipment manufacturers have seen this trend coming for years now, even if COVID-related accelerations caught them off guard. A good example of how OEMs are already adapting to this new reality can be seen in the video below from Pearson Packaging Systems describing the company’s approach to the MaaS trend.

The Bain report notes that by “building on a deep knowledge base and decades of experience, OEMs are redefining traditional machinery service as strategic care and designing new services that help customers perform better throughout the full life cycle of the installed machinery base.”

To be successful in this new MaaS era, Bain says OEMs “now need to collaborate more closely with their customers. Advanced service contracts, for example, are broader in scope and may cover a full production line, all the equipment at a given site, multiple plants, or even an entire fleet. The most effective equipment makers compile data and insights from their installed base and use the information to build innovative service solutions.

Companies leading the shift to advanced services and solutions understand that equipment and service are no longer two separate businesses but are deeply interconnected.”

Insights from China

Though the MaaS trend may not yet be very visible here in the U.S., it has developed rapidly in China. According to Bain, “Chinese machinery companies…started innovating in services a decade ago to spur growth as equipment sales slowed. The [China] market is now a vibrant testbed for a future service- and solutions-based industry. One Chinese OEM that has reinvented its service offering is heavy equipment maker XCMG. The company’s internet platform, which provides services such as machine analysis, average working time analysis, equipment utilization data, and connected plants, has generated massive growth since its launch eight years ago. At the end of 2021 it had connected more than 460,000 machines. XCMG says its services give companies a competitive edge: greater efficiency and faster decision making based on data.”

Four key steps for OEMs

In its report, Bain outlined four steps OEMs should take to better position their operation amid the growing MaaS trend:

  • Digitize and connect the installed base. Bain says OEMs need to invest in connected equipment and cloud-based platforms to create a trove of information about customers and their equipment. Such digital tools allow for most customer support to be managed remotely, reducing costs involved in servicing the installed base and dramatically improving overall efficiency. Digital portals also provide customers access to operating data, further enhancing the OEM/customer relationship. Also, sensors embedded in connected equipment can help OEMs anticipate machinery failures before they happen and offer customers a quantum leap in preventive maintenance.Advanced services are becoming a core offering for machinery companies. Source: BainAdvanced services are becoming a core offering for machinery companies. Source: Bain
  • Develop digital service solutions. By using customers’ equipment data to derive insights and design innovative service models, OEMs can, for example, offer to guarantee the uptime or output of their machinery. Bain says performance-based contracts around remote monitoring and predictive maintenance can improve efficiency and reliability for an OEM’s clients while boosting the OEM’s service revenue. Other examples noted by Bain include pattern-recognition algorithms that can analyze thousands of hand-typed reports about machinery breakdowns, deriving insights to help service teams better manage equipment under contract and develop standard upgrades that can be sold throughout the installed base of customers.
  • Sell equipment as a service. In addition to the Pearson Packaging System example noted above, Atlas Copco, a global manufacturer of compressors, now offers MaaS contracts that eliminate machinery downtime and ensure an uninterrupted supply of compressed air. Bain adds that, for Atlas Copco, the new contracts also minimize unnecessary customer maintenance visits and help secure aftermarket sales and service over a long period with one customer interaction. Plus, the data and experience gathered from Atlas Copco’s worldwide base of connected equipment can be used to further enhance its products.
  • Share the risk. A key aspect of outcome-based services for OEMs is that, while these services reduce customer risk, they also increase the OEM’s service revenues and profit. As Bain points out: “Instead of fixing equipment when it breaks down for a flat fee, the companies offering these services ask for a percentage of the guaranteed output. Similarly, contracts can focus on reducing energy use or boosting equipment efficiency.” 

   How software- and machines-as-a-service are impacting industry.

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