The hardware industry is under pressure these days: slower consumer and business spending cycles, market saturation—not to mention innovation coming largely in the form of software right now—all contribute to overall 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 enables hardware OEMs and their channel partners to build subscription services for devices, has raised $30 million in funding.
The money comes in two installments. There is a $20 million round led by Intel Capital with participation from Samsung Next, S Capital and Mindset Ventures, which will be used to expand the company’s operations in the US (where it opened an office in Silicon Valley a few months ago) .
And there’s a $10 million debt limit from BlackRock that it plans to use to help clients make the transition to subscription models. “OEMs are facing cash flow challenges, moving from one-time to recurring revenue, still having bills of materials and other expenses,” said Xyte CEO Omer Brookstein.
He said the company is not disclosing its valuation with this round, other than to note that it is “reasonable” in light of the current state of the market and the fact that startups are no longer overvalued as they might have been in the past. years. Since launching in 2019, Xyte has raised $37 million to date, including this $10 million debt tranche.
Some other data points from Brookstein: customers number in the “thousands” with tens of thousands of devices managed on the Xyte platform. ARR is currently $1 million and is set to triple this year and next. Clients include Intel, Schneider Electric and Rebar, and there are some recognizable names among those currently in talks 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 hardware as a service when they sold, for a monthly payment, phones with contracts that tied temporary ownership of a device to a contract for voice, text and mobile data service and — after the rise of smartphones — potentially other premium services such as music subscriptions are also bundled.
Further back than that, you could argue that basic hardware leasing programs were also an early incarnation of “HaaS” — though these typically came as simple appliance deals, with software still purchased directly by customers.
But Xyte believes there is a new gap in the market that means opportunity. Before starting Xyte with co-founder Boris Dinkevich (who is the CTO), Brookstein worked at a device maker called Crestron, making high-end AV systems that proved too expensive to change when it came to sales. That’s where he first started thinking about how a service model might apply to devices like these, he said.
These ideas were given more velocity than other changing tides in the market. The development of cloud services has been the big IT craze in recent years. by Gartner latest IT spending reportfor example, he said growth will come in cloud services, with areas such as software and services growing by nearly 14% and 9% respectively, while hardware sales will continue to decline by nearly 9% this year.
And when you look at developments in areas like artificial intelligence, software has taken the spotlight away from hardware when it comes to innovation.
This is something that is catching the interest of hardware manufacturers themselves, who are starting to move towards building a lot more services around their devices. While at the forefront, trend-setting leaders like Apple have yet to move into hardware-as-a-service itself for the iPhone or anything else, for years there have been rumors of her interest in that particular field. Innovations like eSIM, which allow you to switch providers more easily. easy exchange of old devices with new ones. And of course the introduction of very expensive new devices like headsets could all help lay the groundwork for Apple to consider HaaS long term in the future.
There’s also the argument, Brookstein noted, that building subscriptions isn’t an OEM’s core competency, which is one reason the company believes it has the ability to work with a wide range of third parties to develop such services as a supplement. in more traditional sales.
He likens what Xyte is doing to Stripe and Shopify, which provide the tools to enable transactions or online sales to companies that may not be experts in those areas but need to integrate those processes into their businesses.
“Shopify realized, very early on, that if I’m a SMB and a mom and I want to do some e-commerce, I don’t have the ability to connect to… anything. I just want a store,” he said. “I think in many ways, it’s very similar to what we do.”
Overall, the idea that Xyte has created is a platform that allows companies to not just create equipment subscriptions, but to combine that equipment with other services that a customer might want to use. This in turn can be applied to anything from a connected truck to a laptop. Usage can be billed either on a duration of ownership basis or on a usage basis. (Pricing also comes through monthly subscriptions to Xyte customers.)
Initially, Xyte has focused on the B2B market, betting on the fact that enterprises and smaller businesses not only already do a lot of equipment leasing.
“What I’m seeing in the market is that more and more businesses are looking for a way to upgrade their experiences and offer new services, but they don’t necessarily want to spend a lot of money on hardware, they want to pay X amount of dollars and have it work,” Brian McCarson , Vice President and General Manager of the NUC Group at Intel, he said of the rationale behind why some companies are moving to using a service model for equipment.
But Brookstein said it’s starting to find that its customers are also interested in building HaaS that they want to offer to consumers — one example is Schneider electric, which sells its Wizer-connected home heating products to subscriptions powered by Xyte — coming from the days of mobile phone subsidies.
