What is device-as-a-service (DaaS)?

The “as-a-service” business model is becoming ever more pervasive, with software-as-a-service (SaaS) serving as the most prominent example. Now the model is becoming the future of the device industry. Device-as-a-service (DaaS) is a subscription approach that considers physical assets and services to be deeply interconnected, rather than two separate business models they’ve traditionally been. 

DaaS is a disruptive opportunity and a competitive edge for traditional device manufacturers, who are prioritizing data-driven services, user performance, and customer relationships over one-off sales. In a 2022 report, Bain & Company predicted that device manufacturers would “sell most equipment as part of bundled solutions including software and services” by 2030, reducing the share physical devices take in total profits. And indeed, the DaaS business model is gaining momentum: Already, many original equipment manufacturers (OEMs) generate more than 50% of revenue and 100% of profits with device-enabled services.

What is device-as-a-service (DaaS)?

Device-as-a-service is a business model offered by manufacturers that gives customers access to critical hardware through subscription fees or usage-based (“pay per use”) payment models. “Pay as you go,” “managed services,” “outcome-based asset contracts,” and “performance-based contracts” are all business models that device companies use to build out successful DaaS offerings. 

The core feature of DaaS is that rather than paying outright to own a device, the customer pays a subscription for access to the value, utility, or function associated with that device. The model is sometimes alternately known as hardware-as-a-service (HaaS), machine-as-a-service (MaaS), or equipment-as-a-service (EaaS). In specific industries, the model might take more specific names, such as robots-as-a-service (RaaS), 3D-printing-as-a-service (3DaaS), or sensors-as-a-service, for example.

Bundling proprietary software with proprietary hardware, which then requires proprietary service, is what makes a complete DaaS offering. The DaaS business model delivers the right technical expertise (setup, training, maintenance, support, device repair, software and hardware updates, etc.) as part of an end-to-end solution that has the device at its center. 

How does DaaS work?

DaaS is an evolution from one-time sales of capital goods to a recurring-revenue model. In other words, it shifts the hardware business model from capital expenses (capex) to operating expenses (opex). DaaS has been made viable by advances in technologies such as artificial intelligence, big data, digital twins, and cloud computing. For example, IIoT solutions allow for remote monitoring of the devices and for performance data to be shared directly to the manufacturer, providing transparency on machine usage for accurate DaaS billing. 

DaaS replaces the classic sales model with a more holistic offering that prioritizes the value the devices can provide over the devices themselves, and centers on customer support throughout the lifecycle of the hardware. Device manufacturers can implement DaaS with different payment models: time-based (e.g., a weekly or monthly term), scale-based (e.g., fixed by square footage), utilization-based (e.g., per hour of usage), or output-based (e.g. per number of tasks an asset performs). 

3 key device-as-a-service benefits for hardware providers

What are the advantages of offering DaaS? There are three key benefits of device subscriptions that manufacturers and vendors realize:

Recurring, predictable revenue 

Because the as-a-service model is a fundamental shift from one-time device sales to a recurring revenue stream over the lifetime of the device, providers have more (and more predictable) income than they do in the traditional capex model. And because DaaS is an operational expense rather than a capital expense for customers, the budget approval process tends to be faster. This means customers onboard more quickly, which is an added win for revenue and overall financial performance.

Higher profitability over time

While it’s true that the DaaS model increases the time it takes for a manufacturer to recover the costs of building out a device, service providers ultimately capture more of the total value that device creates. What’s more, because they leverage real-time data and analytics to improve their devices’ function and performance over time, DaaS organizations tend to offer more powerful solutions than their capex counterparts. Better solutions mean more market share, which equals more profitable businesses. 

Increased customer satisfaction and loyalty

Offering an entire end-to-end service rather than a single device strengthens the manufacturer’s ties to the user, since customers rely on the manufacturer for everything from hardware upgrades, to software updates, to service and maintenance. Because they’ll always have the most up-to-date version of the manufacturer’s devices, customers will be more satisfied with their overall solution. And because the manufacturer is in frequent communication with the customer, they’ll have more opportunities in which to upsell products and services. 

3 device-as-a-service benefits for customers

Device-as-a-service business models also offer a variety of benefits to customers: 

Cost-efficient devices at a fixed recurring price

Because DaaS pricing models turn a (possibly steep) capital expense into more manageable operating costs, they free up cash flow and reduce financial risk for customers. Beyond low upfront costs, DaaS also provides accounting teams with financial visibility, making it easier to plan their organizations’ budgets. That’s because DaaS providers typically charge flat monthly or annual fees—and because the manufacturer is responsible for maintenance and repair, customers don’t have to worry about the financial unpredictability of device failure.

Flexibility and scalability 

As businesses grow, transform, and experience seasonality, their technology needs change and fluctuate—as does their device usage. DaaS doesn’t just allow businesses to scale rapidly without large upfront costs; it also allows them to scale down without suddenly owning superfluous hardware that sits dormant until the business needs it again. DaaS contracts typically don’t entail long-term commitments, and customers are free to tailor their engagement based on organizational needs. Working in close partnership with a managed service provider ensures customers’ device volume always meets their current business needs. 

