Hardware companies are evolving their approach. At SVB, we’ve witnessed the emergence of Hardware-as-a-Service (HaaS), a model that companies use to provide hardware, software, maintenance and other services in one package for a monthly (recurring) fee. We issued our first custom HaaS loan in 2017.

Digital transformation is raising the expectations of what hardware-enabled industries expect from technology. Hardware, like an industrial robot, is now just part of the overall offering, providing a platform for additional services, like real-time monitoring, predictive diagnostics and AI-powered analytics. HaaS companies are rising to meet these challenges with a business model more suited to their customers. Instead of significant upfront capital expenditures, the HaaS model transforms this into a recurring payment more easily accommodated as an operating expense. For the HaaS company, this provides more predictable revenue and more sticky customer relationships.

The recurring revenue model is spreading to every sector of frontier technology, from construction robots mapping out job sites and security bots roaming office buildings to autonomous drones gathering data from the open ocean. HaaS companies are creating additional value by using their physical assets to build large data sets and create additional services. By bringing a greater depth and breadth of insights to their customers, HaaS companies are increasing customer lifetime value, ultimately driving higher profits.

We wanted to better understand how HaaS companies are performing. In the first half of this report we dive into the key trends driving the adoption and financing of the HaaS model. For the second half of this report, we surveyed 400 top clients in our proprietary State of HaaS Survey. We partnered with Eclipse Ventures, a venture firm that partners with exceptional companies that make physical industries more efficient, resilient, and profitable, to determine the key performance metrics for HaaS companies. Since inception in 2015, the Eclipse Team has focused on transforming physical industries. They helped us identify the six metrics that matter (for HaaS companies) and partnered with us to provide the aggregated results from our survey.