The Service-ization of Physical Products

Introduction

Buying equipment once meant owning it. Today, it increasingly means subscribing to products that report back to the manufacturer, stop working if payments lapse, and quietly collect data on how they are used. The shift from ownership to service-based physical products has changed how businesses budget, operate, and think about infrastructure. Here are the key drivers behind the change, and what it means for South African businesses.

Why Service Models Became Standard

Two major economic forces pushed manufacturers toward service-based models. First, predictable recurring revenue is far more valuable than once-off sales. Selling a printer produces a single transaction; selling ink subscriptions produces steady monthly income that investors reward at higher multiples. Second, IoT connectivity and remote management have become cheap enough to include in almost any device. This allows manufacturers to monitor usage, enforce licensing, and disable features remotely, effectively turning physical products into controlled service platforms.

What Actually Changed for Buyers

This shift isn’t just subscription pricing in disguise; it fundamentally changes the relationship between buyer and product. Businesses no longer purchase full capability, they lease access to functionality that manufacturers can alter, limit, or revoke at any time. John Deere tractors require software subscriptions for diagnostics. Tesla can disable features through software updates. Commercial coffee machines stop working without active service contracts. Even after paying for the equipment, full control no longer sits with the owner, creating hidden dependencies many businesses fail to account for.

The Hidden Costs and Dependencies

Service-based physical products introduce operational risks buyers rarely see upfront. Equipment that once counted as a capital expense now becomes an ongoing operational cost tied to connectivity, licensing, and vendor lock-in. A product may sit in your office, but its functionality depends on remote authentication, subscription status, and the vendor’s ecosystem. This changes the total cost of ownership dramatically, especially when unexpected service fees or restrictive licensing conditions appear long after installation.

The South African Reality

In South Africa, this global trend introduces unique challenges. Import restrictions and Rand volatility make once-off capital purchases difficult, and service models initially ease cash flow by spreading costs over time. But they also create perpetual forex exposure. A five-year equipment lease priced in Dollars means your monthly costs shift with exchange rates. Miss a payment, and the device may stop functioning entirely, regardless of prior investment. Worse, many service-enabled products rely on constant online verification. During load-shedding or connectivity outages, equipment may stop working simply because it cannot “phone home” to validate its licence.

Understanding the New Business Risk

The service-ization of physical products is here to stay. Manufacturers have discovered that subscription revenue is more profitable and more predictable, and the technology enabling this model continues to get cheaper. For businesses, this means evaluating equipment purchases not as once-off transactions, but as long-term relationships. It requires assessing connectivity needs, subscription costs over time, vendor lock-in risks, and the IT infrastructure required to support these devices reliably. The upfront price is no longer the true cost, it’s just the entry point.

Conclusion

As more physical products become services, businesses must adapt their purchasing decisions and risk assessments. Ownership now comes with conditions, dependencies, and ongoing obligations. Understanding these realities helps organisations plan more accurately, budget more predictably, and avoid being caught off guard by the hidden costs of service-enabled equipment.