Living in a Pink Cloud or Fighting a Whack-a-Mole? On the Creation of Recurring Revenue Streams in the Embedded Systems Domain

Abstract

For companies in the embedded systems domain, digitalization and digital technologies allow endless opportunities for new business models and continuous value delivery. While physical products still provide the core revenue, these are rapidly being complemented with offerings that allow for recurring revenue and that are based on software, data and artificial intelligence (AI). However, while new digital offerings allow for fundamentally new and recurring revenue streams and continuous value delivery to customers, the creation of these proves to be a challenging endeavour. In this paper, we study how companies explore ways to create new or additional value with the intention to complement their product portfolio with offerings that allow for recurring revenue. Based on multi-case study research, we identify the key challenges that companies in the embedded systems domain experience and we derive four organizational patterns that we see slow down innovation. Second, we present a framework outlining alternative types of offerings to customers. Third, we provide a value taxonomy in which we detail the different types of offerings and the value these provide to customers. For each value offering, we indicate whether this offering is (1) static or evolving, (2) bundled or unbundled, (3) free or monetized, and we provide examples from the case companies we studied.