Robots-as-a-Service (RaaS): Industry Outlook
Robots-as-a-Service (RaaS): Industry Outlook
Robots-as-a-Service (RaaS): Industry Outlook
November 2022
Christian Mackin, co-founder & CEO, Massage Robotics
How Commercial Businesses Can Capitalize on RoboticsThrough a Cost-Efficient Service Model
Executive Summary
We live in the subscription service era. Almost every industry has found a way to offer products-as-a-service (XaaS), from software subscriptions to meal kit delivery. This model lends itself to so many traditional business models and products, transforming them into low-cost, high-retention opportunities. It’s especially effective when applied to hardware, which often comes with a high cost barrier to entry. In fact, it’s hardware-as-a-service (HaaS) that’s spurring service providers to take a second look at commercial robotics.
While we tend to think of robots in an industrial sense, they’re increasingly becoming part of the commercial services economy—everything iRobot’s popular Roomba to Piestro’s artisanal pizza robot. Using the HaaS model, service providers are able to effectively adopt robots at-scale by passing ongoing service costs to customers—and by paying less upfront to OEMs to obtain service-oriented robots.
The result? Robots-as-a-Service (RaaS)—the latest development in the XaaS industry, and one with the potential to completely transform the world’s service economy.
Robots are a depreciating asset
Robots are a Capital Expenditure (CAPEX), which means they’re subject to depreciation over time. For many commercial service providers, buying robotics starts the clock on a limited timeframe to produce revenue to support the CAPEX. Ultimately, the question becomes one of, “is this worth $X/month to me?”
Unfortunately, for many commercial businesses, a quick cost-benefit analysis paints a picture of a declining financial proforma. As a robot depreciates on the balance sheet, its upkeep costs often rise at the same time. There comes a point when the window forseeing the financial benefits from robotics closes—and for many, that window is too short to justify the expenditure. That’s where RaaS comes in.
The RaaS model, like all XaaS models, is designed to spread cost out over a longer period as OPEX. Simultaneously, RaaS changes the relationship between the vendor and customer, extending a one-time transaction into a long-term relationship. Not only does this build a strong barrier to competition, it helps justify robotics by ensuring net-positive revenue beyond the depreciation timeline of a robot.
Commercial vs. industrial robotics
One of the primary reasons robots aren’t in every restaurant, hotel, or other commercial services business is due to their cost and serviceability and how these factors impact the total cash flow of the business. As a capital expenditure, commercial robots are generally perceived as too costly to procure and/or too expensive to operate. It simply isn’t lucrative or strategic for commercial businesses to use a significant amount of money in mission-critical robotics. This is in stark contrast to industrial robotics, which has dominated manufacturing environments for more than 50 years.
Industrial robots produce the financial advantages that, until now, commercial robotics simply couldn’t. The quickness, precision, repeatability, and reliability of industrial robots has long-supplanted human capital. It’s why the factories of today’s largest industrial producers are largely roboticized, with increasing reliance on automation.
This isn’t to say that commercial robotics aren’t justified. On the contrary: they have the potential to revolutionize numerous service-based businesses. Unlocking the potential of commercial robotics ultimately comes down to justifying spend—namely, lowering the upfront CAPEX burden and reducing the total cost of ownership over time.
The commercial robotics market was valued at $10.91 billion in 2020, and is expected to reach a value of $58.56 billion by 2026, at a CAGR of 33.21%, during this period.
The rise of Robotics-as-a-Service (RaaS)
A framework for addressing CAPEX concerns and total cost of ownership already exists, pioneered by the Software-as-a-Service (SaaS) model. Today’s popular “as-a-Service” model does exactly what it’s named for: it treats a product as a service, extrapolating the cost of accessing that product over time. In accounting terms, it means transitioning from CAPEX to an ongoing operating expenditure (OPEX). In simpler terms: you’re trading a huge upfront cost for much smaller ongoing costs.
Robotics-as-a-Service (RaaS) stands to change the landscape for commercial service-based businesses. In the same way robotics heralded the Third Industrial Revolution, RaaS will enable robots to make the jump from industrial to commercial workplaces, and become ubiquitous tools for delivering a higher standard of service.
