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The Rise of Appliance-As-A-Service

Mike Wolf appliance as a service appliances smart appliance smart home

This week I headed down to the Smart Home Summit in Santa Clara to moderate a panel on data and the smart home. 

My panel was at the end of the day, so I had a chance to listen in on some of the others panels. As with any industry conference, there tends to be recurring themes across panels, which taken together can present something of a snapshot in time for the current thinking of an industry. 

So what is the industry talking about as 2016 draws to a close? From the sessions I listened in on, some of the big themes that are top of mind for smart home execs are as follows: 

  • The rise of AI and machine learning
  • The continued momentum around voice interfaces, with Alexa being the biggest focus
  • Yet another Google re-positioning in the space through a focus on Google Home
  • The need for alternative use-cases for smart home besides home control
  • Alternative business models enabled by IoT and smart home tech

I'll expand on the other topics in separate posts, but I want to focus on the last one here: alternative business models enabled by smart home and IoT.

As we've learned over the past few years, there is no shortage of new business models enabled by intelligent systems and connectivity; the Dash platform and the in-home replenishment model is one I've written about frequently.

But a new not-so-new idea that has begun to gain traction is the leveraging of IoT and smart home to transition the appliance purchase model from transactional to a service based (aka appliance-as-a-service). The thinking is that instead of a one-time purchase of a piece of hardware such as a refrigerator or a washing machine, connected home appliances manufacturers will charge consumers a modest monthly fee for a managed appliance that never breaks down and always has the latest features. 

Now, unless you've been under a rock for the last few years, you probably know this is nothing new. Enterprise software has moved almost entirely to the Software as a Service (SaaS) model, as have Internet infrastructure like servers (IaaS). The X as a Service model is also gaining traction in consumer markets, whether it's cars, furniture or clothing

And so it's no surprise that appliances, the type of purchase that requires a lot of up-front capital, would be ripe for a service-based model. Not only does the consumer get an appliance without paying a bunch of cash up front, but they also get the peace of mind that the device will be maintained and even upgraded from time to time to ensure access to the latest and greatest features.  

There are also benefits for the appliance manufacturer in a service model. One is financial, as it becomes pretty clear pretty quickly that building a large installed base of subscribers vs relying on one-time sales will create a more stable, predictable and, one hopes, larger overall revenue stream over time.  And, much like car makers, the appliance manufacturer could conceivably sell the used appliance down the road to value-seeking consumers. 

A service model could also ensure a captive consumer, one who is happy with the continued high performance of their device and the proactive nature of the service relationship. This "proactive" nature is partly due to the ability of the appliance maker to upgrade machines and preemptively diagnose problems remotely.  

Despite the attraction of a service model for both consumer and manufacturer when compared to the more traditional sell-through/ownership model, I don't think it's easy to predict how quickly and deeply a service paradigm will take hold in the appliance space. One on hand, Millennials - raised to believe they should pay for usage rather than ownership on everything from music to movies to cars - are more likely to be sympathetic towards Appliance as a Service models, good news considering Millennials are fast becoming the driving force in the economy as they enter the workforce en masse. On the other hand, many consumers who buy homes are savvy enough to do the math and realize that over time the cost of a service model for appliances might cost more than outright ownership.

There's also the question of why now and why connected? Or, another way to put it is this:  since the rise of the service model is closely aligned with connected devices, are connectivity and intelligence a requirement for this new model?

I think the answer to that question is a straightforward yes. The biggest reason is there's an implied guarantee of uptime that would simply be impossible to keep if a service provider could not proactively manage and monitor a device. By being able to do so, the appliance maker can guarantee near 100% uptime, avoid costly defects, and ensure higher satisfaction through feature enhancements over the life of the device.

Bottom line: while service models for appliance makers make sense, this is a transition that will take time. Not only do consumers not change purchase behavior quickly, the retail channel is also conditioned for sell-through models and will need to adjust. 

Appliance makers themselves will need to be convinced this is a better way forward. However, if one or two big manufacturers make the leap and find ways to educate the consumer about the value of appliance-as-a-service, adoption of this new model could move faster than anticipated.

My guess is that big appliance makers like Whirlpool are already thinking about it. At the Smart Kitchen Summit last month, Steve Brown, the General Manager of Whirlpool's premium line in Jenn-Air, said connectivity enables the device maker to keep device more relevant over time.

"When we launched our connected oven last December, it didn’t have any integration with Nest and now it does. We will be adding voice recognition very shortly.”

There's a good chance that this embrace of continuous improvement of a device over its lifespan is something appliance makers will use to sell new consumers on the concept of the service model. 

I'll be writing about the other trends mentioned above in a series of posts over the next few weeks as I ramp up the NextMarket blog output.  In the meantime, check out our new site The Spoon and subscribe to newsletter to get updates on the future of the connected kitchen. 

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