We are entering the age of “Intelligence-as-a-Service”

Equipment-as-a-Service and Artificial Intelligence are two of the timeliest topics impacting the equipment finance industry in the years ahead. In an article in the July/August 2024 edition of the Monitor, Alta Director Diane Croessmann and Senior Managing Director Paul Bent discuss how these two trends intersect, with major implications for strategic planners and equipment finance leaders.

Diane Croessmann

Croessmann and Bent argue that we are entering a new era of market demand for “Intelligence-as-a-Service.” In introducing this concept, they enumerate the various factors that have historically driven the industry’s view of Equipment-as-a-Service offerings. EaaS has often been viewed as a threat to traditional equipment finance and leasing businesses and methods; and that disruption was thought to be held at bay by the challenges EaaS has presented to service providers.

But EaaS, as viewed by Croessmann and Bent, actually provides opportunities to create entirely new revenue streams through value-added services, and Artificial Intelligence is poised to enhance those opportunities exponentially.

“On the surface, managing [the risks of EaaS] may seem overwhelming to service providers, but there are also significant incremental opportunities compelling them to actively promote these models,” they write. “Service providers are generally manufacturers, distributors, value-added resellers or managed-service providers, all of whom are motivated to sell or re-sell equipment, but who are becoming even more motivated to create and sell services, software and other value-added content to enhance equipment profitability.”

Paul Bent

This becomes increasingly important as sustainability efforts drive improved reuse and recycling capabilities in many equipment classes. “As asset economic life and overall asset utilization continue to be extended through effective remanufacturing and recycling efforts, new equipment sales revenue can be negatively impacted,” Croessmann and Bent write. “To combat this, service providers will address this cannibalization of new equipment by creating and putting increased emphasis on non-equipment value-added service revenue streams.”

Equipment goes from “smart” to intelligent

Tracking equipment usage was once an entirely manual undertaking, but the increasing use of sensors and Internet-of-Things (IoT)-enabled equipment have facilitated greater information-sharing with service providers. Now AI portends an entirely new level of real-time knowledge about usage and performance. “When hardware is layered with analytical, diagnostic, preventative and other AI capabilities, the transformation of that intelligence into alternative revenue streams is almost limitless,” write Croessmann and Bent.

This has vast implications for service providers, as the authors predict AI’s enhancements will lead to the creation of new revenue streams that will make the hardware components of EaaS transactions become smaller and smaller.

“Service providers who currently incorporate 25% – 50% of value-added services into their EaaS models may find the proportion shifting to levels that could exceed 75%,” they write. “In addition to the value-added service revenue streams derived from single transactions with individual end users, the assimilation of data from myriad worldwide end user sources, coupled with AI analytics, creates significant opportunities for service providers to monetize access to this data.”

The shift to “Intelligence-as-a-Service”

The capabilities on the horizon should be a wakeup call to traditional equipment financing and leasing businesses, Croessmann and Bent write. “The impact of EaaS on traditional equipment financing has become undeniable, and while it may not yet be standing on the doorstep, it is certainly stalking the neighborhood.” “Pre-existing dependencies on traditional equipment funding sources will be less compulsory, especially if those dependencies interfere with end-user opportunities.”

The increased volume of data-enabled optimization that drives these new revenue streams will make today’s “Equipment-as-a-Service” term seem antiquated. “With intelligence as the most meaningful output for many of these offerings,” the authors write, “it seems more appropriate to acknowledge that we are really embarking upon the era of “Intelligence-as-a-Service.”

Forward-thinking equipment and asset funders should begin to envision how they can position themselves as enablers of IaaS, staying relevant in a market that is about to change rapidly.

Read the full Monitor article here.

The Alta Group is uniquely equipped to lead teams through this kind of strategic thinking. With a global team of advisors who have decades of experience in the industry, including deep expertise in managed services models, we can help you ensure that your business adapts to changing market demands without abandoning your core fundamentals.

Learn more about Alta’s Business Strategy solutions.

To hear more from Alta’s experts about EaaS and AI, don’t miss:

Director Diane Croessmann’s interview about EaaS on Episode 19 of the Equipment Leasing & Finance Foundation Podcast.

Co-CEO Valerie Gerard and Reimagine Advisors Founder Denis Stypulkoski’s writing about How Generative AI Must Transform Equipment Finance.