Why do machinery OEMs struggle to monetize digital services? 🤔
Throughout my career in cloud software for IoT and Industry 4.0, I've consistently wondered why it seems so difficult for machinery OEMs to generate recurring revenue from digital services.
I've been in countless discussions where companies claim they "cannot charge customers for remote monitoring and data collection." It's a strange paradox: you're working with an OEM on their digital service projects, discussing the clear benefits and the resulting price for the IoT services, and despite their strategic and monetary investment, they insist, "I cannot charge my customers for these benefits. They expect it for free."
This always made me question: “How do you plan to finance constant expenses for the IoT platform, data storage, and add-on services over a machine's 10-20 year lifespan in the field if everything is "free"? Am I experiencing a distorted sample of customers? This can't be a serious company strategy!”
Then I came across this BCG article: "Aftermarket Services: Drive Growth for Industrial Manufacturers" (https://www.bcg.com/publications/2025/aftermarket-services-drive-growth-for-industrial-manufacturers). It states that "Only 4% of companies say they have succeeded in generating recurring revenue from digital services linked to their equipment." So, my sample mirrors reality – and it's a sobering one.
But still, why can't OEMs sell recurring digital service contracts to their customers? From my perspective, there are three main reasons:
Sales force isn't equipped for digital services: Selling cloud software with annual renewals is fundamentally different from selling machines. Simply telling the service organization to sell digital services won't work. It requires an active, high-touch sales approach focused on value, not just a product.
OEMs focus too much on their equipment, not the customer's business: Digital services are often centered around the OEM's specific machinery. However, customers operate equipment from many suppliers. To truly add value, digital services need to augment and integrate into the customer's broader business processes. This requires a different perspective from product management when researching problem-solution fit.
A reluctance to charge for value (learn from Wolfgang Grupp): Wolfgang Grupp of Trigema famously explained that part of his success was saying "No" to low prices. Who receives the core benefit of digital services offered by the OEM? The customer. If you've designed the right services that genuinely address customer pain points, then you've earned a fair share of those benefits – as recurring revenue. Customers pay for solutions that solve their problems and create value.
What are your thoughts? Have you experienced similar challenges or found successful strategies for monetizing digital services in the industrial sector?