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suppliers to rethink product designs. When Ge- First, the service model can be deployed gradually,
neral Electric began selling its GE90 engine on a with some customers choosing service agreements
power-by-the-hour plan, it made design changes while others opt for a capex purchase. Aircraft engine
to reduce operating costs and improve serviceabili- suppliers pursued this path, gradually increasing the
ty. GE added sensors and intelligence that optimize share of revenues coming from services over time.
performance and reduce fuel consumption. It also
created digital twins that allowed for better compa- Suppliers can further ease the transition by establi-
risons between the performance of actual engines shing separate business units or subsidiaries that
and models with potential design changes. purchase the equipment and are responsible for
systems integration, financing and insurance, and
Vendors switching to a service delivery to the customer.
model need to prepare their Finally, first mover advantages may allow pioneers to
build up market share and increase revenues that
“organizations for a transition, can eclipse costs more quickly.
boosting investment in
customer service and preparing Time to get started?
investors and the organization The transition from selling to service will not happen
for an interim period when costs as rapidly in machinery and equipment as it has for
software. Although we are already seeing move-
will be higher and revenues ment in some categories—particularly in discrete
lower devices such as robots—larger and more com-
plex systems will take longer to shift to this model.

Swallowing the fish Machinery and equipment vendors are already bu-
ilding high-value services around data analytics,
The transition from one-time capex sales to a recur- designed to optimize system performance. These
ring revenue model can put enormous pressure on are laying the groundwork for broader service re-
firm financials as revenues can drop significantly in lationships. Other services are likely to be folded in,
the early years. At the same time, costs will increase including quality control, asset tracking and remote
as companies continue to invest in equipment for monitoring, eventually leading to full service models.
customers, while also investing in new capabilities
required to successfully deliver services that integra- First movers are likely to capture outsized rewards
te hardware, software, communications capabilities, from the shift, developing closer relationships with
and performance-optimizing data and analytics. their customers and transitioning revenue models
early. Executives at machinery and equipment ven-
When technology companies began making this dors trying to determine whether it’s time to move
transition from selling on-premise products to toward EaaS offers should consider several issues:
cloud-based SaaS and managed services, the fi-
nancial transition came to be known as what the • What’s the potential upside in terms of custo-
Technology Services Industry Association (TSIA) mer value, stickiness and higher quality reve-
called in its 2013 book, B4B, “swallowing the nue?
fish”—for the shape of the rising cost curve over • What would it take to gain a broad consen-
the decreasing revenue curve. sus—among executives, board members, in-
vestors, sales teams and customers—to em-
There’s no denying this is a challenging transition, brace this shift?
but suppliers do have options to ease the pain. • Is this team ready to make the move?

mark burton
david burns
Ron Kermisch

Mark Burton is an expert vice president, and David Burns
and Ron Kermisch are partners, with Bain & Company’s
Global Customer Strategy & Marketing practice. Mark and
Ron work in Bain’s Boston office, and David is based in
Chicago.

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