The Win-Win-Win Model

By Alon Arnon, Country Manager Germany & VP sales for Strategic Accounts

Introduction

When implemented the technology side of Smart Manufacturing there are many moving parts and many interdependent parties. The benefits of Private 5G networks due to ultra-low latency, security, reliability, and mass device simultaneous tiered connections have been discussed, however, the underlying business model options perhaps have been overlooked.

There are two main options for the manufacturer that come down to buy or lease. A company may choose to outright buy all the equipment they need from a single vendor as a “closed box” or the various hardware components and build or have built the management software. The “leasing” option is to use a monthly flexible license as with Software as a Service (SaaS) as an example. Here various components are interchangeable and can shrink or grow according to the business needs on an ongoing basis.

Outright purchase may have some advantages, but there are many drawbacks. Firstly, as we just discussed, there is no flexibility. Beyond this, unlike real estate, technological hardware does not appreciate over time, in fact the exact opposite, it depreciates to a nominal value before having to be replaced. As the business expands, the company is also limited to existing suppliers and their availability.

The license model may have some perceived drawbacks in terms of initial complexity, but it is fast becoming the preferred business model and not just in Smart Manufacturing and software, but as far and wide as Medical Leasing.

The Main Players

In order to understand why leasing is a win-win-win model we first have to understand who the interested parties are. The first is the obviously the manufacturer themselves – the consumer. Then, there are the various hardware and software providers such as: radio units, 5G software providers (like ASOCS), server providers, AI providers and others. Finally, there are the integrators who package the various parts into a whole solution.

The keys for the integrators and providers to work together are in inherent and in-built interoperability plus an aligned business, which today is the monthly service license.

Services need to be based on the use case, the practical implementation that is enabled by the optimal technology – needs first, technology second. All of which need to be easily procured, managed, and leveraged by the business. An example of this was discussed in a previous article: 5G Improving Health and Safety in Manufacturing.

Win-Win-Win

So, the question is why is the monthly license model a win-win-win? From the manufacturer side, the answer seems to be obvious. Other than the flexibility and pay-as-you-grow model, the upfront costs and time are dramatically reduced. The ability to interchange or add different components based on needs and availability adds to the overall flexibility. If the plant needs new radio units and the initial supplier has no stock or there is a better unit for the space it is needed in, there is no issue, simply add the new unit. In the current climate with shortages of super conductive materials leading to shortages of certain hardware equipment, this flexibility has become more important than ever. The benefits continue as an open community means and open global library or uses cases meaning that new usages can be adapted with ease to a specific need. All of this comes as future-proofed, because as new technology becomes available, it can simply be exchanged for the existing hardware.

From the integrator side, having an aligned service fee model across all vendors means being able to the client, the manufacturer, as service in a model they can understand and is beneficial to them. But it is also beneficial to the integrator. The monthly service fee gives ongoing income and growth as the capacity needs of the client grows and more long-term customer loyalty. Rather than working on a finite fixed fee with limitations of margin, the collaboration and relationship becomes ongoing while enabling the integrator the ability to implement new use cases quickly and efficiently for their client – a win-win.

The vendors also benefit from an aligned monthly license service fee. Typically, the initial usage of the manufacturer grows over time and therefore the capacity needs. The relationship with the end client also benefits from long-term relations and collaboration. In an open market with interoperability built in means that even if their solution was not part of the initial implementation, as the requirements of the manufacturer grows their offering could be added seamlessly into the mix.

With each part of the chain gaining value from an aligned service fee model it becomes a win-win-win model.

In Summary

Once all parties are aligned in the business model to accommodate a monthly service fee model, not only is it attractive to the consumer, the manufacturer, but also builds a longer-term growth-based relationship that benefits all.

Digital transformation is not a one-time event, rather an ongoing evolution. The amount of use cases and devices continue to grow overtime enabling more efficiency, safety control and productivity.  Common thread and interest of the integrators and vendors involved is growth. As long as capacity and data usage grow, all parties benefit.

Establishing a business model that is based on data capacity motivates all the supply side parties to strive for growth and the end customer wins it all. The focus of all involve parties is grow the next generation insights, processing and delivery of analysis and actions at the right time in order to make the right decision is critical. Once 5G transformed from Telco into cloud technology, this SaaS model was made possible. The message for the supply side partners is simple: We all should transform our digital mindset to unlock the full potential of 5G.