Deere & Co. has been selling tractors and other agricultural equipment to farmers for ages; however, the world’s largest agriculture machinery maker is taking a page from the tech world’s playbook. It has integrated cutting-edge software and hardware and offers subscription models to boost revenue growth.
In a world where grain farmers are declining and the population is expanding, Deere and others in the space are producing self-driving machinery equipped with cutting-edge software that collects massive crop data. It equates to recurring revenue, which Apple has enjoyed, and an industrial manufacturer like Deere is eagerly eyeing.
“The more technology we can develop to assist farmers in getting more production out of their land without needing to spend as much money on fertilizer and inputs, the better off everyone is,” said Deere’s director of emerging technology, Julian Sanchez in a conversation with Reuters.
Deere and peers AGCO and CNH Industrial are only getting started with automation for high-horsepower equipment. The next phase, according to Sanchez, is to equip machines to sow seeds using satellite photos and soil data.
While Deere has not stated what this means for its bottom line, General Motors indicated last October that it aimed to invest up to 25 billion USD in software-driven services by 2030. Also, its Cruise self-driving subsidiary might generate 50 billion USD in annual revenue within six years.
Automation in Agriculture
A growing food shortage has spurred the competition among farm equipment manufacturers to automate agriculture. And when the manufacturer’s stock dropped 14% on May 20 following a quarterly revenue miss, Deere’s plan for scaling its range of tech solutions was now in the spotlight. It was Deere’s steepest slump in 14 years.
The announcement comes as commodity markets are stirred up by the conflict in Ukraine and extensive drought in key grain-producing countries, forcing grain and farm input prices to go up as supplies decline. As a result, farmers are scrambling to increase agricultural yields while limiting fertilizer and pesticide use. Deere and others have been able to make their high-tech drive because of this and a dwindling farm labor workforce.
As AI becomes more integrated into farming, Deere is betting on autonomous machinery. When the green machines go on sale in the fall, the company’s autonomous 8R tillage tractor will be the latest addition to its algorithm-enabled portfolio.
The new tractor will cost 500k USD to acquire. The autonomous feature, on the other hand, will be marketed separately. Deere officials told investors at a conference that the business will keep its “point-of-sale” approach for equipment but will add a SaaS model for its autonomous solutions, which is likely to include its self-driving tractor.
According to Michael Staebe, a Bain & Company partner focused on machinery; the recurring revenue model might be economically advantageous to heavy machinery producers “based on those data insights.”
In the case of Deere, adopting a subscription service by selling or leasing its self-driving tractor can increase margins.
“Every additional dollar goes right to the bottom line after expenses,” Edward Jones analyst Matt Arnold said. “Given its efficiency, we believe it to be a compelling proposition for farmers and profitable for Deere.”
Farmers have long been concerned about how machinery and supply companies profit from data obtained from their operations and the protection of that data. However, with farmers under a financial strain, Deere and other manufacturers say it’s simpler to persuade them to make such expenditures.
One major reason is that the capacity to extract crop insights from massive volumes of agronomic data eliminates the guesswork involved in determining when to plant and how many seeds to use, saving farmers money.