The hardware industry is under pressure these days: slowing spending cycles by consumers and businesses, market saturation – not to mention innovation that largely comes in the form of software at the moment – are all contributing to the emergence of… General decline in sales. Now, one startup has raised some funding to expand its alternative to hardware sales: hardware-as-a-service.
Xyte (pronounced “Excite”), an Israeli startup that allows device OEMs and their channel partners to create subscription services for devices, has raised $30 million in funding.
The money comes in two payments. There is a $20 million Series A led by Intel Capital with Samsung Next, S Capital and Mindset Ventures participating, which will be used to expand the company’s business in the US (where it opened an office in Silicon Valley a few months ago).
And there is a $10 million debt line from BlackRock that it plans to use to help clients move to subscription models. “OEMs face cash flow challenges as they move from one-time to recurring revenue, and still have bills of materials and other expenses,” said Omar Broxstein, CEO of Xyte.
He said the company would not disclose its valuation in this round except to note that it is “reasonable” in light of the current market situation and the fact that startups are no longer as overvalued as they might have been in previous years. Since launching in 2019, Xyte has raised $37 million to date, including a $10 million debt tranche.
Some other data points from Brookstein: The number of customers is in the “thousands” with tens of thousands of devices managed on the Xyte platform. The ARR is currently $1 million and is on track to triple that this year and next. Clients include Intel, Schneider Electric and Rebar, and there are some well-known names among those currently speaking with the company. In other words, it’s still early days for Xyte, but there are some signs of good growth ahead.
Hardware as a Service may not sound as familiar as SaaS, but in some ways it’s a model that’s been around for a while.
Mobile operators for years offered devices as a service when, for a monthly payment, they sold phones under contracts that combined temporary ownership of the phone with a mobile voice, text and data service contract, and — after the advent of smartphones — potentially other premium services such as bundled music subscriptions as well. .
Furthermore, you could argue that basic hardware leasing plans were also an early incarnation of “HaaS” – although those typically came as barebones hardware deals, with software still purchased outright by customers on top of that.
But Xyte believes there is a new gap in the market that provides opportunities. Before founding Xyte with co-founder Boris Denkiewicz (who is its CTO), Brookstein worked at a hardware manufacturer called Crestron, where he built sophisticated AV systems that proved very expensive to change when it came to sales. It was there that he first started thinking about how to apply the service model to devices like these, he said.
These ideas have been given greater speed by other changing tides in the market. The growth of cloud services has been a huge force in the IT space over the past several years. Gartner Latest IT Spending ReportFor example, he said growth will come in cloud services, with areas such as software and services growing by 14% and 9% respectively, while hardware sales will continue to decline by about 9% this year.
And when you think about developments in areas like artificial intelligence, software has taken the spotlight away from hardware when it comes to innovations.
That’s something that’s appealing to device makers themselves, who are starting to shift to building dramatically more services around their devices. Despite their leadership, trend-setting leaders like Apple have yet to move into Hardware as a Service per se for the iPhone or anything else, For years There were rumors of her interest in this field. Innovations like eSIM, which allows you to switch carriers more easily; Ease of replacing old devices with new ones; And of course introducing new expensive hardware like headphones, all of this could help lay the foundation for Apple in the long term to consider HaaS in the future.
There’s also an argument that building subscriptions isn’t a core competency for OEMs, Brookstein noted, which is one reason the company believes it has an opportunity to work with a wide range of third parties in building such services as a complement to more traditional sales.
It’s similar to what Xyte does with Stripe and Shopify, which provide tools to enable online transactions or selling for companies that may not be experts in these areas, but still need to integrate these processes into their business.
“Shopify realized, in the very early days, that if I’m an SME and a small store and I want to do some e-commerce, I don’t have the skill set to communicate… whatever. ‘I just want a store,’” he said. “I think it’s very similar.” For what we do in many ways.”
The idea that Xyte put together is a platform that allows businesses to not only create equipment subscriptions, but also bundle that equipment with other services a customer might want to use. This, in turn, can be applied to anything from a connected truck to a laptop. Usage fees may be charged either over the length of ownership or based on usage. (Pricing also comes by Monthly subscriptions For Xyte customers.)
Initially, Xyte focused on the B2B market, betting on the fact that not only enterprises and small businesses do a lot of equipment leasing.
“What I’m seeing in the market is that more and more companies are looking for a way to upgrade experiences and offer new services, but they don’t necessarily want to spend a bunch of money on hardware, they want to pay X amount of dollars and make it work,” said Brian McCarson, vice president and general manager of the group. NUC at Intel, He said About the rationale behind why some companies are moving to a service model for equipment.
But Brookstein said it’s starting to discover that its customers are also interested in building HaaS that they want to offer to consumers as well — an example being Schneider Electric selling its Wizer connected home heating products on Xyte-powered subscriptions — coming full circle from the days of mobile support.