What is hardware-as-a-service (HaaS)?

The “as-a-service” model is becoming ever more pervasive, with software-as-a-service (SaaS) serving as the prime example. Now the model is also becoming the future of the equipment industry. “Pay as you go,” “power by the hour,” and “outcome-based asset contracts” are all business models that companies use to build out successful hardware-as-a-service (HaaS) offerings—including Microsoft, Hewlett Packard, and Dell. These offerings enable customer access to critical hardware on a subscription or usage-based (“pay per use”) payment model.

The rise of the hardware-as-a-service model

Whether in a B2C or B2B context, HaaS is a business model that benefits both equipment vendors and buyers. In B2C arrangements, this explains why companies such as Apple (with its forthcoming hardware subscription) and Volvo (with its flexible car subscription) are taking advantage of the as-a-service model. And in B2B, companies are realizing that some 80% of business buyers want flexible hardware solutions that can scale to support their changing needs. More than ever, cash-flow management is a core focus for businesses. HaaS models offer buyers both a fixed payment model and the ability to quickly scale spending up or down when necessary.

Definition of hardware-as-a-service

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

HaaS is an evolution from one-time sales of capital goods to a recurring-revenue model. In legacy industry sales terms, it shifts the business model from capital expenses (capex) to operating expenses (opex). Industrial machine manufacturers can implement HaaS 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). 

The shift to hardware-as-a-service parallels the shift from software sales to software-as-a-service (SaaS) business models. In today's software contracts, rather than businesses purchasing software outright and installing it themselves, they pay a monthly or annual fee for accounts, seats, or usage. HaaS follows the same “pay for what you use” mentality—a sign of the times not only because companies are now accustomed to this model for software, but also because younger generations of buyers are accustomed to financing purchases and regularly upgrading to the latest technology. The evolution of HaaS has been described as “the Netflix of Industry 4.0.”

What makes HaaS different from hardware sales?

Additions of products beyond the hardware is what primarily distinguishes HaaS from hardware leasing. Equipment manufacturers or service providers that offer HaaS subscriptions do much more than just supply hardware. They’re responsible for installation, for training, and for monitoring and maintaining the equipment—incorporating a service plan, warranty program, or maintenance agreement, for example. They may offer subscriptions to proprietary software that integrates with the hardware. And they may include supplementary services like security protection or storage backup.

This bundling of products and services alongside the hardware—along with cloud solutions that allow for automation, equipment analytics, predictive maintenance, and cybersecurity—essentially create an ecosystem rather than a standalone asset. In other words, HaaS customers purchase an end-to-end solution rather than a product.

Why is hardware-as-a-service evolving now?

There are three essential drivers of the burgeoning HaaS model that Deloitte named in recent research on equipment-as-a-service (PDF):

1. Customer demand: Businesses are now explicitly demanding HaaS models because they allow equipment users to avoid the downsides of ownership and share risk with equipment manufacturers. HaaS models reverse an otherwise cost-prohibitive barrier to entry. And HaaS frees users of the responsibility of maintenance and repair of the equipment over its lifetime—not to mention the disposal of the equipment once it’s obsolete.
2. IIoT technology advances: Advances in technologies such as AI, Big Data, and Cloud all enable a HaaS business model. For example, industrial internet-of-things (IIoT) solutions allow for performance data to be shared from the equipment directly to the equipment manufacturer and provide transparency on usage. This means service providers can constantly optimize their hardware based on data, and charge customers based on output.
3. Decline in equipment sales and margins: Many equipment manufacturers have recently seen declines in sales volumes, making “aftersales” their biggest profit driver. This means they’ve had to look beyond one-off asset sales to gain market share—and there are major opportunities in the accessories and consumables that customers need to operate the equipment. Successful HaaS companies have figured out how to deploy and monetize multiple products at once as part of a HaaS solution.

Given these drivers, the HaaS market is poised to reach a value of around $305 billion by 2026 (up from nearly $41 billion in 2017). Leaders from The Alta Group assert that “OEMs and service providers must address [buyers’ needs] while beginning to transform their businesses from product-focused models to service-focused models.” And Scott Nelson, Chief Digital Officer at Tamarack, a technology firm focused on equipment finance, encourages equipment manufacturers to “embrace the inevitable: Usage-based leasing will soon be the standard, not a novelty, for successful lessors.”

Examples of hardware-as-a-service: how and when does HaaS work?

HaaS is the right model for an organization—and for a business partnership—in a number of circumstances:

• When it makes economic sense for the buyer not to own a piece of hardware outright (e.g., upfront costs are too high or seasonality/scaling would mean the hardware would sit dormant for stretches of time)
• When the buyer needs to continuously engage the manufacturer and so the primary value proposition is connected to ongoing service (e.g., when the buyer's technicians don’t have the skills or training required to maintain robots leased from a HaaS provider) 
• When the hardware can be monitored and managed remotely; upgrades, updates, and optimizations can be deployed over the air; and performance and usage data can be shared from the hardware directly back to the manufacturer in real-time

In all cases, bundling proprietary software with proprietary hardware, which then requires proprietary service, is what makes up a HaaS offering. No buyer has the expertise in-house to maintain complex proprietary equipment on their own—whether an autonomous forklift, an automated tractor, or a metal 3D printer. The HaaS model delivers the right technical expertise as part of an end-to-end solution that has hardware at the center. 

Equipment manufacturers: now is the time to consider a HaaS model

While HaaS is still early, it is growing in prevalence. The business world has a powerful precedent in SaaS, which leading hardware manufacturers want to replicate. HaaS will soon be the standard for manufacturers everywhere. Equipment manufacturers who want to set themselves apart are evaluating HaaS models for their solutions. 

The advantages are likely to outweigh the disadvantages. This is as true for hardware vendors as it is for buyers. Vendors see higher margins over time thanks to recurring, predictable revenue; higher-quality equipment thanks to strong customer partnerships and continual feedback; and increased customer loyalty thanks to stronger solutions. Buyers see lower up-front costs to get service; cutting-edge technology and cost-effectiveness throughout the lifetime of the contract; and flexibility and scalability thanks to elastic consumption.

The merging of hardware and software into an end-to-end ecosystem is a decisive—and exciting—element of the digital transformation that is Industry 4.0. The question manufacturers should ask themselves is not whether the as-a-service model is worth incorporating into their offering, but when.