Sharing of Durable Goods: Business Models for Original Equipment Manufacturers

Problem Definition: Technological advances create vast opportunities for product sharing in the heavy equipment industry, replacing or augmenting existing business models based on ownership or servicization. Emerging business models integrating sharing not only influence sales but also impact after-sales services an important factor for heavy equipment. This paper focuses on how a manufacturer should manage a sharing platform, when it would prefer establishing a sharing platform over other business models, and when an independently owned platform is a threat for the manufacturer. Academic/Practical Relevance: With an ever-increasing list of peer-to-peer sharing platforms for heavy equipment (e.g., Trringo by Mahindra, Yard Club by Caterpillar, Coop by Ryder), it is paramount that decision-makers understand the economic implications of such business models. As models are still emerging, clear empirical evidence of their performance is lacking, motivating the need for analytical insights. Methodology: We extend existing analytical models of the sharing economy to capture factors that are relevant for heavy equipment. By building also on the servicization literature, we integrate important comparison points with the business models currently employed in practice. Results: The optimal business model for a manufacturer will depend on operational factors linked to after-sales services. We show when a manufacturer prefers setting up a sharing platform for its equipment, which provides a positive rationale for the emergence of manufacturer-owned platforms in practice, and provide insights on when and how manufacturers can leverage after-sales services and product design choices when threatened by a sharing platform established by a third party. Managerial Implications: We show that the optimal business model integrating sharing requires subsidizing both sales and platform transactions but allows to extract rents through after-sales services. Our results highlight further the value of establishing a certain degree of control in the after-sales service market for the manufacturer. We also show that market frictions have significantly different effects on sharing, compared to servicization, underscoring the important role of market characteristics in the business model choice.