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IoT-enabled product as a service could transform manufacturing

Product as a service offerings are becoming more prevalent among manufacturers, leading to better customer engagement and new revenue streams.

Beyond the hype of the Internet of Things (IoT) is the very real opportunity for manufacturers to leverage the technology to create new business models that shift focus from standalone products to service-based offerings, resulting in better engagement with customers and fueling additional revenue streams.

According to IDC Manufacturing Insights, the emerging concept known as product as a service transforms service from a standalone function within a manufacturer to an integrated product and service offering that delivers value as the product is in use. Product as a service starts with sensor-based products that continuously feed information about product usage and condition to manufacturers, who can then leverage the data for a variety of purposes, from delivering proactive and preventive maintenance to creating entirely new service-oriented business models.

Given the high-stakes competition in the global marketplace, it's incumbent on manufacturers to cultivate additional sources of revenue built around aftermarket service, noted Heather Ashton, research manager at IDC Manufacturing Insights. At the same time, she said, manufacturers need to discover better ways to connect and engage with a customer base that has higher expectations for service and support, but is less loyal, given the breadth of global options.

Manufacturers go beyond just selling product

"It's become increasingly difficult for manufacturers to make their revenue from selling products -- they're finding much more profit in the aftermarket opportunity that exists [with product as a service]," Ashton explained. "It's a big shift already happening among leading companies making higher profits from aftermarket service, but in the coming years it will be more pervasive across manufacturers."

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Although giants like General Electric and John Deere have been early pioneers of the product as a service business model, analysts expect it won't be long before other manufacturers follow suit. In fact, IDC Manufacturing Insights estimates that 40% of Top 100 discrete manufacturers and 20% of Top 100 process manufacturers will provide product as service platforms by 2018.

Momentum is building due to a variety of technology enablers. For instance, the price of sensors and actuators has come down over the past few years, making it cost effective for manufacturers to incorporate them as part of a product design, noted Rob Black, IoT product management and senior director at PTC.

Four stages for leveraging IoT

In addition, the rise of cloud computing and big data analytics now make it possible for manufacturers to process and analyze large amounts of data, which is an essential element for delivering product as a service, Black added. "The biggest change is that things that were extremely difficult to do and expensive 10 years ago are much more doable today."

PTC, which has been on an acquisition spree in recent years to drive into the IoT space, identifies four stages for leveraging IoT technology to create product as a service business models, Black said. The first stage is collecting data from sensor-based products for remote diagnostics and fix services, creating a much more efficient and effective customer experience, he said. The second stage is about leveraging the data for analytics that can drive process change -- for example, understanding when a component might break, which allows a manufacturer to ship a replacement part ahead of time and help the customer avoid costly downtime.

Moving beyond service improvement, Black sees manufacturers leveraging IoT to help customers optimize their businesses as well as create new revenue streams. For example, products like industrial equipment can be offered on a pay-per-use basis similar to the software as a service model in IT, which helps customers reduce up-front capital expenditures while affording the manufacturer a continuous service revenue stream and an opportunity to stay closely aligned with the customer, he said.

The fourth level is when manufacturers reinvent the product experience through service. This could be the industrial machine that replaces the need for an on-site administrator with a smartphone app that keeps a technician apprised of problems, but frees him up to focus on other tasks. It could also be a new replenishment service that delivers refills automatically based on machine status instead of requiring human intervention, Black explained.

No going back after experiencing IoT

Once manufacturers see how IoT-enabled product as a service can transform their business, Black said, there is no going back. Satisfied customers are more engaged and open to buying more product, he said, while manufacturers benefit from reduced service costs and new revenue streams.

"The longer an asset is out there, the greater the potential revenue stream and the possibility for a higher-margin business," said Chuck Malone, marketing director at Etherios, a division of Digi International that offers an IoT cloud platform and related services. "The ability to evolve from being product-centric to managing that brand experience in the aftermarket leads to greater customer loyalty … and competitive differentiation."

Next Steps

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This was last published in April 2015

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Will your company use IoT technology to enable a product as a service model?
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Yes, IoT enabled sensors can monitor and take corrective action. For example, gas leaks can be sensed and valves can close automatically and remotely.
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This is old hat in some sectors, like aerospace where power-by-the-hour and condition monitoring are standard fare. I wonder at what point however people will push back against the intrusion represented by larger scale monitoring of their actions and consumption.

Chuck Rathmann
Product Evangelist
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