Slower consumer and company expenditure cycles, market saturation, and software-driven innovation are all hurting hardware sales. The hardware-as-a-service business has secured funds to grow.
Xyte (pronounced “Excite”), an Israeli business that helps hardware OEMs and channel partners develop device subscription services, received $30 million.
Money arrives in two installments. Intel Capital led a $20 million Series A alongside Samsung Next, S Capital, and Mindset Ventures to develop the company’s U.S. operations (it launched a Silicon Valley office a few months ago).
BlackRock intends to deploy a $10 million loan line to help clients switch to subscription models. “OEMs have cash flow challenges, moving from one-time to recurring revenues, bills of materials, and other expenses,” stated Xyte CEO Omer Brookstein.
He added that the business is not announcing its valuation with this round, but it is “reasonable” given the industry and the reality that startups are no longer overpriced. Since its 2019 debut, Xyte has raised $37 million, including the $10 million loan tranche.
Brookstein also reports “thousands” of consumers and tens of thousands of devices handled by Xyte. ARR is $1 million and is expected to triple this year and next. Intel, Schneider Electric, and Rebar are among the companies contacting the startup. In other words, Xyte is young yet showing signs of development.
While “hardware as a service” may not be as well-known as SaaS, it has been around for a while.
Mobile operators have sold phones on contracts that included temporary ownership of a handset, a mobile voice, text, and data service contract, and, after smartphones, possibly other premium services like music subscriptions for a monthly fee.
Basic hardware leasing agreements were also an early form of “HaaS”—though they were usually bare device offers with users buying software separately.
Xyte sees a fresh market gap as an opportunity. Before launching Xyte alongside CTO Boris Dinkevich, Brookstein worked at Crestron, a device company that made pricey high-end AV systems to sell. He said he originally considered applying a service approach to gadgets like these.
These ideas gained momentum from market shifts. Cloud services have dominated IT growth in recent years. The latest Gartner IT expenditure study predicted growth in cloud services, with software and services expanding about 14% and 9%, respectively, while hardware sales would fall nearly 9%.
In domains like AI, software has outpaced hardware in innovation.
Hardware vendors are starting to develop additional services around their gadgets. Despite years of speculation, Apple has not yet adopted hardware-as-a-service for the iPhone or anything else. ESIM, which makes switching carriers easier, quick trade-ins, and pricey new products like headsets, may be laying the framework for Apple to embrace HaaS in the future.
Brookstein said that establishing subscriptions is not an OEM’s core skill, which is why the business thinks it can partner with a wide variety of third parties to supplement conventional sales.
He compares Xyte to Stripe and Shopify, which give tools to allow transactions or online selling to organizations that may not be specialists but need to implement these procedures.
Shopify recognized early on that SMBs and mom-and-pop shops lacked the necessary skills for e-commerce. I want a shop, he said. “In many ways, it’s like what we do.” App and software companies may use Paddle’s subscription platform.
Xyte’s platform helps organizations develop equipment subscriptions and bundle them with additional services customers may desire. It may be used on a laptop or connected vehicle. Use may be taxed by ownership, duration, or use. (Xyte subscribers pay monthly.) OEMs and channel partners may utilize the platform to manage and monitor devices and provide that service to consumers.
Xyte initially targeted the B2B market, believing that companies and smaller businesses already lease equipment and handle the chain of supply and device management.
“What I’m seeing in the market is that more and more businesses are looking for a way to upgrade experiences and deliver new services, but they don’t necessarily want to spend a bunch of money on hardware; they want to pay X amount of money and have it work,” Intel NUC Group VP and General Manager Brian McCarson said.
Brookstein said it’s found that its customers are also interested in building HaaS that they want to offer to consumers, such as Schneider Electric selling its Wizer connected home heating products on Xyte-powered subscriptions, bringing the cycle full circle from mobile handset subsidies.
