Slow uptake for Equipment as a Service despite interest

Despite initial optimism, the adoption of Equipment as a Service (EaaS) models has been slower than anticipated, according to the latest report from IoT Analytics. Although interest remains among Original Equipment Manufacturers (OEMs), the uptake has not been as strong as expected, with the model only making up less than 1% of equipment sales in 2023.

The report, "OEM servitization strategies: Why Equipment as a Service hasn't taken off yet" revealed a worldwide market size of $21.2billion for EaaS. Knud Lasse Lueth, CEO at IoT Analytics, highlighted the current situation: "Make no mistake, the pay-per-use model for physical equipment remains a niche yet intriguing business model, with global adoption rates still under 1%. The Equipment as a Service Market Report 2024-2028 reveals a consistent interest among OEMs in the increased servitization of their offerings. Despite this interest, prioritization remains a challenge."

Matthieu Kulezak, Senior Analyst at IoT Analytics, added, "In the last four to five years, there has been a lot of attention paid to equipment as a service. So far, only a handful of companies in niche industries can say they have successfully deployed the business model. The robotics-as-a-service market has a lot of great examples of such success stories." Nevertheless, Kulezak noted that wider adoption has been slow, despite solid interest in the model's possibilities.

The EaaS market has its roots in the 2020s, dubbed by IoT Analytics as the 'machine-outcome decade', where assets are no longer purchased as capital but paid for as operational expenses (OpEx). This shift is seen as a natural evolution of a wider subscription economy popular with music, video, home printer ink, and software as a service (SaaS). However, while EaaS showed promise in 2020, the anticipated high growth has yet to materialise, and the adoption of as-a-service models remains at less than 1% of equipment sales in 2023.

Several factors have contributed to the slow adoption of EaaS. From the OEM perspective, EaaS is just one of nine revenue source innovations and is seen as the most sophisticated. EaaS adoption requires digital infrastructure, recurring billing management, financing capabilities, and significant customer education. Hindered by the challenges of adopting simpler revenue generation innovations, many companies have hesitated to embrace the EaaS model.

The macroeconomic impact of the COVID-19 pandemic is another factor. The shockwaves from the pandemic triggered unpredictable demand and supply patterns, which one might expect to favour EaaS, particularly in industries such as aviation that were initially key adopters. However, the significant decrease in air travel had a detrimental impact on 'pay-per-use' models.

The uptake of EaaS was also below forecasted levels in several industries identified as high potential. For example, out of seven compressor OEMs marked as potential adopters, by 2024, only two were selling real EaaS, and even then, this only accounted for a single digit percentage of their annual revenues.

Despite these challenges, there are some rays of hope. The report identified 56 companies that had adopted EaaS between 2020 and 2024. The report also highlights the lighting and robotics industries as examples of greater EaaS adoption due to key success factors such as ease of measuring ROI, preference for OpEx, and managing equipment complexity. Therefore, while we are not yet in the decade of EaaS, the potential still exists, with EaaS seen as a likely player in shaping the broader subscription economy's future.