The Business of RaaS: True Alignment
In 1837 (or 1838 if you want to argue about it), John Deere — the person, not the yet-to-be-formed corporate entity — began selling a steel plow to midwestern farmers. Compared to iron and wooden plows, it was more resilient and could be used far longer without being cleaned. It was so powerful and popular that it was eventually christened “The Plow That Broke The Plains” and Deere made “quality” core to his company’s culture.
More than 180 years later, Deere & Company markets a wide range of equipment for farming, landscaping, construction, and even gardening. Quality is still one of the company’s core values. But what does that mean for the customer? Deere can spend as much money as they want on materials to ensure their tractors and lawnmowers live long and useful lives, but modern farm equipment is a serious combination of hardware and software.
Deere’s history and culture pushes it to maintain intense control over its products. And modern farmers don’t appreciate paying for a service provider or dealer to undo a software lock and authorize them to use the equipment that they ostensibly own. So they take matters into their own hands:
“To get it on a truck is $1,000, and by the time you get it hauled somewhere and hauled back, you’re $2,000 into getting something minor fixed,” he said. “You have a real small window to get [a harvest] done in the year, and the tractor broke down. I had to find the software to be able to repair my tractor and make my customer happy and make a living.”
For Deere, once the customer owns or otherwise takes responsibility for the equipment, most of the customer’s value is recognized and Deere is barely incentivized to aid their customers with service that works for them. Even if the customer is taking advantage of one of Deere’s myriad of financing options — and make no mistake, those options are impressive and new hardware and robotics companies should aspire to that level of flexibility — the ownership itself is the thing.
The biggest benefit of a Robotics as a Service model is that the incentives of service providers are fully aligned with those of their customers.
Hypothetically (and notwithstanding hardware switching costs), let’s say John Deere’s business model relied less on upfront revenue from the sale of a tractor and more on how many acres their equipment covered. Their authorized service and dealer model — not to mention their product design — would look substantially different.
- They would invest heavily to ensure minimal downtime, particularly during harvest season. Forget service at the dealer to authorize a fix in software: They would enable over-the-air updates.
- Repairs would be done onsite by default. That means an emphasis on common modular components that can be quickly swapped out if necessary.
- Only the biggest problems would require loading up the equipment for a trip to the dealer, where they would be seen quickly since all of the minor repairs have been pushed to the field where they belong.
- In a worst case scenario, it could even be reasonable for a dealer to have backup equipment on standby. Yes, that means a larger investment in working capital, but it ensures maximum uptime if a repair is going to take a particularly long time.
Remember: The more ground the tractor covers, the more money Deere makes! Uptime is everything. A good harvest is good for everyone. This continued interest in the farmer’s success means Deere is incentivized to constantly remain in touch with their customer and add value to their farms and equipment (which they can do profitably in a software-driven world). And this makes farmers more likely to be repeat customers when it’s time to upgrade or expand.
Consumer psychology aside, very few farmers are buying tractors because they want tractors; they are buying tractors to do jobs on the farm. When a customer can just jump right to the job they want done and pay for what they use, everything needs to be re-evaluated from first principles.
The RaaS model is so vastly different from the old OEM model that it is hard to conceive of what it looks like in the real world. But it is possible now.
- Hardware development and prototyping costs are plunging.
- Off-the-shelf autonomous robots are now almost comically affordable.
- Whether the hardware is fully-custom or based on a general purpose base or reference design, powerful open-source software allows new developers and new businesses to experiment with novel applications. (And that open-source project also has an active community focused on agriculture.)
- This opens the door for true fleets of robots that can be monitored and managed at any scale in the cloud.
We’re talking about an entirely new value chain in hardware and robotics. Product design, development processes, sales, financing, maintenance… virtually everything will change.
This is not a hypothetical. This is happening already.
The three companies above — Small Robot Company, Bear Flag Robotics, and Sabanto Ag — are each taking unique approaches to the farm equipment market. Sabanto just planted a soybean field in Iowa with an autonomous tractor and planter. Bear Flag is showing off its tractor’s ability to pilot itself through orange groves. And Small Robot is demonstrating a complete rethinking of farm equipment in their radical designs.
But just as important as the new tech and new designs is that all three companies price their services based on how much land they cover. Their offerings are tailored to each customer and they can scale up or down as needed. These are not farm equipment manufacturers; they are Farming as a Service providers.
In this new model, the interests of farmers and the interests of their equipment suppliers no longer diverge after the sale. They remain aligned throughout their relationship.
In my next post, we’ll look at the other side and dive into some of the key opportunities, drivers, and difficulties for RaaS companies. It’s not quite as easy as I make it sound. Until then…