OPPORTUNITY: RaaS Transitions CAPEX to OPEX
As stated, one of the biggest hindrances preventing a commercial robotics revolution is a cost-benefit imbalance. The high-cost barrier to entry, ongoing upkeep and maintenance costs, and inability to justify the CAPEX of commercial robotics all work against businesses that might otherwise utilize them. However, this assumes a traditional CAPEX approach. Modeled as a service, an OPEX approach changes the cost outlook of robotics significantly.
Controlling the cost of commercial robots
The transition from CAPEX to OPEX boils down to a distribution of cost. RaaS offers a less burdensome, more appealing approach to justifying the cost of commercial robotics—while also making it easier to gauge and justify the financial commitment.
Low-to-no upfront cost. Because RaaS is more akin to leasing than buying, there’s no upfront lump sum to acquire equipment. This immediately removes the largest inhibitor to utilizing commercial robotics.
Low-to-no service costs. With upkeep duties falling to the equipment owner or Original Equipment Manufacturer (OEM), commercial businesses don’t need to worry about the ongoing expense of maintaining equipment.
Predictable monthly costs. With costs and fees well-defined as part of a Service-Level Agreement (SLA), RaaS presents business owners with stable, predictable financials they can account for and benchmark against each month.
RaaS will spur business evolution
By reducing the upfront cost of commercial robotics and creating cost-of-ownership transparency, the RaaS model makes it easier to justify a commercial robotics revolution—not only from a cost standpoint but from an operational one.
Improved financial potential. Robots reduce the need for expensive human capital to reduce overhead burdens and improve the bottom line. The financial advantages vary across deployments but can be significant.
Predictable cash flow. The known costs of robotics make it easier to predict cash flow and benchmark revenue expectations not only at present but also while modeling growth at scale.
Increased revenue prospects. Robotics have the potential to completely change the operational model of service-based businesses. The resulting efficiency, repeatability, and automation have the potential to open new revenue streams.
Making commercial robotics more accessible
RaaS puts commercial robotics within reach of service-based businesses. It not only removes the CAPEX barrier; it offers an OPEX-based model that justifies the utilization of robotics. With the potential RaaS and its OPEX advantages for robotics, the door is open for commercial businesses to automate.
CHALLENGE: Establishing a Proven RaaS Model
The success of the “as-a-service” model comes down to a well-conceived Service-Level Agreement (SLA). This operating agreement should accommodate both the OEM and commercial customers in a way that adequately distributes costs over the life of the equipment. Moreover, it needs to offer value to both parties in a transparent way.
Pillars of a successful RaaS model
RaaS for commercial robotics can take cues from the SaaS industry, as well as SLAs for industrial robotics deployments. SaaS agreements provide the framework for how to structure RaaS partnerships, while industrial case studies provide insight into the cost considerations and responsibilities of robots in the field. Distilled into core tenants, the following three factors are instrumental in establishing a RaaS model for commercial robotics:
The robot must perform designed functions in collaboration with minimally trained staff.
The robot must be solely maintained and serviced by the OEM or certified partners.
The robot must be the financeable equivalent or less than the salary of its closest human counterpart.
These tenants are crucial for a number of reasons. First, they define the expectation for a commercial deployment. Second, they delineate responsibility and ownership. Finally, they establish standards for cost and ROI. Together, these variables form the basis of a successful SLA.
Focus on service-level agreements (SLAs)
A well-defined SLA is the backbone of an RaaS model and the key to making robots a ubiquitous part of service-based businesses. Operators need to know exactly what they’re getting from a shift to robotics and the cost that accompanies these benefits. An SLA defines all pertinent variables.
While SLAs are likely to differ depending on the OEM, the nature of the business and the scope of a deployment, they’re nonetheless the biggest factor in bringing robotics into commercial venues. Agreements with clearly defined terms and transparent costs will make it easier for commercial robotics to gain a foothold and become a standard. Already, there’s proof of this concept in companies like Miso Robotics, Knightscope, Massage Robotics and others.
Case study 1: Knightscope
Knightscope has helped pioneer RaaS in the security sector. The company’s simple SLA has helped companies overcome the CAPEX cost of robotics by moving and distributing this expense to an OPEX model. According to Knightscope:
We provide Autonomous Security Robot (ASR) technologies that operate 24/7 through our Machine-as-a-Service (MaaS) business model with annual subscriptions at an effective price of approximately $0.75 to $7 per hour.
