21.08.2023

Finance Business Next

Equipment on demand: the success story of "Equipment as a Service" (EaaS)

21.08.2023  | Dr. Lars Rüsberg

How EaaS is now also revolutionizing equipment financing

Software as a Service, Machine as a Service, Platform as a Service ... a long list quickly emerges when you think about what is available "as a Service" these days...

The "Equipment as a Service" (EaaS) variant is currently attracting particular attention. More and more traditional industrial suppliers are considering the transition to an EaaS provider. The reason for this is that they have a lot to gain - be it on a strategic, sales or financial level.

There are many hurdles to overcome in order to evolve from a traditional vendor to an EaaS provider. One essential component is Retail Finance, which - like the (re-)financing of the transformation phase - needs to be rethought. Against this backdrop, this article addresses the question of how the "EaaS" trend is affecting the area of "equipment finance", i.e. the financial services associated with the capital goods on offer.

1 The concept of "Equipment as a Service" at a glance

What is EaaS?

"Equipment as a Service" refers to a concept in which companies offer additional services for their equipment - for a fee. Ultimately, in terms of equipment finance, customers have the option of not buying and therefore owning the equipment, but financing it and using it as required - and paying for it according to usage. This is a shift from the traditional model of equipment ownership to a usage-based payment structure.

Deloitte's infographic illustrates the evolution from the traditional purchase and sale model to the EaaS model in several stages of development as follows:

Equipment As A Service: Shifting from a CapEx to OpEx Model | Formtek Blog

Figure 1: "Definition of Equipment as a Service", Deloitte 2023.

 

Market researchers see enormous market volume and growth potential for EaaS

It can be assumed that many industrial companies will move towards consistently anchoring EaaS in their corporate mission statement. A look at the USA shows just how great the potential is.

2. On the path from a traditional industrial provider to an EaaS provider

What prerequisites must be created if a traditional industrial company wants to transform itself into an EaaS company? Companies that have only just mastered the wave of digital transformation had to learn - sometimes painfully - that they could only be successful if they were able to adapt the new philosophy throughout the company and at all its (hierarchical) levels. It is similar with EaaS: the strategic reorientation towards the EaaS concept not only revolutionizes individual departments of a company, but has an impact on all of them - and may call the existing business model into question. The transition to EaaS therefore requires a thorough overhaul of existing structures, processes and ways of thinking, as the service offering comes to the fore and replaces the pure sale of equipment.

The effects of EaaS on the most important corporate functions are outlined below:

  • Business model
  • Corporate strategy
  • Market and marketing
  • Customer relationships
  • IT
  • Finance
  • Other

3. Effects of EaaS from the perspective of equipment financiers (Equipment Finance)

Effects on the overall constellation

When it comes to financing capital goods, this is traditionally a matter for the buyer: can he finance with his own capital or does he need the support of his (house) bank or a leasing company? If the manufacturer wants support with Retail Finance - from his point of view - cooperation with his financial service providers or the establishment of captives is an option.

EaaS will not change the overall situation overnight. But there is clear activity on the manufacturer side, which is increasingly turning to Retail Finance as an additional means of customer retention in the course of urgently sought-after growth and revenue enhancement approaches and - fully integrated as Embedded Finance - wants to exercise control over financial services (and more).

The importance of financing specialists will remain high. But they can assume that they will have to fulfill some additional "IT requirements" due to the prerequisites to be created for an EaaS of one of their cooperation partners.

4. Choosing the ideal companion on the way to becoming an EaaS/equipment finance provider

The digital transformation has shown it over the last decade: without a suitable partner to accompany you through the change, it remains a hopeless endeavor. A central key is choosing the right partner. What are the key criteria that the ideal partner must fulfill? Experience shows that attention must be paid to the "hard facts", which can be broken down into three pillars:

(1) The ideal partner offers available, quickly adaptable solutions.

(2) The solutions must be able to be seamlessly integrated into existing IT landscapes.

(3) Consulting expertise that goes beyond pure IT consulting.

1 Deloitte (2023): "Equipment-as-a-Service (EaaS)", www2.deloitte.com/de/de/pages/energy-and-resources/articles/equipment-as-a-service-eaas.html
2 Relayr (2021): White Paper "Enabling the Equipment as-a-Service Model", www.hannovermesse.de/apollo/hannover_messe_2021/obs/Binary/A1086204/EN%20-%20Enabling%20the%20EaaS%20Model-Insurance%20and%20Financing%20Strategies%20LR.pdf
3 Technical University of Munich (2021): New study on "Equipment-as-a-Service", www.fa.mgt.tum.de/cefs/media-news/article/new-study-on-equipment-as-a-service-by-isabella-stojkovski-prof-ann-kristin-achleitner-and-dr-thomas-lange/
4 KPMG (2021): "Equipment as a service as a game changer in the leasing market - a KPMG perspective", lectura.press/en/article/equipment-as-a-service-as-a-game-changer-in-the-leasing-market-a-kpmg-perspective/55096
5 Simon Kucher (2023): "Equipment-as-a-Service: Moving to a new revenue model", www.simon-kucher.com/en/insights/equipment-service-moving-new-revenue-model
6 Grand View Research (2022): "Equipment As A Service Market Size, Share & Trends Analysis Report By Equipment (Air Compressor), By End-use (Construction), By Financing Models (Subscription-based), By Region, And Segment Forecasts, 2023 - 2030", www.grandviewresearch.com/industry-analysis/equipment-as-a-service-market-report

Dr. Lars Rüsberg