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The role of 5G for turning products into services

How is your digital transformation going? How do you stay competitive? Are you set to use cellular and cloud solutions? Let's check out some key points from our latest IndustryLab study!

IoT Client Principal at Ericsson

The role of 5G for turning products into services

IoT Client Principal at Ericsson

IoT Client Principal at Ericsson

Enterprise digitalization – shifting focus to value creation

If a technology is maturing, from a business perspective, a particularly interesting period is starting. Proof-of-concepts have been done; it’s time to switch focus to value creation. This is where we are now with enterprise digitalization around the globe, and this is also the scope of the recently published Future of Enterprise report, edition #4.1, “How enterprises create new business value through digitalization”.[1]

Creating business agility, advancing operations, and boosting resilience are the topmost priorities for enterprise decision makers when planning their digital transformation projects. But what does this mean in practical terms?

Turning products into services is one concrete example of value creation. The idea as such is nothing new. We have already seen this business model change in the media industry. However, there is now an increasing number of manufacturers of industrial equipment, who are experimenting with turning products into services as well. Such equipment can, for example, be water pumps, laser cutters, or professional coffee machines.

Expectations are that this adaptation or change in business model creates further agility and resilience because digitally enabled services can create a deep customer understanding, allowing to adapt products to changing market conditions and customer needs.

The rise of the product-as-a-service business models

Digital enterprise transformation often begins with the deployment of basic IoT use cases such as asset monitoring or remote control to advance operations. These applications also lay the groundwork for creating connected offerings targeting both business-to-consumer (B2C) or business-to-business (B2B) opportunities. Our research indicates that enhancing customer satisfaction is a primary goal of these IoT deployments. [1]

Connected offerings allow us to focus on the customer. Offerings can be customized and adapted quickly to changing customer needs or market conditions. Connected offerings also enable the monetization of customer experiences, applicable in both B2C and B2B scenarios, and help in generating recurring revenue streams. According to the Future of Enterprise report, eight out of 10 decision-makers in product-selling companies recognize that introducing connected offerings opens up new monetization opportunities as a major advantage. [1]

Enablement of new ways of monetization as key driver for connected offerings. Please click the legends for more information.

A connected offering is a first step towards turning a product into a service and might involve different business models. The first step is typically to package cloud-based value-added services with a product. Such services could enhance asset lifecycle management or provide analytics of operational or business data. These services are usually monetized through a subscription model based on service levels.

While this is now a well-established business model across many industries, an increasing number of enterprises have started to experiment with Equipment-as-a-Service (EaaS) business models to monetize their products. For example, vendors of professional coffee machines such as WMF[2] are now introducing a “pay-per-cup” model, while Trumpf, a leader in production solutions, is promoting laser cutters for industrial usage based on a “pay-per-part” model. [3] It’s early days for such EaaS business models, and they come with challenges. Financing and risk management, as well as service quality, availability, and scalability need to be secured.

Cellular connectivity

 

Regardless of whether a product is enhanced with digital services or sold as a service, this shift radically changes the importance of connectivity. Already today, 70 percent of all  decision-makers see cellular connectivity and 66 percent cloud as key technology enablers for connected offerings. [1] If the share of revenue from product-based digital services is increasing, the dependency on cellular connectivity is increasing as well. This means enterprises must have greater control over connectivity, which is a major reason why cellular connectivity is increasingly being integrated directly into products.

The rise of embedded cellular connectivity

Let’s take a concrete example. One may associate car wash tunnels with shiny cars, but behind the scenes are highly complex micro-factories. Complex and sophisticated robotic systems, including conveyors, foamers, wheel brushes, drying systems, and other electro-mechanical equipment operate inside a car wash tunnel. These systems need to be configured and orchestrated well to deliver shiny cars and happy customers. Furthermore, these robotic systems are constantly exposed to water, mud, abrasive chemicals, and dirt. Mechanical failure can have severe consequences, including lost revenue, damaged cars or even accidents involving customers. 

Asset monitoring allows system vendors to offer cloud-based services ranging from predictive maintenance to operational analytics. Remote control is greatly beneficial for fine-tuning the equipment without the need for experts to be on site.