Knightscope’s SLA includes provisions for deployment, technology (training), service (maintenance), upgrades (upkeep) and more, to help companies maximize their investment.
Case study 2: Miso Robotics
Miso Robotics – the startup that raised their first round in 2016 at a valuation of approximately $16M has subsequently followed that up in later series to reach a current valuation $500M.
Series C – $100M
Series D – $333M
Series E – $500M
Miso Robotics is transforming the foodservice industry with intelligent automation – has designed a robotic platform from the ground up for high volume restaurants such as Jack-in-the box and Buffalo Wild Wings. Miso’s Flippy platform is designed to meet the specific needs of restaurants, particularly those that specialize in buffalo wings, burgers and fries.
As operators look for ways to maximize efficiency, Flippy gives restaurants an immediately impactful solution that streamlines operations in a cost-effective way. Through a Robot-as-a-Service (RaaS) model, restaurants can see a positive ROI from the first day of operation by making Flippy Wings an easy and affordable addition to kitchens. The robotic solution also allows restaurants to redeploy team members to more guest-facing functions, ultimately improving the guest experience.
““We’re incredibly proud to not only unveil Flippy Wings, but to also have an exceptional brand like Inspire share our vision of kitchen automation. From day one, Flippy Wings will cook more food with less waste and save staff for higher value contributions. Flippy Wings fries fresh, frozen or hand-breaded products like a pro, avoiding cross contamination and increasing throughput while reducing costs. It is fast, safer to operate than traditional fryers and the whole system can be set up in just a few hours over existing equipment. We think team members in restaurants everywhere are going to love having Flippy Wings working for them.”
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Case study 3: Piestro
Piestro recently secured over $500M in pre-orders for its pizza kitchen units.
Piestro offers its automated pizzeria through a Robot-as-a-Service (RaaS) model either directly to consumers or through existing restaurant chains such as 800 Degrees.
““We’re building a standalone device that is fully automated and can put pizzas in the hands of people in high-rise buildings, college dorms, or airports and be open 24/7. I travel a lot, and I look forward to being able to get a Piestro pizza anywhere. Piestro enables companies to expand without investing a lot of money. It’s only $50,000 compared with $500,000 to $1 million for a new restaurant, and you can install several machines in only two to four weeks.””
Case study 4: Massage Robotics
Massage Robotics is seeking to revolutionize massage services in similar ways to Knightscope, Miso Robotics, and Piestro by augmenting staffing with precision robotics. The company’s Robot-as-a-Service (RaaS) model offers similar cost savings opportunities as a function of an annualized OPEX model:
The average fully burdened cost of a full-time massage therapist is approximately $5,000 when considering salary plus the company’s overhead for an employee. The average therapist works less than ~120 labor hours per month according to the American Massage Therapy Association. Now, consider a massage robot at the same monthly rate, capable of working ~600 hours per month. Annually, the cost remains the same; however, the massage robot potentially generates 5x the revenue!
Massage Robotics’ model removes the restrictions associated with human capital and enables early adoption of robotics on a robotic investment by shifting from a capital purchase model to a monthly service contract. It is anticipated that businesses will enter into a monthly service agreement when they have a demand that will generate more revenue than the monthly expense of the robot. In this way, there is essentially an instant financial advantage. In other words, if the RaaS costs $5,000 per month and the robot generates $20,000 per month, there a net profit to the business. It all boils down to whether there is a demographic and location that can support and keep the robot busy at a price point to patrons that generates the desired profit margin.
The national average price of a massage is $100 per session, but prices can range anywhere from $65 to $180. On an hourly basis, average massage prices range from $40 to $145 per hour. Some massage clinics packages for multiple massages or monthly subscriptions with discounts to encourage more frequent patronage and to promote recurring revenue.
