Hi Guys,
Welcome to the 3rd episode of “Learn Technology in 5 minutes” by MAKERDEMY and this is Venkatesh, the founder of MAKERDEMY.
In this episode, we will learn how the Internet of Things is creating new business models and disrupting the status quo in a variety of industries. With the help of IoT, we have entered the age of Everything as a Service.
Before we understand what Everything as a Service is, let us step back and see where and how a company like General Motors makes its profits. GM sells a lot of cars, but at relatively low-profit margins. The revenue clocked by after-sales support – selling maintenance services and spare parts is relatively lower. But here is the thing, the profit margin in the maintenance and spare parts business is way higher than the profit margin in selling cars. And why is this? This is because the customer is locked into GM after the purchase of the car and is forced to cough up higher prices for maintenance and spare parts.
This holds true not only for GM but for a number of other manufacturers in a variety of industries.
We will now see how Rolls Royce turns this model on its head with its Totalcare solution. The traditional business of RollsRoyce is selling Jet Engines. Like GM, Rolls Royce used to make a lot more profit on its after-sales support services like maintenance contracts and spare parts than on jet engine sales.
Here is what Rolls Royce has done with its TotalCare. Rolls Royce has embedded numerous tiny sensors all over its jet engines and can thus monitor its jet engines while they are on air and perform effective preventive maintenance by analyzing the data generated by these sensors. Preventive maintenance is way cheaper than breakdown maintenance and it also helps in extending the life of the assets. With the help of IoT, Rolls Royce now offers Jet Engine as a Service. It’s customers now only have to pay a fixed dollar amount per flying hour basis, by way of long term contracts. The burden of maintaining and managing the jet engines is now transferred to the party who can best do it – Rolls Royce.
This is a win-win for both Rolls Royce and its customers as the customers only pay for usage of the jet engines and don’t have to bother about maintaining the jet engines. It also changes their jet engine purchase from a capital expenditure to an operating expenditure.
With this Jet Engine as a Service business model innovation, Rolls Royce has pulled ahead of its competition and is winning in the market place.
And that is not all. All the sensor data from the jet engines when the aircrafts are flying are now fed back to the design and the production team to make ever more efficient jet engines, thereby making Rolls Royce a formidable competitor in the jet engine business.
All thanks to IoT.
There are numerous examples from industries such as mining equipment, hospital equipment and so on., where this same theme is being replicated. We now have mining equipment as a service, Hospital equipment as a service and just about everything as a Service.
Companies that are not embracing this changing business model will be forced by the market place to offer their product as a service or risk getting taken out of the game.
That is all from me in this video Hope you enjoyed it.
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