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The difference between renting and purchasing gets murky (sure, not literally) when you are dealing with sensitive hardware that you rely on but cannot maintain

The difference between renting and purchasing gets murky (sure, not literally) when you are dealing with sensitive hardware that you rely on but cannot maintain yourself. Such systems usually require frequent maintenance by the supplier. Sure, you could end your maintenance contracts, but then the systems you have purchased will very rapidly become useless. The up-front cost of hardware is often very small compared to the ongoing cost of maintenance contracts, and so the relationship ends up looking a lot like rental. The parent comment mentions that Delta rents their airplane engines. I imagine that they have the capability to do general maintenance on the engines, but that the engines need to be periodically sent back to the supplier (probably GE or Rolls-Royce) for a teardown, safety inspection, and rebuild. Without regular inspections an engine can't be flown, and is essentially worthless. Not much point in actually owning the engine if you can't use it.

eesmith 7y ago
I guess I have a naive view. I think of "buy" as something which is a capital expenditure, can be depreciated, etc. while "rent" are things which fall under operational expenditure. With that in mind, I can see support contracts as an operational expenditure. But if "over half of industrial robot purchases in North America have been made by automakers" then that's a lot of capital expenditure. I never got the feel that the companies which make modern industrial robots primarily rented them out (akin to IBM's renting out of tabulation machines 100 years ago). I really thought they mostly sold the robots.
- dodobirdlord 7y ago
  They probably do sell them. I believe most industrial robotics systems are built custom, or at least heavily customized. But I have no idea (and I'm sure they closely guard) what percentage of their revenue comes from direct sales and what comes from support contracts. Somewhat related, I recall reading that one of the things that caused financial issues for GE Power was broken incentives around support contracts. To meet quarterly targets the sales team started offering to trade larger up-front prices for reduced costs on support contracts so as to frontload revenue. Too many customers saw the golden opportunity and GE ended up losing a ton of money.
- caspper69 7y ago
  Many of these industrial systems are built from reusable components. In my experience at a Tier 1 OEM for the US domestic auto market, a line could be torn down and re-purposed to another line by adding or removing physical components, modifying the physical layout where appropriate, and then adjusting the PLC programming. An assembly line isn't really a "product," per se. It's more of amalgamation of several products and technologies, many legacy, that forms a cohesive but loosely-coupled whole. You may have several vendors' products / systems in a line. So what you end up with are ongoing contracts that provide for installation, programming, troubleshooting, maintenance, etc. There's actually a whole specialized industry that does nothing but design assembly lines. It's pretty neat.
  - eesmith 7y ago
    Thank you for your response and insight!
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eesmith 7y ago

I guess I have a naive view. I think of "buy" as something which is a capital expenditure, can be depreciated, etc. while "rent" are things which fall under operational expenditure. With that in mind, I can see support contracts as an operational expenditure. But if "over half of industrial robot purchases in North America have been made by automakers" then that's a lot of capital expenditure. I never got the feel that the companies which make modern industrial robots primarily rented them out (akin to IBM's renting out of tabulation machines 100 years ago). I really thought they mostly sold the robots.

dodobirdlord 7y ago
They probably do sell them. I believe most industrial robotics systems are built custom, or at least heavily customized. But I have no idea (and I'm sure they closely guard) what percentage of their revenue comes from direct sales and what comes from support contracts. Somewhat related, I recall reading that one of the things that caused financial issues for GE Power was broken incentives around support contracts. To meet quarterly targets the sales team started offering to trade larger up-front prices for reduced costs on support contracts so as to frontload revenue. Too many customers saw the golden opportunity and GE ended up losing a ton of money.
caspper69 7y ago
Many of these industrial systems are built from reusable components. In my experience at a Tier 1 OEM for the US domestic auto market, a line could be torn down and re-purposed to another line by adding or removing physical components, modifying the physical layout where appropriate, and then adjusting the PLC programming. An assembly line isn't really a "product," per se. It's more of amalgamation of several products and technologies, many legacy, that forms a cohesive but loosely-coupled whole. You may have several vendors' products / systems in a line. So what you end up with are ongoing contracts that provide for installation, programming, troubleshooting, maintenance, etc. There's actually a whole specialized industry that does nothing but design assembly lines. It's pretty neat.
- eesmith 7y ago
  Thank you for your response and insight!
- deleted 7y ago
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