Hardware-as-a-service startup Xyte raises $30M in early-stage funding round

The self-proclaimed hardware-as-a-service startup Xyte Technologies Ltd. today revealed that it has closed on a $30 million early-stage funding round.

The Series A round includes $20 million from Intel Capital and other key participants such as Samsung Next and existing investors S Capital and Mindset Ventures. In addition, $10 million came in the form of venture lending from funds and accounts managed by BlackRock Inc.

Xyte says it’s the developer of an industry-first “servitization platform” for device and hardware manufacturers, and it has the bold ambition of enabling them to transition away from traditional onetime sales to an as-a-service business model.

The startup explains that HaaS provides an easier way for small and medium-sized businesses, as well as larger enterprises, to create new subscription-based offerings for their hardware and devices, offering both their products and additional services in return for regular payments.

With the HaaS model, the customer pays a regular subscription fee for using the hardware, as opposed to actually buying it upfront. Payments can be flexible, with options including a monthly fee, a duration of usage fee, a telemetry-based fee, service or feature-based fee, or any other financial model the hardware maker conceives.

Because the customer doesn’t actually own the hardware or device, the manufacturer or managed service provider takes responsibility for monitoring, maintaining, updating, upgrading and replacing the hardware as required. It provides an attractive option for many customers, because it means they can access the latest hardware products without paying a large upfront fee.

Another benefit is that outdated or malfunctioning hardware can be decommissioned and replaced quickly, at no additional cost. In this way, businesses that opt for HaaS can focus on their core competencies, rather than worrying about the expense and hassle of buying, configuring and maintaining specialized equipment.

It’s not an original idea by any means. Public cloud infrastructure providers such as Amazon Web Services Inc. and Microsoft Corp. essentially follow the same model, renting out their cloud-based servers to customers. Additionally, traditional information technology suppliers such as Dell Technologies Inc. have also embraced this model. For example, with Dell’s Apex-as-a-service program, customers can pay a regular subscription fee to have that company’s most advanced servers and storage arrays installed in their own data centers, with regular updates and management performed by Dell’s technicians.

Although many of the largest hardware and device manufacturers have already embraced the hardware-as-a-service model, doing so is much more difficult for smaller companies. Yet it’s becoming increasingly clear that they will need to do so in order to keep pace with industry trends.

There are clear benefits to the HaaS model, including more predictable and recurring revenue, plus opportunities to upsell additional services and penetrate new, price-sensitive markets. Manufacturers will also benefit from longer-lasting customer relationships, as customers are more likely to stick with the same supplier if it means they can always access the latest hardware.

Xyte co-founder and Chief Executive Omer Brookstein told SiliconANGLE that OEMs face a number of challenges in establishing their own hardware-as-a-service model. The most obvious one, he said, is the need to create an entire, cloud-based infrastructure for managing the hardware and whatever business model they opt to use. For most hardware manufacturers, software is not their core competency and so it makes sense to use an off-the-shelf solution instead.

There are less obvious challenges too, Brookstein said, such as the need for financing. “The return on manufacturing costs is delayed with a subscription based model, so companies need credit to transition,” he explained. “But sufficient credit lines are difficult to procure when there’s uncertainty surrounding product viability and profit timelines.”

In addition, Brookstein said, companies face difficulties in getting around things like charging and billing customers and paying taxes, as the subscription model is much more complex than tradition sales. As such, companies require sophisticated operations capabilities integrated within their hardware-as-a-service software.

The Xyte Device Cloud servitization platform makes it simpler for hardware and device makers to introduce usage-based pricing and other business models. It has been purpose-built for original equipment manufacturers, enabling them to manage the complete lifecycle of any connected device, from the moment it leaves the factory floor until it’s installed on the customer’s premises.

Brookstein said Xyte provides a robust cloud platform that any business can easily connect its devices and hardware too, without needing to write a single line of code. “An OEM can have its own, fully branded as-a-service platform for end customers and channel partners in a matter of weeks,” he said.

As an additional benefit, Xyte has partnered with leading financial firms including banks and specialist leasing companies to provide them with the data they need to offer loans to hardware manufacturers on much better terms, the CEO said.

Holger Mueller of Constellation Research Inc. said everything in the technology industry is moving toward an as-a-service model. “Customers prefer it because it gives them the elasticity they need from both a commercial and an architectural perspective,” he said. “But it’s very difficult for hardware and device manufacturers to enable such a business model by themselves, as doing so requires significant expertise. This is where Xyte’s platform can prove its worth, enabling HaaS for every product from production to obsolescence.”

Brookstein said the funding from today’s round will be used to expand the HaaS model in Europe and North America. “We are determined to continue supporting connected-device manufacturers in every industry,” he said.

Already, Xyte claims to have made an impression in industries such as the automotive, medical devices and robotics sectors. Its customers include Schneider Electric SE and Legrand SE.

Intel Capital’s Israeli country manager Roi Bar-Kat said it’s becoming imperative for device and hardware manufacturers to embrace the HaaS model. “Xyte is equipping forward-thinking OEMs with an indispensable software stack to meet that need, and we are confident it will play a pivotal role in shaping the ecosystem and enabling device and hardware manufacturers to flourish,” he said.

Photo: Xyte Technologies

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