Creating Shareholder Value with a Machine-as-a-Service (MaaS) Business Model

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Mar 09, 2021, 08:30 ET

NEW YORK, March 9, 2021 /PRNewswire/ -- The internet boom in the 1990s, with the genesis of application service providers (ASP), set the stage for the Software-as-a-Service (SaaS) model that now has found its way into nearly every industry. In a SaaS model, providers offer their technology over a set period of time, effectively locking in recurring revenue and a higher profit rather than selling the product outright. Since then, the "as-a-Service" model has been expanded into new verticals in a global economy now eager to accept the process. Because of large margins, Wall Street typically places high valuations on companies that employ the subscription "as-a-Service" model, especially when they have solved a problem and established strong market demand. Already disrupting the $500 billion security industry with its fully autonomous security robots, Knightscope Inc. (Profile) is establishing a new paradigm with its Machine-as-a-Service (MaaS) business model. The company already calls the federal government, public institutions and Fortune 1000 companies as clients as it employs a cost-effective subscription structure that is attractive to clients to augment traditional security systems and law enforcement functions. Others using similar business models that performed exceptionally well in 2020 include Axon Enterprise Inc. (NASDAQ: AXON), Intuitive Surgical Inc. (NASDAQ: ISRG), Peloton Interactive Inc. (NASDAQ: PTON) and Roku Inc. (NASDAQ: ROKU).

Knightscope's Machine-as-a-Service (MaaS) subscription package is a combination of its exclusive hardware and software as well as 24/7 support.
The emerging Hardware-as-a-Service market is forecast at a 25.6% CAGR to reach $304.8 billion by 2026.
Knightscope CEO, co-founder William Santana Li estimates the company's MaaS structure can generate up to $250,000 in profit per robot across a five-year contract.
Knightscope has attracted more than 20,000 investors and has already raised more than $70 million to build its groundbreaking tech from scratch.

Click here to view the custom infographic of the Knightscope editorial.

HaaS Plus SaaS Equals MaaS

Hardware-as-a-Service, or HaaS, is an emerging solution offered as an alternative to buying hardware. It provides companies the opportunity to avoid the stress and expense of buying equipment, allowing them instead to opt for a rental agreement complete with maintenance and support and the ability to keep up with the newest technologies. For the company providing and servicing the hardware, known sometimes as a managed service provider (MSP), the model affords an opportunity to leverage the economics of a key hardware component to add a subscription service, which is commonly associated with SaaS providers.

The HaaS market is beginning to accelerate, forecast by market analysts at Transparency Market Research to grow at an impressive 25.6% compound annual growth rate from $40.88 billion in 2017 to $304.8 billion in 2026. Catalysts abound undergirding this growth, including increased load on cloud infrastructure, technical advancements and product innovation and surging demand for HaaS solutions from the IT and telecom industry.

Knightscope's autonomous security robots (ASRs) represent the next generation of innovation that the stagnant and oft-criticized security market desperately needs. The company employs a Machine-as-a-Service (MaaS) model that provides its customers with a comprehensive solution of hardware and software to quickly scale their security capacities, even on stretched or pressured budgets. This means Knightscope builds, ships and deploys the robot and charging system, provides start-up support, and trains staff on how to operate the integrated system.

Capable of capturing 90 terabytes of data each year, the robots, either stationary or effectively self-driving vehicles, constantly patrol large areas and serve many purposes. Not only does a physical presence help deter crime, but the autonomous sentries also have many other benefits with their deployment, real-time reporting and video recordings. These benefits include better transparency in identifying crime and law enforcement reaction, quicker resolution to any legal matters with corroborating evidence as well as management and training opportunities. Knightscope's robots have been proven to reduce criminal activity, assisting in the arrest of suspects involved with hit-and-run and armed robbery crimes, plus aiding in prevention of fires thanks to embedded thermal scanning capabilities.

Reasonable Price, Impressive ROI

Knightscope is clear that its ASRs are not a replacement to security or law enforcement staff; the robots are best used to enhance conventional teams where they can handle many of the monotonous, mundane and dangerous tasks with repeatability and objectivity. Once the devices are deployed, customers can access their ASRs and data at any time through the Knightscope Security Operations Center (KSOC), a fully functional, browser-based user interface included with every subscription.

Combining hardware and software can be an exceptional business model. For customers, it means little upfront capital expenditures and the ability to deploy multiple machines to increase security presence and deter crime. Knightscope prices their robots through an annual subscription package at

$4 to $11 per hour operating under a 24/7/365 contract.

