I’ve written a lot in recent months about how companies are underestimating the potential of the Internet of Things (IoT). People complain that IoT has lots of promise, but tangible examples are few and far between.
That’s partly true. But for some reason when people hear IoT, their mind immediately goes to obscure gadgets or smart home devices. Whilst these too are part of the IoT ecosystem, they aren't what will likely have the biggest impact in my opinion.
The companies that are making the biggest headway in this area are those in the manufacturing industry that have built up years of expertise in creating useful products, which can now be connected to the internet. And I don’t mean connected in order to drive efficiencies in usage (e.g. our sensors tell us you could turn your lights off during these hours to save money), but rather connected in order to sell a product as a utility. Sell it as a service.
These ideas were succinctly expressed by ServiceMax co-founder Athani Krishnaprasad during a meeting this week at the company’s HQ in Pleasanton, CA. ServiceMax isn’t a company that should be underestimated, in many respects it’s somewhat ahead of its time.
I get the impression that many in the industry view the ServiceMax platform as a nice add-on application to support field service operations, rather than the end-to-end platform to ‘servitize’ an organisation, for which it is intended.
And that’s because companies still view IoT as an efficiency play - rather than a revenue generator. However, for those paying attention to the likes of GE and Bosch, it’s clear that the real opportunities lie in inextricably linking your product to service, via sensors and internet connectivity.
Krishnaprasad explained that manufacturing companies that currently sell products should be thinking about their outcomes. Instead of trying to drive down costs so as to make a small margin on X number of sales, why not rather sell the service your product provides, as a utility?
For example, why do industrial coffee machine manufacturers focus on making their money via the sale of the machines? These companies could operate as a utility whereby they provide a subscription to customers, with the machines monitored throughout their lifetime, repairs issued proactively, and coffee granules provided as a service when needed.
There are probably folks in Silicon Valley that want to go and dominate and own the Internet of Things. And I don’t agree that that’s the right way of looking at it. It’s a new generation of the internet itself. The things themselves are the platform. That is what we are looking at - the idea that a manufacturing company that is ultimately delivering value to the end customers, by the means of the machines that they make and the technology they deliver. It’s going to become even more explicit.
Every manufacturing company is going to become a utility company. In the sense that utility companies lay out this capital intensive infrastructure. And off the back of that they deliver innovative services, outcomes to their customers.
The end customer for a utility company - whether its gas or power or whatever - they don’t worry about where or how it gets to them, you just have what you need. It’s a high availability thing, you come to trust it, you build your life around it. That direction is what I think could happen.
Krishnaprasad gave a personal example of using residential solar panels. A few years ago he looked into it, but it would have required purchasing the panels himself and maintaining them - a capital intensive investment. However, now these solar panel companies offer the power as a service, looking after everything else. He said:
It’s now a power purchase agreement. They install it and manage it, I just turn it on and it works. They take care of everything, manage it, monitor it continuously. They make sure that they proactively keep the performance up and running, to a level where they are guaranteeing 95% of my annual production through it. So if the annual production dips below that, they give me cash to go and buy the deficit. When I talk about the utility model, that’s what I’m talking about.
Early days yet
Krishnaprasad said that he sees service, and the platform that ties the service organisation together, as the “new centre of gravity for CRM” - something that traditional CRM and ERP vendors are yet to realise.
However, if you speak to companies that have gone through this transition, from product sales to service - or are attempting it - they will tell you that is not an easy journey. In fact, it’s pretty painful. The whole organisation has to change its focus - moving from developing a product and making one off sales, to engaging with customers throughout an entire lifetime.
This means that sales has to change, CRM has to change, financial incentives and targets have to change. The cultural change is enormous. You can give a company a platform, but ultimately success will be defined by the people.
Krishnaprasad agrees with this, but believes that the market is still in the ‘early adopters’ stage of maturity, with many still focusing on the low hanging fruit. He said:
I don’t know if there is a secret to [making the transition successfully]. My view is that this adoption of turning into an outcomes business, and using it as a differentiation, is still in the early adopter stage.
Only thought leaders in various sectors are looking at it, not everybody is. Most prospects that we talk to, that we engage in deal cycles, are definitely talking about a connected product strategy. Which isn’t something that we heard two years ago. But now 80% of our prospects have a checkbox. There is broadened awareness but not everybody knows what to do with it.
A lot of our customers are going after the low-hanging fruit use cases, which tend to be about connecting the product, getting the diagnostics, automate service delivery process through it. The idea that the machine is installed, it is connected, it’s being monitored, alerts show up, and then you conclude based on your historical knowledge that that needs intervention. You create a ticket, you send someone out efficiently - and you’re slowly turning your service business into a proactive business, rather than reactive.
Krishnaprasad argues that whilst the B2C market may take longer to reach this ‘service’ world, the B2B market is ripe for taking. This is because the B2B market is less price sensitive, and actually business buyers tend to demand trust, reliability and quality service.
But what will drive uptake? Krishnaprasad believes that it will take a couple of adopters to lead the way, forcing others to play catch up and adopt a similar strategy. He said:
It’s an evolution. It requires pitching to the board, pitching to the street, because you are no longer making dollars ahead of time - it’s going to come through competition. Whenever I have a chance, I talk about the differentiation game moving to this. It’s very hard to differentiate around technology these days, it’s been democratised, everybody has great everything. So where do you differentiate? Through services.
If one or two do this properly, the others will have to do it to get ahead. It’s a survival issue. That’s going to be a catalyst.
Where does this leave ServiceMax? I noted in my interview with Krishnaprasad that for the company’s potential customers, the proof points and references can take years to come through. That’s because of the cultural and organisational change required. Yes, the efficiency discussion can happen quickly. However, the service examples may take longer.
ServiceMax is considering how it can help progress this, via its end-to-end platform. Can the platform aid companies in that journey towards becoming a service and outcome-led business? Krishnaprasad thinks so, and hinted that this is what we may expect in terms of future development. He said:
This is about a performance guarantee contract - which has terms, pricing, and all of the stipulation, maintenance schedules, guarantees. That is the area we are looking very heavily into evolving. How does an outcome orientated business look? What do they need in order to go to market? How do they create contracts? How do they price them? How do they build them?
That’s an area we have got to shore up a lot. I don’t think there’s a solution out there today that does that for service businesses.
We hear a lot of other SaaS vendors talk about service - but it tends to be about providing a service internally to employees, or providing field service as a module. Very few, if any, talk about providing an end-to-end service platform that enables the ‘servitization’ of an organisation. ServiceMax has spent 10 years carving out this niche.
However, that doesn’t mean that it doesn’t have any challenges. It does. Namely that manufacturers just don’t now how to think in terms of service outcomes. As Krishnaprasad said, it’s an evolution, rather than a revolution. And manufacturers tend to be less sensitive to competition, because of the scale required to make money on the low margins. As a result, this could take some time before it’s really ‘mainstream’.
But there are companies leading the way in this. And I agree with Krishnaprasad, once they start storming ahead of the pack - which I believe they will - then others will have to play catch-up.