Deere tapping into Apple-like tech model to drive revenue -Breaking
Bianca Flowers, Joseph White
BONDURANT, Iowa (Reuters) – Deere (NYSE:) & Co has sold its tractors and other equipment to farmers for decades, but the world’s largest agriculture machinery manufacturer is tearing a page from the technology world’s playbook – combining cutting-edge hardware with software and subscription models to drive revenue growth.
Deere, along with its competitors are creating self-driving machinery loaded with software that harvests a new type of crop. This translates to recurring revenue which companies such as Apple (NASDAQ:), have enjoyed for years and industry manufacturers such as Deere eagerly eye.
Julian Sanchez, Deere’s director for emerging technology told Reuters that the more technology Deere can create to enable farmers to maximize their productivity without spending so much on inputs and fertilizer, the better everyone is.
Deere, along with rivals AGCO (NYSE:) and CNH Industrial (NYSE :), are only beginning to invest in high-horsepower automation. Sanchez explained that next is the equipping of machines to plant seeds using soil data and satellite imagery.
Although Deere did not elaborate on what this could mean for its bottom line last fall, U.S. automaker General Motors Co. (NYSE:) stated that it planned to invest up to $25 Billion in software-driven services in 2030 and also added that its cruise self-driving unit could generate $50 billion annually within six years.
The emergence of a food shortage has seen farm equipment firms race to automate agricultural production. Deere is in the news for its strategy to scale up its tech products, as a result of a 14% stock drop on May 20, following severance from quarterly revenues. Deere suffered its worst drop in 14-years.
This timing is important as both the conflict in Ukraine and severe droughts in other key grain-producing nations have caused turmoil in commodity markets. As a result, grain prices and farm input prices are on the rise as supply shrinks. U.S. farmers are now scrambling for ways to improve crop yields and limit pesticide and fertilizer usage.
This, along with a declining farm labor force has allowed Deere and other high-tech entrepreneurs to push their agenda. The prize for farmers is better crop yields. It’s revenue for Illinois-based Deere.
As artificial intelligence is integrated into farming, Deere will be focusing its efforts on autonomous machinery. When the new green machines are on sale this fall, the self-driving 8R tractor for tillage will be Deere’s latest offering.
Although the tractor’s price will remain at $500,000 the autopilot feature will go on sale separately. Deere has not revealed the pricing structure, although executives stated earlier in this year that they offer a subscription.
The recurring revenue model can be economically favorable to heavy machinery manufacturers “based on those data insights,” said Michael Staebe, a Bain & Company partner focused on machinery.
In Deere’s case, using a subscription model by either selling or leasing its driverless tractor can result in higher margins.
Matt Arnold, an Edward Jones analyst said that every dollar added to expenses goes straight to the bottom line. We expect that it will be attractive to farmers due to the efficiency and profit potential for Deere.
AGRONOMIC INFORMATION HELPS THE BOTTOM LINE
Since long, farmers have been concerned about the way machinery and suppliers make money from data they collect. And how secure this data can be. Deere said, along with other manufacturers that selling such investment to farmers is much easier when farmers are facing economic stress.
A key reason is the ability to extract crop insight from large amounts of agronomic information. This takes out all of the guesswork about when and how many seeds should be planted. Farmers save money. Michael Boehlje from Purdue University said, “Everyone in the industry has become much more data-focused” Companies can project profit by the geographic area of their fields. That takes you to a different level of thinking and analysis.”
Deere purchased Harvest Profit in 2020. This farm profitability software firm was integrated into John Deere Operations Center. It stores machine data and allows farmers to view it from the cloud.
“When I see what precision ag can do for our operations and how much we can accomplish within a day compared to 10-20 years ago it’s so easy,” said Jeremy Jack (a Mississippi row crop farmer, chief executive at Silent Shade Planting Co.
Ron Heck uses Case IH tractors and combines to harvest his 4,000 acres. He also rotates corn and soybeans with the help of automated steering.
Iowa’s fourth-generation farmer said his latest equipment was loaded with technology. Although it is more costly for us, we hope that the increased efficiency will make the investment worthwhile.