E-Services: Redefining the After-Market Opportunity

E-Services: Redefining the After-Market Opportunity

          

E-Services: Redefining the After-Market Opportunity

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    The explosive development of wireless technology, coupled with ubiquitous Internet access, is dramatically changing the economics of industrial service businesses, creating unprecedented opportunities for profitable growth. Most e-commerce applications have driven wedges between manufacturers and their customers. In contrast, e-services can be the “glue” that connects manufacturers and their end customers, restoring the initiative to the manufacturers. It’s quite possible that e-services will surpass electronic buying and selling as the main strategic opportunity in business-to-business e-commerce. Industrial companies should seize this opportunity to explore new models for providing value-added services to their after-markets.

    The Challenge

    Many industrial companies can anticipate only limited prospects for growth in their original-equipment markets. On the other hand, most of those same companies have installed-product bases that are 15 to 50 times as large as their annual unit sales, and the after-markets for parts and services to those installed bases are 2 to 5 times the size of the originalequipment markets. Little wonder, then, that many industrial companies have turned their attention to their after-markets. The opportunity for profitable growth looks immense.

    With a few exceptions, however, that profitable growth has proved elusive. The economics of the after-market have been favorable only for manufacredefining turers of two categories of products. These are certain high-volume “spares and wares,” such as oil filters for engines and steel linings for rock crushers, and costly equipment that is critical to customers’ production processes, requires intensive maintenance, and is located in high concentrations for efficient servicing. Jet engines, for example, whose lifetime ownership costs are 20 times their original purchase prices, spend a lot of time in airports, conveniently located with other jet engines.

    For suppliers of most kinds of industrial products, such as pumps or electric motors, the after-market business has been less profitable. Their installed bases are geographically dispersed, and their customers can meet many of their service needs by keeping spare units in inventory. The economics of such service businesses have favored local entrepreneurs rather than global original-equipment manufacturers.

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