A simple business case for a RaaS implementation could be a subscription model that charges $60 per month per account for example. The subscription could be for one event for 50 minutes, or four 15-minute events on different days of the month. We have found that 15 minutes is generally all that is needed with a robot to feel great. If we assume that a clinic is open from 6:00 am to 12:00 am 365 days per year, a single robot can technically perform 17,520 massages per year assuming three 15-minute massages per hour to account for change over times. This would generate approximately $260,000 in revenue per robot, while the RaaS expense may only be $60,000 assuming a $5,000 per month RaaS lease rate. Many factors can obviously change the math. Over subscribing which the airlines do and many national massage clinics do can improve profits even aobve 100% utilization. A reduction in human staffing and associated HR, legal and tax burdens may reduce costs and improve profit margins. Being open for less hours or undersubcribing will clearly lessen profits.
It basically comes down to location, location, location as we all know. If a business has a location that can sustain the capacity of a robot, there may be substantial profits to be made.
SOLUTION: Selling RaaS to Service Providers
Making commercial robotics more accessible to service-based businesses is only one side of the equation. The other side involves recognizing the potential of robotics to transform a tried-and-true operational model. While a strong SLA goes a long way toward alleviating questions, concerns and barriers, there needs to be an education component to fuel the wholesale adoption of commercial robots.
Optimization for service-based businesses
How can a robot improve the quickness of a fast casual restaurant? How can it elevate the experience of personal massage? How does it reduce the cost of private security?
There’s a wide breadth of commercial services out there that will benefit from robotics. Some operators know exactly how they can leverage robots into their business model; others need convincing. Still more will wait for early adopters or competitors to test the waters before buying in. In any case, the RaaS model will prove itself increasingly essential with each successful deployment across industries.
Companies need to see proven, data-driven insights that show the criticality of a robotics-driven operating model. A clear SLA, combined with case study data, accented with customized modeling solutions, will give service operators all the incentive they need to justify RaaS.
A benefits-driven approach to RaaS
There’s no shortage of opportunities that accompany access to commercial robotics. In bringing a RaaS solution to market, OEMs and resellers need to lean on core benefits as a selling point:
Access to next-gen technology, without the crippling CAPEX.
The predictability and cost transparency that comes with an OPEX model.
Service-specific cash-flow benefits that accompany robotic automation and efficiency.
Scalability and growth prospects unlocked by robots and automation.
The consistency, repeatability and reliability of robot-administered services.
The key in selling RaaS is pairing these benefits to specific, calculated examples within each service deployment. Establishing case studies, costing models and service-specific SLAs is integral for RaaS to gain traction among service providers.
Unlocking the commercial robotics revolution
As a service-based economy, the United States is increasingly reliant on service providers, who are increasingly reliant on the labor market. Yet, there persists a gap that’s only growing wider and translating into an increasing rate of service failures. And while cost considerations and cash-flow concerns once stymied the prospect of commercial robotics, RaaS shines new light on their potential to not only alleviate operational concerns but to optimize operations in a whole new way.
Conclusion
RaaS offers tremendous potential for commercial service providers. There’s proof of concept in industrial robotics. There’s proof of execution in SaaS models. There’s proof of opportunity in the operational challenges service providers face. And, there’s proof of demand in the success of early RaaS pioneers.
We’re on the precipice of widespread adoption of commercial robotics—and with it, a robotic powered revolution that will transform the services industry.
The evolution of the service industry
Robots have the potential to change the foundations of our global service economy. In the same way digital cameras revolutionized photography and streaming displaced physical media. RaaS represents a new mode of delivering results of a higher caliber, with greater precision, at a lower cost. From flipping burgers to therapeutic massage, there’s a growing prevalence of robotic solutions for service-based businesses across the spectrum.
Blatant benefits aside, RaaS change won’t come without resistance. Photographers decried the fall of 120 Professional Film. Vinyl evangelists still cling to “wax” over lossless high-fidelity audio. It’s going to take time for service providers and their customers to embrace a massage robot into an industry that can’t be more human. The key comes from understanding that robotics isn’t a 1:1 replacement for labor-backed services—rather, it’s a brand-new experience altogether.
The path to RaaS adoption
Ultimately, the equation for RaaS success involves combining a cost-efficient OPEX model with benefits-driven justification, at a service-specific level. As more and more service providers gain faith in commercial robots, they’ll begin to envision ways to incorporate them into operations. This breeds incentive to seek out RaaS providers and, presented with a clear SLA, make an investment in commercial robotics that has the power to deliver early ROI and long-term profitability.
Robots represent a critical step forward in advancing our service-based economy. The rise of RaaS is as essential as it is optimal.