Embedded cellular connectivity

 

It's also obvious that all this requires reliable connectivity. Another important aspect is more on the business side: Time-to-revenue. The car wash market is dominated by small medium enterprises (SMEs). Such businesses cannot afford to have longer investment cycles without generating adequate revenue, and embedded cellular connectivity plays a critical role in achieving this.

One of the innovators in this field is Motor City Wash Works (Motor City hereafter), a leading vendor of end-to-end car wash tunnel solutions. Spotting the market opportunity, Motor City did package all required ICT infrastructure into a “plug-and-play” system, including industrial controller, onsite WLAN, switches, and an enterprise router from Cradlepoint, part of Ericsson. [1] The enterprise router comes with embedded SIM cards connecting to cellular networks automatically. Motor City’s enterprise customers enjoy hassle-free connectivity that works automatically and is included in the subscription fee Motor City is charging for their value-added cloud-based services. Shielding their customers from the complexities of managing cellular connectivity is the second key factor driving embedded connectivity, particularly in B2B business.

The rise of cellular network APIs

On top, enterprises are further enriching their cloud services over time, utilizing emerging digital tools such as AI, digital twins tools, or XR. This also means that the quality of service delivery will increasingly depend on the reliability and quality of cellular connectivity – one more reason to stay in control!

For this reason, a growing number of enterprises is now embedding SIMs and subscriptions on a larger scale into their connected offerings.

However, to ensure the applicability of cellular connectivity services, they must seamlessly integrate into enterprise IT landscapes and business processes. Existing ERP or asset management systems should be capable of managing SIMs and subscriptions embedded into connected products. Additionally, current SLA management tools need to be used to ensure the required bandwidth and signal latency for advanced digital services.

And this is where cellular network APIs come into play. Such APIs should not only allow the automation of SIM and subscription lifecycle management, but also enable service management applications to allocate cellular network capabilities such as guaranteed bandwidth or signal latency wherever or whenever needed.[4] If monetization largely depends on meeting SLAs for delivering connected products as a service, “best-effort” mobile broadband services will not always be good enough any longer. Cellular network APIs will be critical to allocate guaranteed bandwidth or signal latency. From an enterprise perspective, the cellular network becomes programmable, which is an important step to making 5G fully applicable.[4]

Conclusion: 5G is not just about industrial IoT. It’s about business model transformation

Cellular connectivity is a key enabler for Motor City’s transition towards digital service offerings. But the key to success is not just the fact that cellular networks offer seamless global connectivity almost everywhere; it’s about how cellular connectivity is used to create digital service offerings. 5G has been built to connect almost everything, from simple devices to complex machines. It offers connectivity for latency-sensitive or bandwidth-hungry applications and provides unrivaled cyber security. But the key point is that it is not just about connectivity. A programmable 5G network is an enabler of digital business model transformation, particularly enabling business agility and resilience.

References: 

[1] How enterprises create new business value through digitalization, A future of enterprise study, Issue #4.1
[2] WMF beverage-based accounting – pay-per-cup
[3] Trumpf pay-per-part
[4] How making network APIs available to developers worldwide will power innovation and accelerate industry growth

Learn more:

Read the full Ericsson IndustryLab How enterprises create business balue through digitalization – A future of enterprise study, Issue #4.1

Take a look around Ericsson’s acclaimed 5G smart factory

Find out more about Cradlepoint, part of Ericsson

Learn more about the future of enterprise across sectors such as automotive, energy, manufacturing and more.

Further read

Future of Enterprises #4.1 – Massive value and major investments are already here

The derived values and versatility of the studied use cases; remote control, asset monitoring and connected offerings, can be extended across many industry segments.

Future of Enterprises #3 – Time to rethink resilience

This report explores what resilience means, strategies enterprises use today and ways to build resilience against future disruptive events.

Future of Enterprises #2 – The rise of the smarter, swifter, safer production employee

Ericsson’s latest IndustryLab report predicts widespread transformation of manufacturing enterprises in coming years, including a rapid rise in the usage of ICT-enabled production tools such as augmented reality, exoskeletons and remote control, and new factory set-ups including manufacturing-as-a-service and pop-up factories.

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