In fact, the potential of the new business model was recognized decades ago. So long before the industrial Internet of things (IIOT) was invented. Initially, models were created that showed similar aspects of the known pay-per-use business model. But the idea was ahead of its time, due to the fact that the emergence of the Internet and the realization of its strong effects were currently underway and the establishment of IP networks for companies was still in its infancy.
Pay-per-use models have already been used in very specific industries such as aircraft turbines. Rolls Royce for example has revolutionized the turbine market with this innovative business model.
Best practices: Performance-based contracting (Rolls-Royce)
One of the best known examples of an innovative pay-per-use business model, in this case the “power-by-the-hour” business model, is from the British aircraft turbine manufacturer Rolls-Royce. Before the introduction of the new model, the production of engines for Rolls-Royce was only a product business: the engine became the property of the aircraft manufacturers for a high one-off price.
In the new business model – instead of the engines itself – flight hours are sold to the airline companies!
What is the benefit for the customer?
The Airlines only pay for the hours in which the engine is actually in operation and no longer have to pay the full price for the turbine. In addition to that the full risk of maintenance & repair was transferred to the turbine supplier, resulting in predictable operating expenses.
How does Rolls-Royce deliver and create the benefits?
As ownership of the engine remains at the supplier, maintenance and servicing of the engine is carried out by Rolls-Royce. By monitoring and maintaining thousands of turbines for different customers, Rolls-Royce established a world-class, global customer service organization which is way more cost effective than an airline’s own maintenance organizations could ever be.
How does the company make money with this business model?
Rolls-Royce generates constant revenue streams by charging the hours in which the aircraft actually flies and constantly reduces costs through an efficient service concept as the model itself incentivizes cost reduction measures.
Not only competitors like Pratt & Whitney and General Electric started similar business models due to Rolls-Royce’s success with “power-by-the-hour” but also other industries followed in the past couple of years.
The overview below is just a selection of industries & companies already started to adopt Pay-per-use business models:
What can you do as an equipment supplier if you are still very much relying on the sale of equipment compared to offering best-in-class services?
Get in contact with the team of FINDUSTRIAL and we start the journey with you!