“Servitization” describes a transformation whereby manufacturers increasingly offer services integrated with their products. In this short article, I will consider one fundamental reason why maritime equipment manufacturers should invest strategic thinking in servitization.
If you sell a piece of equipment to every new vessel being built in the world, your revenue will be around 2,400 times the price of the equipment (assuming for simplicity’s sake that this equipment lasts for the lifetime of each vessel and ignoring retrofits.)
Your install base, on the other hand, will be 96,000 pieces of equipment (assuming you have been at this for a long time.) Now, if you can sell an annual subscription for a service that builds on this install base, and that subscription is priced above 1/40th of the equipment price, you generate more revenue from that than from your equipment sales.
Historically, profit margins for services are also up to 4 times higher than for products. Partly this is due to increased competition from on the product side from emerging economies.
Sertivization is not a panacea – to quote Tim Baines and Howard Lightfoot – but it holds the potential to create large, new revenue streams for maritime manufacturers. This goes beyond traditional services to keep the equipment running; the real fun begins when you build an AI-driven business around the install base using data streamed back from your users – though that is a subject for another day.
There are several other reasons for why marine equipment manufacturers should consider servitization, but the simple economical calculation presented here is the most obvious.
If you are a maritime equipment manufacturer, I’d love to help you create new digital revenue streams.