Equipment as a Service: The Transition Towards Usage-Based Business Models

Abstract

“Equipment as a service” is perhaps one of the most drastic examples of usage-based business model innovation (BMI) in the field today. To date, a systematic analysis of this phenomenon is lacking. This study aims to close this gap and develops a primer for usage-based BMI. Drawing on BMI theory and expert interviews, our contribution is three-fold: We clarify (1) why firms move towards usage-based business models, (2) what the main usage-based business model archetypes are, and (3) how shifting to these archetypes impacts business model components and innovates the business model. Our analysis identifies macro- and firm-level supply- and demand-side drivers and inhibitors which lead to four main usage-based business model archetypes: “Leasing Plus”, “Flexible Contracting”, “Renting/Sharing”, and “Performance Contracting”. The most radical model in terms of its supply-side risk-return profile is “Performance Contracting”. Evidence suggests that two groups of firms are particularly drawn to usage-based models: Firms in “young”, tech-enabled industries and firms in more mature or even declining industries. The former apply usage-based models as a proactive effort to push their products into the market. The latter do so as a defensive move to secure their market position and not lose customers with liquidity problems. Digitalization is likely to reinforce these developments.