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Hardware as a Service

September 14, 2020

Kevin Uhlenhaker

It is hard to believe it is already September of 2020! By the time you read this summer will be close to officially ending, and some of you will be enjoying the feel of fall in the air, while others, myself included, are still in store for a few more months of summer weather despite the season. Change seems to be in the air for the author of our question this month as they look to make an upgrade at their parking location. 


 


Dear Kevin,


Our facility needs new PARCS equipment, but with reduced revenues due to COVID, making the large upfront capital outlay is hard to justify. I have heard about the new “hardware as a service” offerings on the market now, but don’t know much about it. What are your thoughts about this option? 


Inquiring in Indiana 


 


Hello, Inquiring in Indiana, 


I hope you are staying safe during this ongoing pandemic, and thank you for your question. The concept of hardware-as-a-service or hardware subscriptions is relatively new in the parking market, but has been around for many years outside of it. While the label is modern, you could argue it is just a new name for the old concept of renting technology, which goes back to the early days of technology, including early computers, copiers, and even home phones. As it is said, there is nothing new under the sun. 


But before we get too far on the topic, we should formally define hardware-as-a-service (HaaS). According to TechCrunch, hardware-as-a-service “is a business model where companies sell packages that include hardware, software, maintenance, and, sometimes, installation, for a monthly fee.” Under HaaS, customers pay for services, not things; consequently, HaaS contracts often include a service-level agreement (SLA). “Pricing can be set by several metrics, including time in use, transaction count, revenue sharing, or even system uptime calculations. In the parking market, this model has been used for gated equipment, meters, license plate recognition systems, vehicle immobilization, and other solutions. However, most of the marketing lately has been for gated (PARCS) equipment. 


Similar to most technology, the benefits of a HaaS system can vary by customer and location, but can include much lower upfront costs. In many cases, there will only be a setup or installation fee and the first month’s subscription. The lower upfront costs allow the customer to keep cash in the business, which can be of immense value in uncertain times. HaaS can also allow for faster access to technology. With a typical purchase, the high upfront cost will require hardware to be kept in use until a set depreciation date, or longer, if the system is working. This sunk cost can prevent the upgrade to newer technologies as they arrive. Additionally, most HaaS agreements include a refresh provision that will upgrade some, or all, of the system on a set interval during the contract, ensuring that it is always kept up to date on the software and hardware. While not all new technology is quality technology, the overall pace of technology advancement increases and, when paired with good operational practices, can lead to overall efficiencies and lower operating costs. 


Another benefit of a HaaS model system can be the flexibility in the time of ownership. Since you do not own the system, you can stop using it at any time. The terms will vary by vendor or contract, but typically, the cost to stop using a system is less than the price to remove and resell or dispose of a used system. This feature is especially beneficial for parking operators who do not have a long-term contract for a location but want to bring in new technology to lower their operational costs. Understandably, companies would not want to make a substantial upfront investment in a mostly unmovable asset if their contract can be cancelled with short notice, which is quite standard in the parking management contracts. 


While the HaaS model has many benefits, it is by no means a perfect solution for all customers or situations. When the total cost of ownership is calculated, it is typically higher for a HaaS system vs. a traditional upfront purchase. Additionally, for an organization with access to low-cost financing, especially with the low-interest rates currently available, the cost of financing a system and maintenance can be lower than a comparable HaaS model. In many situations, the parking hardware is purchased by the owner of the location, and it becomes a property asset. As an asset, there can be tax advantages from depreciation and an increase in overall property value, which can raise the investment return of the property.   


Beyond the financing aspects, another drawback of the HaaS model can be contract complexity. Fundamentally, you are using hardware owned by the HaaS company. These agreements ensure the safety of this asset and that overall return on investment for the HaaS company.


In many situations, there are requirements for regular on-going maintenance, employee certification, limitations on use, set contract lengths, equipment damage fees, early cancellation fees, removal, and other fees. As with all contracts, it is vital to understand this agreement and ensure that the local management abides by the restrictions and on-going requirements.    


If you like the technology and operation advantages of a HaaS model, but are not sold on higher overall costs, there are a few other similar alternatives. One option is hardware leasing with a third-party finance company. Many companies offer hardware financing, and a few have been working in the parking industry for many years and know it well. 


When combined with the upfront purchase of on-going preventive maintenance and scheduled component upgrades, a lease can function a lot like a HaaS model at a lower overall cost. Additionally, when there is competition for financing, it can help lower the total costs.   


Another option is to include annual hardware upgrade costs into yearly operational budgets. This recurring spending, coupled with a system contract that provides for fixed future software and hardware upgrade prices, can ensure a system that is kept up to date regularly at an overall lower operating cost. 


Thank you for your question! I hope your search for new equipment goes quickly. Luckily for you, there are many quality systems on the market today. While the hardware-as-a-service model is not for everyone, it is great to have an option to increase technology access and speed of adoption. I firmly believe that additional options are always better than fewer. Good luck!


If you have a question you would like answered, please send me an email at kevin@parkapi.io. Until next month, stay safe!



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