The adoption of Equipment as a Service (EaaS) business models is accelerating. In 2025, the global EaaS market is estimated to grow to $131B compared to $22B in 2019 (Wopata, 2020). Why is the market size suddenly increasing by a compound annual growth rate of 35%? EaaS is a major paradigm shift for many enterprises in the industrial sector. More and more industrial companies start to bundle their products with services and offer product-service systems. Thereby, they do not only sell equipment, but offer comprehensive solutions that address untapped customer problems.
According to end users, OEMs and IoT technology vendors, four drivers are currently the equipment as a service market growth:
Lower set-up costs
More mature financing tools
New accounting regulations
New competition from 3rd party service providers
Definition - What is Equipment as a Service?
Equipment as a Service describes the process in which production systems or machines are made available in return for a fee, rather than having to be purchased. Hereby, the end customer saves considerable capital expenditure and passes on parts of the operational risk to the provider (Brunner & Waschbusch, 2018). Instead of high capital expenditures (CAPEX), medium or long-term subscriptions or a pay-per-use distribution models are generated as operating expenses (OPEX). This reduces business risks, improves cash flow and increases productivity.
Ultimately, EaaS providers enable their customers to focus on the core operation of their equipment. For example, Bosch’s offering of heat as a service i.e., selling heat instead of heating systems. It shows, EaaS is not about outsourcing an entire equipment operation in contrast to service contracting business models which rely on complete outsourcing.
Increasing digitization and automation, however, lead to blurred borders between EaaS and complete outsourcing. Thereby, it is important to consider that EaaS did not just emerge. There are well-established EaaS business models, such as Rolls-Royce’s jet engine as a service which dates back to the early 1960s. But just recently EaaS gained momentum through the advent of the Internet of Things. It is a catalyst for new services and service-oriented business models. Therefore, most companies which are just beginning to investigate EaaS business models still have to explore its art and science.
The Internet of Things: Digitizing Equipment as a Service
The Internet of Things (IoT) can be understood as a network of physical objects that are linked with sensors, software, and other technologies, thus, connecting and exchanging data with other devices and systems over the Internet. This ease of connecting all sorts of equipment and devices within the internet of things enables EaaS to become more feasible and affordable. For example, it improves equipment design by connecting provided equipment to the cloud of IoT devices and IoT platforms. It ensures that the data sets from diverse production cycles are collected, analysed, and sent to R&D departments for use. The feedback from machines allows for data-driven improvements to machine features, capacity, and operations (Bither, 2020).
If you want to learn more about IoT check out our blog post ‘Business Models – Definition and Reason’
Customer’s Equipment Lifecycle: Distinguishing four service categories
The specific services that are bundled with the equipment depend on market demand and actual customer needs. However, four fundamental service categories can be distinguished along the customer’s equipment lifecycle of EaaS.
A. Finance services help customers to finance the equipment and range from simple credit brokerage to advanced models shifting customers’ capital expenditures (CAPEX) into operating expenditures (OPEX)
B. Provision services help customers along the equipment lifecycle and include, for example, commissioning, monitoring, maintenance, repair, updates, upgrades, optimization, or decommissioning
C. Operate services are provided by manufacturers to assume responsibility for parts of the core operating process for the equipment they supply, such as management of consumables.
D. Derisk services create value through reducing customers’ operational risks (e.g. equipment failure) and/or business risks (e.g., decline in demand), e.g., by introducing pay per outcome payment schemes.
66 Patterns: What is the St. Gallen EaaS Navigator?
The St. Gallen EaaS Navigator identifies and explains 66 fundamental patterns that are core to EaaS business model innovation. After analysing over 200 manufacturers that offer EaaS this knowledge is exclusively shared by the St. Gallen EaaS Navigator. Not all patterns are applicable to every business and the patterns are certainly not exhaustive, however, every pattern creates a chance for managers to be aware of them, innovate along them and sustain competitive advantage.
How to apply the St. Gallen EaaS Navigator?
Set the scope
The patterns in this section outline the diverse nature of EaaS. EaaS is not only about machines, but also about fleets of machines, components, and consumables. Use the patterns to identify a broad set of EaaS opportunities that you can challenge and refine in the next steps.Identify core value drivers
This step is an unconventional way of identifying important customer value drivers by looking at customers’ preferred payment schemes. Put yourself in the customer’s shoes and identify what matters most to them. Use the patterns to discuss how your customers want to pay and thereby identify promising revenue models.Explore customer gains and pains
In this section, the patterns capture common customer pain points along the equipment lifecycle. Use the patterns as a starting point to identify where your customers experience pains and might benefit from an EaaS offering.Investigate strategic rationale
The patterns for this step outline strategic rationales for offering EaaS. Clear strategic rationales are a must to justify EaaS investments and to manage progress. Go through the patterns and discuss whether your company should offer EaaS.Define service offering
The underlying patterns of this section outline service elements that can be included in the EaaS value proposition. Go through the pattern cards and pick those which are necessary to turn your customers’ pains into gains. Discuss the feasibility of offering these services and get customer feedback as early as possible.Apply proven management tactics
These patterns represent best practices to turn EaaS ideas into action. Explore winning management tactics to get answers to the following questions: Where should you start with EaaS? How can EaaS solutions effectively be marketed? How can EaaS offerings be run and scaled successfully?Leverage enabling technology
The enabling technology patterns provide an overview of use cases that help you to offer EaaS in a sustainable and profitable way. Browse through the patterns and discuss which technologies and use cases are core to your EaaS offering.
Tips for Best Practice
The best way to use the St. Gallen EaaS Navigator is in a creative workshop setting. A group of three to five participants is ideally recommended. Larger groups can be divided into smaller ones. For innovative, outside-the-box thinking diversity is needed, therefore, it is best to select participants from a wide range of backgrounds. Make sure that the people who are participating are open minded and creative. A devil’s advocate is only helpful after initial results have been derived. For the best outcomes, thinking through all 7 steps is the best way to go. However, you might want to adapt the overall process based on your setting and requirements. Depending on the maturity of your EaaS activities, for example, you do not necessarily have to start with step 1. Do not limit yourself to what is happening today. Think of what will be possible 5 or 10 years from now? For instance, when equipment is fully connected, your competition also moves towards EaaS. The format quickly leads to initial results. Last but not least, involve your customers as early as possible to validate these initial results.
Learn more about the St. Gallen EaaS Navigator at Bosch IoT Lab.
Order your version of the EaaS Navigator on Amazon.
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