Bianca Flowers, Joseph White

BONDURANT, Iowa (Reuters) -Deere & 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 and other competitors are creating self-driving machines loaded with software, which is harvesting data in a global market with declining grain production and an increasing population. That translates into regular revenue. This is something that companies like Apple (NASDAQ;) enjoy and which industrial producers like Deere are keen to see. Julian Sanchez (Deere’s director, emerging technology), told Reuters, “The better we can make technology to allow farmers get productivity out their land without having so many inputs or fertilizer costs, the greater our chances of making everyone happy.”

Deere is just beginning to make investments in automation for high horsepower equipment. Sanchez stated that the next step will be to outfit machines for planting seeds with satellite imagery and soil data.

Deere does not yet know what it could impact on its bottom line. However, in the fall of last year, U.S. carmaker General Motors Co (NYSE 🙂 announced that it was targeting $25 billion for software-driven services and that Cruise’s self-driving unit would generate $50 billion per annum within six years. A growing food crisis has led to a rise in the race for farm equipment manufacturers to automate farming. After a quarter-quarter revenue loss, Deere stock plummeted 14% to $55. Deere suffered its largest loss in 14-years. It comes at a time when the conflict in Ukraine and severe drought in other key grain-producing country have disrupted commodity markets. This has caused prices for grain and farm inputs to rise and shrink. This has caused U.S. farmers to scramble to increase crop yields while limiting their pesticide and fertilizer use.

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.

Deere’s future is in autonomous machinery as AI becomes increasingly integrated in agriculture. When the new green machines are on sale this fall, the self-driving 8R tractor for tillage will be Deere’s latest offering.

Priced at 500,000. But, the autonomous features will be separately sold. Deere executives told analysts at a conference that the company will largely maintain its “point-of-sale” model for equipment, but will integrate a software-as-a-service (SaaS) model for its autonomous solutions. This will most likely include the self-driving tractor.

Joshua Jepsen is Deere’s deputy finance officer. “While we may need to take a few more years to establish a base for recurring revenue, autonomous solutions on top of our underpinning machine forms will be recurring.” 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 after expenses, each incremental dollar goes straight to the bottom line. It would be attractive for farmers because of the efficiency that it provides, as well as lucrative for Deere.

AGRONOMIC DATE HELPS THE BOTTOM LINE – Farmers are concerned about how machine and supplier companies profit from data they get from operations. And how secure that data can be. Deere, along with other producers, said that making these investments is more appealing to farmers in times of economic stress. It is because farmers can get crop insights using huge quantities of agronomic information. Michael Boehlje from Purdue University said, “Everyone in the industry has become much more data-oriented than ever before.” Companies can project profit by the geographic area of fields. That takes you to a different level of thinking and analysis.” In 2020, Deere acquired Harvest Profit, a farm profitability software company that has been integrated into the John Deere Operations Center. This platform allows farmers to access machine data stored on the cloud and can be accessed by them from anywhere. “When I see what precision ag does for our operations, and what we can achieve in a day’s work compared with 10 to 20 years ago,” said Jeremy Jack. Jeremy Jack is a Mississippi row-crop farmer. He also serves as chief executive of Silent Shade Planting Co. Ron Heck uses Case IH tractors and combines to harvest the 4,000 acres he has. Iowa farmer, fourth generation, said that some of the equipment he has purchased is equipped with modern technology. It is more expensive, however it will pay off in the end through better efficiency.