For Knightscope, this subscription recovers the cost of the machine in year one, leaving profits (sans operating, servicing, upgrades and support costs) during the remaining years. In a recent interview, Knightscope CEO and co-founder William Santana Li opined that each machine should return about $250,000 on the high side across a five-year contract.

Luxury Car Economics with SaaS Margins

A return on investment in less than one year with four years of "printing money" afterwards is an impressive MaaS model, effectively blending luxury automotive per unit economics with the margins of a SaaS company. When considering that an armed off-duty police costs roughly $85 per hour (on average, depending on location) and an unarmed security guard costs around $30 per hour, the savings is considerable for the customer to receive nonstop security. Knightscope provides and services the machines that save money for the customer; in the process Knightscope enjoys recurring revenue and high margins.

To break this down, consider the price point for a Knightscope subscription in tandem with CEO Li's forecast. Take the top subscription rate of $11 per hour for 24/7/365 security, which is $96,360 per year. Li suggests the machines will generate $250,000 in profit in four years, which averages $62,500 per year. These figures could differ but they provide some color regarding how Knightscope makes money while creating cost savings for clients.

A Tech Company Disguised as a Robot Maker

With its autonomous robots, Knightscope operates at the intersection of multiple industries. This is akin to the way analysts question whether Tesla was an automaker or a tech company. While it is not making cars, Knightscope is probably closest to the autonomous car market as anything else. As it happens, the next Knightscope model coming to market has a form factor more like a car than a droid, allowing for off-pavement patrolling (the Knightscope K7 Multi-Terrain).

While the focus is generally on the aesthetic, the real secret sauce for Knightscope is in the technology and the KSOC systems that provide the cloud-based command center. More advanced features are being added to a customizable system that incorporates facial recognition, license plate recognition (searching plate instantly in databases), precise thermal detection (from a fire to a person's temperature), device detection (e.g., can recognize a blacklisted cell phone is on the premises) and more. It's this technology that captures the attention of the public market, as plainly evidenced by Knightscope attracting over 20,000 investors and growing.

Wall Street Loves "as-a-Service"

It is easy to recognize that the markets have embraced "as-a-Service" models, as companies using the model have been trading exceptionally well. The Knightscope comparable universe is made up these unique, high-growth subscription companies, many of which have enjoyed a tremendous rise in valuation in the last 12 months.

Axon Enterprise Inc. (NASDAQ: AXON) is also in the safety/law enforcement sector, manufacturing and selling conducted energy weapons for police, corrections, military, private security and other applications. The company has more recently expanded into connected wearable body cameras and selling cloud-based digital evidence management software subscriptions as part of a strategy to increase gross margins.

Intuitive Surgical Inc. (NASDAQ: ISRG) has been a big winner for investors since it went public in 2000, rising some 12,000% from IPO price. The maker of the da Vinci surgical system is known the world over and started in recent years to make a transition that might remove some of the cost barriers related to its $1.5 million system. The company has transitioned into a subscription service, removing some upfront costs to get the system in hospitals and then collecting revenue on lucrative service contracts and sales of disposable instruments and accessories used with the system.

Peloton Interactive Inc. (NASDAQ: PTON) is the high-tech stationary bike company that went from fledgling to the number-one name in the business in less than seven years. More recently, the company has diversified into offering treadmills with digital screens and Peloton also provides financing as low at $49.95 per month for its bikes and $64 for a tread. The company offers a spate of live workout classes on its equipment, along with others for strength, yoga, Pilates, etc. in addition to a library of on-demand sessions, all available through a monthly subscription.

Roku Inc. (NASDAQ: ROKU) is the household name in "over the top" programming that has a commanding market share and deals with many manufacturers to build the Roku technology right into new televisions. The company also selsl Roku sticks and set-top units, but ads are a sweet spot for the company. This week the company forged a strategic alliance with Nielsen that will give Roku Nielsen's Advanced Video Advertising business, a move that will accelerate the launch of Roku's ad insertion platform to TV programmers.

Subscription "as-a-Service" business models are hot and driving value in companies across multiple market segments. When a company can deliver an exceptional product, exploit a market niche and employ an "as-a-Service" business model as Knightscope has, that's a particularly compelling space to follow.

For more information about Knightscope Inc., please visit Knightscope Inc.

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