The most up-to-date devices—maintained by the provider

DaaS service agreements include proactive maintenance, repair, and replacement as part of the solution, as well as timely updates to the manufacturer’s latest technology—both hardware and software. After all, the manufacturer continues to own the physical devices, so they’re incentivized to upkeep and iterate on them. This means that DaaS customers don’t have to maintain in-house experts or worry that a device will crash as soon as its warranty is up. So the risks of extended downtime or equipment obsolescence are virtually nonexistent.

5 examples of companies seeing success with DaaS

Industries with device-as-a-service examples are many: specific models include “laptop-as-a-service,” “computer-as-a-service,” “medical-device-as-a-service,” “sensor-as-a-service,” and more: 

Occuspace

Occuspace is an occupancy platform that helps organizations understand, control, and improve their physical spaces. Powered by standard electrical outlets, the company’s IoT sensors scan for WiFi and bluetooth signal activity from cell phones, laptops, wearables, or other connected devices. By capturing the number of people in a space, the sensors allow organizations to make better decisions around allocation and planning to enhance visitor experiences, increase efficiencies, and reduce real estate costs. Occuspace’s Waitz mobile app also lets customers and patrons monitor crowd levels in real-time to better navigate busy times and seek out quieter floors or rooms in places such as university libraries.

Under Occuspace’s subscription model, sensors are loaned to institutions that are charged a fixed annual fee for their use. While customers also have ongoing access to Occuspace’s proprietary software, the company only charges based on the total number of devices a space requires, which is in turn determined by the size and layout of the space to be monitored. The approximate cost for spaces less than 5,000 square feet is $600/year, and adjusts based on the number of sensors needed and on square footage.

GlacierGrid

GlacierGrid is a cooling intelligence platform that reduces energy use, food waste, and equipment downtime. The platform uses IoT sensors, artificial intelligence, and equipment controls for real-time temperature monitoring and humidity tracking. With its user-friendly dashboard, customers get actionable insights into energy patterns that help them spot equipment breakdowns and move electricity usage to off-peak hours. This helps businesses both save money and reduce their carbon footprint.

The company operates on a subscription model, with pricing at $12.50 per sensor per month. Its accompanying software subscription alerts customers via phone call, text, email, and push notifications when refrigeration temperatures exceed approved thresholds. GlacierGrid’s sensors are plug-and-play, so the solution takes only 2 minutes to set up.

Pano

Pano is a leader in early wildfire detection and intelligence. Its platform uses AI and computer vision alongside high-definition mountaintop cameras, satellite imagery, and 5G connectivity to detect and confirm wildfire events in real-time, while disseminating critical information to first responders so they can best determine how to respond. The cameras continuously scan the landscape, rotating 360 degrees per minute, and use artificial intelligence to detect the first wisps of smoke versus other atmospheric conditions such as fog or dust. Once the system detects smoke, it puts those images into the hands of dispatchers and first responders through built-in communication tools, speeding response time so firefighters can move quickly and mitigate wildfire threats.

In the company’s subscription model, Pano owns both the cameras and the supporting infrastructure. It sells subscriptions to its proprietary software to customers, most of whom are government fire agencies, power utilities, and private landowners (e.g., ski resorts). Costs vary by customer deployment, but standard pricing is $50,000 per camera station per year.

Halter

Halter makes solar-powered, GPS-enabled collars that are worn by cattle, which are trained to follow the collars' guidance cues. Using the Halter app, farmers remotely shift their cows around the farm and set up virtual fences for grazing in paddocks. This reduces the need for physical fences, motorbikes, and dogs to move cows. The collar guides a cow using two primary cues: sound and vibration. With Halter’s “cowgorithms,” farmers can virtually monitor their cows' location and health (e.g., when a cow is in heat or showing behavioral signs of illness).

Halter’s model allows the company to lease its devices on a subscription basis. Packages start at $9.90 per collar per month (billed annually). The Core package includes fundamental Halter features such as virtual fencing, remote shifting, pasture management, and heat and health alerts, while Pro ($12.90) and Unlimited ($14.50) include various levels of more sophisticated pasture and shifting tools, and mating insights and integrations. Halter has partnered with Figured Lending so customers have options for financing their technology investment.

BRINC

BRINC creates technology for first responders that helps de-escalate dangerous situations. The company has two primary hardware offerings. The first is the LEMUR 2, a drone used for everything from hazmat responses to bomb disposal operations to hostage rescue. The LEMUR 2 is equipped with LiDAR, floodlights, night vision, and a thermal sensor that allows the drone to “see” through smoke. The second is the BRINC Ball, a “throw phone” with a microphone and speaker that first responders can toss into an at-risk environment to establish and maintain contact for peaceful resolutions.

