The proliferation of Software as a Service (SaaS) has been in impressive innovation in recent years. Instead of the old “Seat License” structure that could carry the up-front cost of a few hundred bucks per seat to tens of thousands, software companies began to offer a low monthly payment subscription that allowed for easier acquisition of the software and a guarantee they’ll always be using the most recent version of the software. Wait, isn’t that leasing?
The answer of course is…yes. Is this the largest expansion of captive financing…maybe…ever. Oh sure, you’re thinking “software” right. Few leasing companies really wanted it anyway and the ones that did were highly tech specialized. Doesn’t affect 90% of the leasing business. Are you sure?
The success of the “as a service” subscription-based revenue model is hard to argue against. As such, companies all over are looking at their products seeing if some, part of all of their offering could fit into the model. Now tech companies are innovating around:
- Infrastructure as a service
- Communications as a service
- Monitoring as a service
- Platform as a service
- Hardware as a service
Wait, hardware as a service? Companies paying a flat monthly payment from the OEM for the use of servers in the cloud dedicated to their operation and a completely different view of the employee laptop that reduces expense. Hmm. Kinda competes with equipment finance a bit, huh. How long before this model evolves beyond the techno geeks and moves to the more traditional equipment finance markets? Maybe it will…maybe it won’t….but ignoring the trend from a management point of view if folly.
Why is it being so successful?
- Focusing on the affordable monthly payment rather than the asset price.
- Focus on how customers use assets and creating a better life cycle approach
- Simplicity
Two ways to look at this. One, it validates the premise of and need for equipment finance. And that’s right. Two, it challenges—even threatens–old equipment finance mindsets and points to the fact we are not spending enough time on the benefits of our solution that matter the most. That software and equipment companies might be able to engineer a better way than the same old equipment finance story. And that’s right too.
We think the growth of this type of business is an opportunity. First, can our business be a resource for liquidity in an industry where most working capital bankers clearly can’t figure it out? Second, could a focus on the fundamentals of life cycle management, affordability of equipment and simplicity bring your equipment finance company out of the “great of sea of sameness” among competitors and make you sound different in the market?
With the amnesia-like business decisions of deploying crazy deal structures and questionable risk models to gain assets at all cost in full swing. Don’t follow. Be a leader. Innovate. Learn from SaaS and position your company to be different and tell a better story. We can help. If you ever wanna chat give us a holler.