The Business of RaaS: What’s Really Generating Value?
The first laundromat in the United States was not called a laundromat. It was called “Washateria” and it opened in Fort Worth, Texas in 1934. (Texans, as you might expect given their particular investment in the greatness and uniqueness of their home state, still use the word “washateria” instead of “laundromat.”) In the depths of the Great Depression, people could not afford to buy washing machines for their own homes. But their desire for clean clothes did not change; what changed was the business model for cleaning clothes.
“Can’t afford your own washing machine? Rent one of ours by the load! Service, maintenance, plumbing, and upkeep is on us. You just bring your clothes and supply your own detergent (or buy it from us).”
Consumers didn’t have to front a large fixed cost for something they were only going to use part-time. Even with payment plans or other financing options, a washing machine cost more than they would have spent at the laundromat.
Laundromat operators, of course, simply took the other end of this deal: They bought commercial washing machines — with their own money or through a bank loan — and profited if the price of each load was greater than the variable costs of running it (i.e. electricity, water, associated wear and tear and maintenance) and if they ran enough of these profitable loads to recoup what they paid for the washing machines in a reasonable time frame.
This is a classic “as-a-service” business model — as familiar to laundromats as it is to rideshare apps, co-working spaces, and cloud providers. Contrast this with OEM, perpetual license… or any other business model that boils down to :
“You pay us a lump sum, we give you something that is yours to use as you wish. Maybe you sign up for a maintenance contract and a few other bells and whistles, but you now have full use of the core product and all its attendant responsibilities are on you.”
Every value chain in the world eventually hits a lump sum. For the cloud, that true lump sum is the actual servers that your cloud provider of choice has abstracted away. For a laundromat, that lump sum is the purchase of the finished appliance. There are very few forces pushing the OEM and the customer to form and maintain an ongoing relationship because ongoing service costs very little relative to the cost of the machine and the value it should generate.
(Loans and other financing options for appliances are red herrings. Cash flow management is important, but putting your appliances on a payment plan doesn’t absolve you from ownership. The ownership itself is the thing.)
This makes enough sense for laundromats.
- You don’t have a business without the washing machines, so you could reason that you need to own them.
- Most washing machines — even if they have sensors that inform how much water to use or different modes — are finished products. They last years with little maintenance.
- When one breaks, customers just use the other ones until you can get a replacement part and fix it yourself or call a handyman or technician.
But wait. Are the appliances really the core value generators? Sure, they’re doing the core activity that produces a product or performs the work for which the customer pays. But they aren’t really what draws a customer into a business. They’re table stakes. The customer really bases their buying decision on any number of other elements: Location, ambience, service, community, etc. Seen through that lens, those elements are a business’s real unique value generators. They differentiate one laundromat from another. They generate value above and beyond the value of the appliances — appliances that are available to anyone while being indistinguishable to an end customer.
The appliances are commodities. Everything else is value add.
Commodities are usually consumables and are therefore variable costs. In hardware, they’re fixed costs. That’s a misalignment. It’s better overall (and more capital efficient in particular) for a business to invest as much as possible in its own unique differentiators and then leverage those to build a sustainable and profitable competitive advantage.
And yet a laundromat (or a restaurant, coffee shop, hotel, etc.) must invest equally in both. While this might make sense for something as mature as a washing machine, we’re entering a world where the software on our machines is as valuable as the hardware. Modern forces are pushing both sides of what used to be a one-off, lump sum transaction to have a continuing relationship in which the seller provides the buyer a predictable commodity and supports it with regular updates that improve its offering over time.
This is Robotics as a Service.
This is the first in a series of posts that will explore how RaaS will change the hardware and robotics space (and why now), how RaaS providers should think about building and scaling their business, and what this does (and, more importantly, does not) share with SaaS. Stay tuned. Until then…
