How they do it: The aerospace manufacturer Rolls-Royce achieved success in the 1980s with its ”power-by-the-hour” model for its aircraft engines. What was billed to the customer was not the price of the aircraft engine – the customers did not purchase the engine, and Rolls-Royce kept ownership and maintenance obligations. Rather, the customer was billed for every hour of performance of the engine. This business now accounts for 70% of Rolls-Royce’s revenue.
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How they do it: AWS value proposition is that it is supposed to be cheaper to scale once IT architecture by using AWS cloud computing instead of building and owning own physical server farms. The billing model is based on the usage of the cloud computing capacity rather than being based on the cost of the actual servers for AWS.
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How they do it: Xerox has been very successful in establishing a service business. The company launched ”Managed Print Services” in which it manages fleets of printers and multi-function devices, even those made by other companies, for enterprise clients. Xerox provides maintenance, upgrades, paper and toner replenishment. Clients only pay for pages printed, for a simpler experience and lower operating cost.
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How they do it: In its service business for pressure control equipment, GE introduced a condition-based monitoring and maitenance service agreement. This allows GE to shift from calendar and event-based maitenance to condition-based monitoring and maitenance. By sharing some of the operating risk with its customer it can provide a risk-adjusted value proposition to the customer and also has more control over state and maitenance of its equipment.
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How they do it: BASF has been using ”Performance-based Contracting” since the late 1990s for ‘cost per unit’ models in their ”Coatings” division. The cost of vehicle coatings is calculated per item (or module) coated, rather than by the amount of paint used. BASF has taken on some of the responsibility of finishing cars by lending its support to customers in situ and assisting them in improving their efficiency. Any savings achieved from using the finish more economically are split between customers and companies, resulting in a win–win situation.
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