They have become the new normal for many sectors, especially in the B2C world where, for example, they have become the predominant business model in the entertainment and news industries. Over the past few years, subscription business models have penetrated the B2B and industrial world as well. It started with software-as-a-service transitions moving from perpetual software licenses to cloud-based software solutions in the form of monthly or annual subscription. In fact, IDC reports that by 2024, 66% of all software revenue will be purchased with a subscription business model and this trend is seeing a CAGR of 14.4%. From there, it moved to product-as-a-service (PaaS), equipment-as-a-service (EaaS), and Device as-a-service (DaaS) — to the point where, in 2019 DaaS as a product was offered by PC manufacturers with over 65% of market share. It is undeniable that the manufacturing world is going to embrace this new type of business and revenue models over time. And yet, many manufacturers have not yet gotten started with their subscription journey. But first-mover advantage matters.
"First-Mover Advantage" in the Manufacturing Shift to Subscriptions
Subscriptions are here to stay.
Many industrial verticals have already gotten started with subscription business models.
PTC established leadership in the industrial IoT area while Honeywell, Garmin, and Boeing were early adopters in the aerospace business. Being the first manufacturer to launch subscription in a space has its advantages.
- First you get to work with the early adopters among your customers and partners. In a 2020 report, Siemens recommends an early adopter approach to Industry 4.0 to gain significantly superior return on capital employed based on early competitive differentiation and ROI.
- Second you experiment before anyone else and forge critical partnerships with the best of the best.
- Third, and assuming you have some success, you become the reference in your sector. From there, your competitors play catch-up or take a more niche and focused approach in the same vertical. There is room for more than one digital player. But leadership matters in digital and getting started as soon as possible gives you an edge.
If your business doesn’t lead the industry in the shift to subscriptions, chances are, someone else will.
Your company might not be in a leadership position or not willing to be first to market. That is perfectly acceptable — but not leading opens the door to the unknown about who might lead the way. An empty space might become an attractive one for a company with big ambitions — especially if the sector you are in offers access to an attractive profit pool. Jeff Bezos says it best: “Your margin is my opportunity.” And Amazon is not shy about entering traditional industrial spaces via AWS division as recently demonstrated with the recent announcement of their Monitron predictive maintenance solutions. This is why I often advise industrial firms to get started and launch digital innovations even if you don’t have all your ducks in a row. Do not let someone do it instead of you. Experiment and get better over time.
“Your margin is my opportunity. ”
The question for manufacturing companies shouldn’t be if you will launch a subscription-based offer.
The real question is two-fold:
- When are you going to launch?
- How will you differentiate yourself from your peers in your industry?
It’s never too late to innovate, but the space might be crowded when you get there if you’re a slow mover. The essence of a good subscription innovation is the same as every other innovation you have done in the past: customer centricity, responding to a customer problem, doing it better than the competition, and capturing your share of value. It has been done hundreds of times during the past industrial revolutions. My advice is to roll up your sleeves, bring the right experts to help you, and get it done now.