• April 28th, 2020
  • 11 min

Why It’s Time to Rethink Traditional Business Models

Economic uncertainty is prompting mines to implement new technologies that increase productivity, like autonomous drilling and blast optimization, at unprecedented levels. Senior executives are prioritizing innovation, allocating millions of dollars towards building and procuring the next smart solution. And yet, the industry has not achieved widespread adoption of these proven technologies. As experts in artificial intelligence and computer vision who tackle the world’s toughest mining challenges, Motion Metrics has been at the intersection of mining and technology for nearly two decades. Based on our own observations and those of our customers, we believe that this gap is in part due to the outdated, transactional business model that governs most relationships between companies and technology vendors. In this article, we argue that cloud-based Software-as-a-Service (SaaS) models better promote the conditions for innovation by facilitating value-aligned partnerships.

An industry poised for disruption

As the population grows, demand for mined materials increases. At the same time, mining these valuable materials is becoming more difficult – fluctuating commodity prices are squeezing profit margins, easily-accessible deposits are being rapidly depleted, and productivity in the sector has decreased by 28% over the last decade. The industry is at an inflection point, and new technologies provide an opportunity to change its course. Researchers predict that harnessing the value of digitalization can generate a potential economic impact of about USD $370 billion per year by 2024 – a figure amounting to 17% of the industry’s cost base.

Mining companies are increasingly interested in digitizing their operations. The idea for our boulder detection solution for haul trucks, TruckMetrics™, came from a customer site in Western Australia.

Mining companies understand the significance of this opportunity. An Accenture study identified transformation as a significant profitability strategy for mining companies – 92% of the mining executives plan to increase investment in technology over the next three years, and more than a quarter expect those increases to be significant. Senior executives understand that digital technology presents mines with an opportunity to reduce production costs and better compete under challenging conditions.

The barriers to innovation

The financial rewards are clear. The big question is, if emerging technologies are so game-changing, why are they not being implemented at scale? As technology providers ourselves, we’ve identified several factors that influence the adoption rate of new products.

When it comes down to it, the barriers to innovation aren’t technical. Many products are underused simply because they need change management plans. New technologies can be expensive and time-consuming to implement because mine personnel must be trained to use the new system, and mine personnel generally have broad discretion about whether to use the innovation or maintain status quo. Every product has a learning curve, but those that are intuitive and require minimal training are much more likely to enter the daily workflow.

A Motion Metrics employee shows mine personnel how to use PortaMetrics™, our handheld particle size analysis solution.

High initial costs are another major barrier to successful implementation. There’s a common misconception that mining companies are technology averse. They’re not. Mining companies are risk averse. In an industry where efficiency is king and investments that under-deliver can make the difference between a profitable operation and an unprofitable one, mines can only invest in solutions with a clear return on investment. Unfortunately, mining technologies are usually big-ticket items that require budgetary approval. For mine staff, advocating for an expensive new technology is a high-risk move with no guaranteed pay-off.

Finally, a lack of communication and post-sale support drives many promising initiatives to underperform. Corporate innovation departments purchase new technologies, but on-site teams use them. The owners of digital transformation are often unclear at mines, and the company who makes the sale no longer has an incentive to push for a site champion. Purchasing a solution is only the first step towards digital transformation. To drive value through technology, mines need to focus on customer success and open channels for communication between teams and vendors.

Why traditional business models need an update

Hardware-intensive mining technology companies have historically relied on one-time sales for revenue. In this business model, there is no post-sale revenue to be earned unless the customer purchases spare parts, an upgrade, or an additional product. Because the incentive lies in the initial sale, there is a greater emphasis on acquiring clients than on ongoing customer success and support.

This focus is directly at odds with the interests of mining companies. During conferences, tradeshows, and interactions with our own customers, mining executives consistently emphasize a desire for long-term relationships with vendors. They prefer strategic partners in innovation who take the time to understand their unique business needs and support them through the entire lifecycle of their project or operation.

For mining companies, lasting relationships with vendors are a precondition for success. Most mining companies have operations in multiple countries and in remote areas. They need vendors who can tailor off-the-shelf solutions to their unique operating environment, and who can understand the regions in which they do business. Knowledge of the specific region, including culture, tax laws, language, work permits, labour laws, and logistics, is essential. The traditional business model simply does not incentivize vendors to act that way.

How recurring revenue models create value alignment

We know what slows down most innovation initiatives – high knowledge barriers, high initial acquisition costs, and inadequate communication. To achieve widespread adoption, then, new technologies should be intuitive, affordable, and packaged with strong service and support agreements.

Recurring revenue models promote the conditions for innovation by facilitating value-aligned partnerships between mining companies and technology providers.

Formal partnerships are one way to accomplish these ends but are not a scalable solution. Sharing the burden of innovation ensures that the product is designed with the end user in mind, reduces costs, and provides built-in support. Unfortunately, partnerships can complicate decision-making and expose both parties to liabilities – and most mining companies would need to form several partnerships to meet their technology needs.