BRINC’s hybrid as-a-service model allows it to sell its devices outright under a capex model, then charge a monthly subscription fee for data and proprietary software. The BRINC ball is available for purchase for $2,000 plus $49/month for the Ball Protection and Data Plan. The LEMUR 2 costs $10–20k, and software subscription rates are not published. The company also offers a series of additional services, such as device replacement and training programs.

Device-as-a-service vs leasing

Under the terms of a legacy hardware lease, customers make a down payment to a financing company for a device, and then make monthly payments for an agreed-upon window of time. Because the lease is essentially a loan, the customer also incurs interest until the devices are paid off—meaning the hardware costs more over time than it would in a DaaS agreement. Both DaaS and device leasing are options for customers who don’t have the capital to buy the hardware upfront. 

The biggest difference between DaaS and a lease is that in many leases, customers have the option to purchase the devices at the end of their lease period. In DaaS, on the other hand, the manufacturer will always own the hardware. That means the devices remain the provider’s responsibility for the full device lifecycle—ongoing maintenance, hardware upgrades, and end-of-life disposal. With leasing, the burden of maintenance and replacement falls on the customer once they own the hardware. 

What’s more, device leases typically center around the value of a physical piece of equipment, while DaaS centers on the value of a service that includes access to hardware. DaaS providers offer an end-to-end solution in which the hardware only represents a fraction of the total cost to the customer. So the device provider is more incentivized to keep the equipment up-to-date, swap it out for the latest versions, and consistently iterate on the software to evolve alongside technological advancements. This enhances customer loyalty. 

Device-as-a-service vs machine-as-a-service (MaaS) vs equipment-as-a-service (EaaS)

DaaS, MaaS, and EaaS are all as-a-service models that provide access to physical hardware rather than ownership of it. The hardware continues to be managed by the manufacturer or service provider. As such, providers of DaaS, MaaS, and EaaS have a range of things to consider that SaaS providers don’t: delivery and shipping, asset tracking, hardware repair programs, and more. The only difference between the three as-a-service models is semantic: While some companies call their offerings “devices,” others call them “machines,” and still others call them “hardware,” DaaS, MaaS and EaaS are the same business model with the same complexities and opportunities. 

Who is the DaaS business model for?

A device-as-a-service model makes business sense for device manufacturers and solution providers when their offering meets a handful of conditions. Here’s when to consider offering devices as a subscription:

• When the manufacturer produces a high-value asset with justifiable ongoing value to the customer (e.g., complex devices with ongoing value delivery from a DaaS software layer)
• When it doesn’t make financial sense for the buyer to own devices outright (e.g., when upfront costs would be too high, or the hardware would sit dormant for long stretches of time)
• When the primary value proposition is connected as much or more to the ongoing service as to the device (e.g., the buyer continuously engages the manufacturer because the buyer doesn't have the knowledge, training, or components to maintain proprietary hardware)
• When the devices can be monitored, managed, or enabled remotely (e.g., upgrades and updates can be deployed over the air, with usage and performance data shared from the equipment back to the manufacturer)

Device manufacturers interested in offering DaaS must be prepared to offer a unified solution with a range of advanced services—installation, training, monitoring, and maintaining the devices, for example. DaaS models can be particularly powerful for solutions that are newer-to-market, where customers might be hesitant to commit to capital expenditures because the manufacturer’s devices have no record of success.

DaaS is the right model for customers, on the other hand:

• When the business doesn’t have the cash for up-front device investments
• When production schedules or output fluctuates (since DaaS can be a scalable solution)
• When the business doesn’t have the in-house expertise to maintain the devices themselves
• When the business wants to perpetually run the newest, most up-to-date version of the manufacturer’s devices and stay technologically relevant in its industry

How to implement device-as-a-service in your organization?

Device manufacturers are motivated to move to full subscription models due to their economic benefits, customer value creation, product stickiness, and the opportunities for improved equity multiples they provide. Despite these benefits, shifting from a traditional capex to a full-scale opex model can be an arduous undertaking. 

Moving to a hybrid DaaS sales model is one way device manufacturers can begin the transition to a full subscription program. A hybrid model allows a manufacturer to start small, run DaaS alongside the existing business, and create additional value over time through added software and services. Once that hybrid recurring model gains traction, the model proves out, and program metrics such as payback become clear, it becomes more straightforward for the manufacturer to transition their business to a full subscription model.

To begin successfully implementing a DaaS model, manufacturers should:

1. Choose which of their devices are best suited for the model. (If the devices are not yet cloud-based, the manufacturer has some work to do when it comes to incorporating IoT and digital technology, creating software, etc.)
2. Determine how predictive maintenance, repairs, and service will be accommodated
3. Consider the devices’ effective life cycle, output/work volume, and likely service costs to determine the usage fee for each device
4. Strategically bundle their DaaS offering by differentiating their core offering from add-ons and specialized components
5. Develop their DaaS pricing plan. (This will be a collaborative effort between Finance and Sales.)

Are you a device manufacturer looking to implement a DaaS business and pricing model? Most folks have questions when getting started. Our experts would love to talk with you about answers.