by Tom O’Neill
Kilauea, one of the volcanoes on the island of Hawaii, has been erupting since 1983. No one knows when this eruption cycle will end. My family and I visited Kilauea in 2016 and watched the eruption in the main crater. Our viewing was at night. The glowing red lava, boiling and spewing into the air, was quite a spectacle.
Since 1983 fissures have opened on the side of the volcano with lava flowing to the ocean, making awesome steam clouds when it hits the water. But destruction is left in its wake. Just recently another opening appeared on the volcano’s south shoulder. Lava began covering roadways, burning property and houses, and forcing locals to evacuate. One resident living in the affected area told CNN, “It’s been a real shocker. We’re about to enjoy eating dinner, and the cops show up and tell us you have to go, and everything changes in an instant.”
Wait a minute … you live on the side of a volcano that’s been actively erupting for almost 35 years; no one has any idea when that will end; there’s been other lava flows all over the mountain through the years … and this time it’s a “real shocker” because it’s happening in your neighborhood?
That made me think about our industry. Like Kilauea, there have been cracks showing up in our well-worn business model for some time.
The business model we’ve used for more than 40 years (only a bit longer than Kilauea’s eruption) is to make money on hardware sales (usually term leases) and set up a recurring revenue/profit stream with maintenance and supplies billed through CPC “click” agreements. Maximizing return on that model meant putting as many machines in the field as possible to capture more and more page volume.
Cracks from stress on that model have been evident for a long time. Lower priced, reliable A4 MFPs are gaining popularity with customers who once purchased higher priced A3 equipment. Average page volumes per machine are decreasing. HP is marketing lower lifetime costs in PageWide technology and adding competition to the A3 market space. And there’s an increasing shift to purchasing MFPs, supplies and support online through Amazon, Staples and Office Depot.
The differentiated value dealerships provided customers — equipment value and reliability, productivity, response times, lower print costs, local presence — became easier to deliver by competitors or not as valued by customers. Sure, there’s been a movement toward “solution selling” (using software) to add value in hopes it will pull through equipment sales. And many dealers sell “services” or “professional services” today. In many c,ases this means managing multiple contracts and billing methods. But the underlying business model still seems to be the same – installing hardware and gaining the click stream.
Is it perhaps time to consider a new business model for the industry? A business model that doesn’t rely on sales of commoditized hardware, CPC and service response times. One that’s focused on higher value services a dealership can provide through the holistic use of their unique expertise and the products and services available from OEMs. This model will need a way to manage and single bill for multiple, perhaps disparate, components that this servitization approach requires.
Seat based billing (SBB) may be an emerging platform that can help create this new business model. SBB could offer a unique and hard-to-compete-with method that all-inclusive leasing tried to deliver, or that MPS/MDS promised.
In the next few posts I’ll give my view of SBB. There are pros and cons to using this billing method and moving to the new business model it helps create. These posts will be my views of SBB and based on years in the industry listening to dealer owners, service managers and salespeople as they work to maintain and grow business. My intentions are not to sell anyone on using SBB. That decision is an individual one each dealership needs to make. There are many experts out there that can help in making that decision.
I hope this will stimulate thinking on how the business model we’ve been attached to for the past four decades needs to evolve or change. The digitization of the workplace and new paradigm of anything as a service (XaaS) has introduced different competitors moving dealerships to add new product and service offerings. Yet the “razor and blade” business model is still the primary foundation of making money in the business. Can that be sustained? If not how must it change?
Back to Kilauea. Another resident said, “When I bought here 14 years [ago], I knew that this day would eventually come. But the reality is sinking in now.” The question our businesses may need to answer is whether to wait until everything changes in an instant, or understand that reality needs to sink in now?