Another way to strengthen the relationship between mining company and technology vendor, while reducing risk for both parties and encouraging user-friendly product development, is to move away from traditional transactional business models and towards cloud-based SaaS models. Recurring revenue is the backbone of the SaaS model, wherein a software or associated service is licensed on a subscription basis. Because technology vendors must provide consistent value so that customers continue to pay, SaaS models incentivize long-term alignment when properly executed.

SaaS has obvious appeal for technology companies, who look to this model to improve the predictability and scalability of revenue, reduce unpaid trials, and attract investor capital. However, subscription agreements incentivize long-term alignment when properly executed.

Increased focus on customer success

Because the focus is on recurring revenue, technology vendors need to retain subscribers. To do so, vendors need to demonstrate value much sooner than a technology provider selling on-premise solutions. That means that the product must have a short learning curve and intuitive interface to reduce knowledge barriers. In addition to being easy-to-use, SaaS products are packaged with strong customer support programs and in-depth guides or tutorials.

Shifting to a cloud-based model has improved the offerings of several major companies, including Salesforce, SAP, and Microsoft. These companies understand the importance of customer success and strive to provide better training and support for their subscribers. They may send a representative to train users on the system, assign a customer success manager to each account, and provide regular support and guidance to ensure customers get the most out of their services.

In addition to creating value alignment, cloud-based offerings can make it easier for technology vendors to provide support. At Motion Metrics, for example, the cloud has enabled us to remotely monitor each customer’s installed systems – allowing us to verify that they are functioning as expected and alert mine personnel to any issues. This allows us to update and customize software seamlessly and regularly, just like Microsoft does with its Office 365 suite. Post-sale support is critical to bridge the knowledge gap between technology and mining professionals, and subscription-based technologies incentivize strong service and support agreements. Staying close to our customers improves the strength of relationships and positions us as a trusted partner for future product development.

For all customers with service-level agreements, Motions Metrics remotely monitors each installed system. This enables the Support team to verify that all systems are functioning as expected and alert mine personnel to any issues.

Lower initial acquisition costs

The initial acquisition costs for SaaS offerings are typically much lower than on-premise solutions because the subscription model reduces the large upfront license fees, as well as many of the infrastructure costs. The lower barrier to entry means that mines can try new technologies without fear of investing a large amount of capital into a product that may or may not suit their needs.

Reduced need for IT resources

Maintaining an on-premise solution requires a lot of time and money – your IT team must administer regular check-ups to improve system availability, perform frequent backups, and maintain or upgrade network hardware as necessary. In the SaaS model, by contrast, all these functions are taken care of by the technology vendor.

Whereas the speed and performance of on-premise solutions depends on your in-house servers, cloud-based systems offer outstanding network performance – all the mining company needs to supply is a fast internet connection, which can often be provided by the vendor. This model ensures that you’ll never outgrow your server’s capacity, nor need to buy and install more hardware to deliver the expected level of performance.

Compared to an on-premise solution, cloud-based offerings require far fewer IT resources to provide outstanding network performance.

Most cloud-based systems offer data backup and restoration, with multiple timed incremental backups. Downtime is also less frequent and impactful because vendors have entire teams dedicated to fixing failures and maximizing system uptime. With cloud-based systems, there is no need to procure and install IT infrastructure and VPN access across multiple sites, nor a dedicated room to house servers, hardware, and an in-house IT team.

Improved security

Server and data security are also managed by the vendor, who can provide state-of-the-art protection. With the proliferation of sensors and connectivity, mines become increasingly vulnerable to cyberattacks. With hacking techniques becoming more sophisticated each day, mining companies need an equally sophisticated cybersecurity approach to guard their data.

Cloud-based systems offer several advantages over in-house cybersecurity measures. These companies will have entire teams dedicated to protecting mine data and offer features like multi-factor authentication, data encryption, and patch management.

Easier systems maintenance and upgrades

Transitioning from an on-premise to a cloud-based solution greatly increases the speed of updates and bug fixes because all systems maintenance and upgrades are handled by the vendor. Since all updates are rolled out centrally and at the same time, customers are assured that they are running the latest version of the technology.

Our data analysis platform, MetricsManager™ Pro, is cloud based to ensure that updates and bug fixes are rolled out to all customers as quickly as possible.

Any customizations to your software are portable to future versions, so customers will never need to reimplement or re-customize any preset features. With on-premise solutions, any customizations are linked to the current deployment; when it’s time to upgrade the solution, an in-house IT team will need to test and deploy these customizations wherever it’s installed locally. Additionally, customers can easily purchase upgrades, add functionality, or scale up based on usage.

The future is SaaSy

Historically, mining technology companies have relied on one-time sales to catalyze growth and preserve margins. However, with the expansion of connectivity and proliferation of sensors, software, and computing power, it may be time to rethink the traditional mindset. Digitalization provides an enormous opportunity that mines can’t afford to overlook but, in order to achieve widespread adoption, technologies need to be easy to use, impose low initial acquisition costs, and have the support of a site champion and strong customer success team. By reducing costs, improving the user experience, and shifting the focus towards customer success, the SaaS model creates value alignment between mining companies and technology vendors.

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