As the electrical products industry increasingly moves towards a service orientation, distributors and manufacturers alike are deriving benefits from offering and supporting “lighting as a service.”
As lighting technology has evolved from products to whole systems, so too have the services and sales structures surrounding them. And based on the long life and IoT capabilities inherent in modern LED and control systems, one of the new approaches gaining traction in the market is called ‘Lighting as a Service.’
Lighting as a Service, or LaaS, is a strategy that spares a company the huge upfront capital outlay required to upgrade a building with new LED lighting systems by keeping the investment off their balance sheet; rather, they lease the lights, with the lighting supplier/provider taking responsibility for monitoring and maintaining them as well as guaranteeing light levels, life, and energy savings.
Following, lightED tapped a leading lighting manufacturer and electrical distributor with expertise in LaaS to share insights on its pros and cons, its industry prevalence and popularity, and how distributors can successfully sell this service to gain competitive advantage.
Changing the Paradigm
According to Alberto Pierotti, LEDVANCE’s head of R&D for the U.S. and Canada, LaaS is a new “pay as you go” alternative to the traditional “large capital up-front” method of paying for retrofit projects. “We see LaaS as a way to overcome pushback from customers regarding the higher cost of advanced controls systems and free up cash for customers to do other projects,” Pierotti said. “The ‘pay as you go’ model also provides a vehicle to support subscription-based revenue methods for the lighting industry for other service rollouts, such as asset tracking applications, integration, and software updates.”
From a positioning standpoint, “LaaS is an appealing way for distributors to remain a valuable partner to their customers and increase sales, and, once adoption is more widespread, it will be a great way to sell LED upgrades,” Pierotti said. “For end users, one of the benefits of this approach is that it moves a lighting upgrade from a capital expenditure to an operations expenditure, which may have a positive impact on the customer’s cash flow.”
Leon Mowadia, Jr., vice president at Austin, TX-based distributor Facility Solutions Group (FSG), a national provider of electrical products, services, and energy management solutions, agreed. “Some of the biggest benefits of LaaS are the off-balance sheet treatment combined with instant positive cash flow and no up-front capital needed, which can be especially big factors in the hospitality and real estate markets,” Mowadia said. “LaaS also reduces technology risk and maintenance costs, since the user doesn’t take ownership of the equipment and the seller is usually responsible for the maintenance. This helps the distributor deliver a maintenance-free system to the end user for the life of the LaaS agreement.”
“While financing vehicles have been available for lighting projects for many years, LaaS has become increasingly popular,” confirmed Mowadia, who noted that FSG offers a variety of financing options, including LaaS, capital leases, municipal leases, and energy savings agreements (ESAs).
Based on its growing traction in the industry, “LEDVANCE is focused on supporting LaaS by enabling our SYLVANIA LED luminaires with the latest controls integration from industry leaders and offering distributors the flexibility they need to meet the evolving needs of their customers,” said Pierotti, who added that the company received positive feedback about the approach from customers in recent NAED meetings and proceeded to show LaaS-ready luminaires to the industry at Lightfair last month. Currently, “a large selection of our portfolio is now available with IoT and connected solutions that enable the deployment of LaaS solutions,” he said.
A New Mindset
Pierotti confirmed that LaaS may require a big shift in the distributor mindset. “Distributors have historically been experts in selling tangible products; selling lighting as a service is a whole new approach that goes beyond selling physical lamps and fixtures,” he said. “But in the long term, the commercial lighting industry is moving towards a service model where fixtures are the vehicle for the provider and won’t be purchased but rather will be leased or even given away for free on a contract minimum basis, like telecom systems today.”
“Because LEDs have a long life, distributors need new ways to future-proof their business so that they can keep going back to their customers,” Pierotti continued. “Since they have strong customer relationships, distributors are perfectly positioned to discuss LaaS strategies with their customers in terms of value-added propositions like specialized services — e.g., remote energy monitoring, planned replacement based on effective life, fault detection, and more — as well as possible negotiating opportunities with utilities or agencies.”
“End users are requiring innovative ways to obtain capital for their projects, and as a result, LaaS has become increasingly popular with ESCOs and distributors,” Mowadia concurred. “With the efficiency and extended life of LED technology, clients are looking to expedite the project process and LaaS is one avenue to help them do this. The biggest inroads into LaaS so far have been made by a few innovative financial companies and, from what we’ve seen, a few distributors have engaged these companies as partners.”
Pierotti said that LEDVANCE will play an integral role in supporting its distribution partners as they move to add LaaS as a vehicle to build out IoT-ready infrastructures using advanced sensors integrated into SYLVANIA luminaires. “We see LaaS as an accelerator to facilitate smart buildings and smart city projects,” he said
For distributors who are interested in testing the waters of LaaS, “our advice is to walk before you run,” Pierotti said. “Educate yourself on connected controls and IoT, integrate IoT-ready luminaires into your portfolio, and start offering solutions to select customers to gauge interest and refine your offering. Then, as more of the back-end systems mature,” he said, “you’ll be able to offer more value-added services like LaaS when the concept is more established. As always, be sure to work with an established lighting partner that can walk your sales force through this new approach and serve as a trusted resource, now and in the future.”
But be aware that it’s not as simple as just LaaS, cautioned FSG’s Mowadia. “Off-balance sheet treatment is important to some customers but not others, so a distributor’s ability to understand and offer an array of financing options and speak intelligently with their customer is critical for their continued success,” he said.
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