How you buy machinery is about to change

Subscription service and pay-as-you-go features a growing trend

Published: June 15, 2023

Capabilities to handle new digital features will be built into Deere equipment as a standard
practice. Owners can activate these digital features on a subscription basis.

The days of walking into a dealership, putting down your cash and getting a machine with all of the options you want in one transaction are coming to a close. Brands are now starting to look more intensely at the subscription model for advanced digital features as opposed to the old-fashioned, all included, one-time purchase.

And the reason is simple: the subscription-based purchase model generates a continuous revenue stream, meaning brands don’t have to wait until you bring that tractor back to the dealership to trade it in before they see the colour of your money again. In a time when ever more advanced digital features are what brands see as driving new equipment sales, the subscription model will become even more prominent — and easier for brands.

A couple of decades ago, the subscription-based model wouldn’t have made sense. The big diesel engine and the iron around it can’t really be changed — although some mechanics have made businesses out of ramping up the horsepower by tweaking control of the injection pump or deleting emissions systems. But that’s about as far as it has gone. Now, however, with the digital features behind precision farming systems becoming the centre of attention, the subscription model is a perfect fit.

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At a recent investor relations event in Des Moines, Iowa, John Deere revealed it will be focusing on that sales strategy in the future. Producers will buy the tractor or other machine up front in the usual way, then activate the digital, high-tech features they want as they need them, on a subscription basis.

“Since inception, Deere has relied on a business model that monetized products at point of sale,” said Ryan Campbell, CFO at John Deere during a presentation at that investor relations day. “However, the nature of our solutions (read products) is changing. They combine the equipment, which will largely remain on a point-of-sale model, with machine learning and an ever increasing software component … (that) ties payment more closely to value creation (for farmers). Ultimately moving us from a point-of-sale to creating on-going value for customers.”

PAY FOR WHAT YOU NEED

Deere executives said that this model will reduce upfront purchase costs and allow farmers to pay only for those digital features they need for the period they are in use, saving them money. That model also provides an opportunity for brands to increase revenue as more machinery owners are encouraged to adopt new technologies faster on a more affordable pay-as-they-go basis.

The constant revenue stream created by subscription-based features will also help smooth out those feast and famine cycles that have dominated the ag machinery sales landscape since, well, forever.

“We expect about 10 per cent of our revenue to be recurring by 2030,” said Deere’s deputy financial officer, Joshua Jepson. “This will increase the consistency of our through-cycle earnings. We see a future where nearly 40 per cent of our revenue is recurring or less cyclical. And the per cent of earning (profit margin) tied to these recurring revenues will be even higher.”

Activating a digital feature on a machine can be done remotely, so after the initial machine sale there is little additional cost involved for the brands, that’s what helps boost profit margins. But those capabilities need to be built into a machine to start with. So, Deere, for one, expects to build all of its advanced digital features into machines right on the assembly line as a standard practice, then wait for an owner to decide he or she wants to use them and pays the activation fee.

For model year 2024, Deere has started moving in that direction. It’s offering an Autonomy Prep package for 8 and 9 series tractors, which ensures these machines have the components needed to operate autonomously in the future, when Deere decides to make that feature available.

“This includes the right transmission and visibility package, implement ethernet, a 330-amp alternator and other additional hardware,” said Ryan Jardon, marketing manager for John Deere, in a press release. “More components will likely be needed, but the Autonomy Prep package outfits these tractors with important known autonomy components to reduce what may be needed in the future when autonomy becomes more widely available.”

“The goal finally being that all large tractors that ship come with this autonomy kit on board,” added Willy Pell, vice-president of autonomy and new ventures at Deere, during the investors’ session.

The trend across the entire industry has most manufacturers moving in the direction of subscription-based feature activation. All of which means the way farmers buy machines will soon look very different than it has for past generations of producers.

About the author

Scott Garvey

Scott Garvey

Machinery editor

Scott Garvey is senior editor for machinery and equipment at Glacier FarmMedia.

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