Arrow Electronics is the world’s largest distributor of components and enterprise computing systems. It’s tempting to portray it as the world’s biggest IoT warehouse. But it’s much more than that.
Arrow started in 1935 selling radio sets, a relatively new retail technology at the time. Today it’s a $23 billion business operating in 56 countries. Arrow has roughly 17,000 employees that include thousands of field application engineers and systems engineers who help companies bring exciting new technologies to scale.
For many decades, Arrow was happy to conduct its business as straightforward and extremely profitable parts warehouse. It distributed electronic components to thousands of technology companies.
“Before you would come in and say I want a processor or I want an electro mechanical component, it could be a crystal oscillator or some kind of passive device. You would have a conversation with us about that, and we would go and buy that from someone and sell it to you for a slight markup,” says Chief Digital Transformation Officer Matt Anderson.
But Anderson said the company recognized a decade ago that they needed to shift their business model from a commodity provider towards value-added services. They needed to stop acting less as a Home Depot for the tech industry, and more like a Bell Labs.
These days they’re having very different conversations with their customers.
“You might say we want to automate pest control in agriculture, and we’ve never really done that before but, but we know what kind of solutions we’re looking for because we’re chemists. How are we going to create a device that that monitors whether or not the pests are out there, what the weather trends are, whether or not we have already sprayed? Are we seeing any evidence of pheromone levels going up? Those kinds of things.”
In other words, Arrow’s customers used to come to them asking for isolated components. Now they’re looking for integrated outcomes.
As a result, Arrow is offering design engineering services and system administration to help innovators bring their ideas to fruition and close gaps in knowledge and skill sets. They’re helping innovators surface the intrinsic value of their products. They started thinking in terms of desired outcomes, not stand-alone devices.
Arrow now offers a subscription service to manufacturers that allows them to search over 300 million electronic parts for cross references, lifecycle, parametric, obsoleteness forecasts, regulation compliance, and inventory data. They can then apply that data to the manufacturer’s bill of materials (BOM) and active updates can be sent to manufacturers as updates to these components are made.
This division, Silicon Expert Technologies (SET) has about 800 customers and is growing at a rate of 20-30 per month. Arrow is further leveraging subscription management, connectivity, design engineering, and enterprise computing to build an ecosystem of solution providers. This ecosystem allows innovators to build new technologies that gather unfathomable types and amounts of data. Recent examples include:
The thing about IoT, says Anderson, is that it’s growing in previously unimagined ways. With all this new data comes new possibilities. Companies like Arrow have made IoT innovation more accessible to not only large corporations, but also small-scale innovators of the type found on Kickstarter and Indiegogo.
So how does Anderson describe the difference between a transactional customer and a solutions-based subscriber?
“I think at Arrow a customer is someone who buys a component or who buys a piece of technology that could make a data center,” says Anderson. “I think a subscriber is someone who is really interested in relationship with Arrow that is solving a specific problem and that could look like a subscription to monitoring. It could look like a subscription to one of our ‘data as a service’ capabilities or it could like somebody who has asked us to come along actually do design work for them.”
Anderson goes on to note that subscription-based businesses enable a lot more players in the innovation market, simply because they are able to build products that don’t cost a lot up-front. As long as they can continue to make their subscriber base happy, they can invest more money more in innovation and continue the virtual cycle.
Arrow’s founders probably wouldn’t have envisaged a future where entire segments of their product catalog would be treated as a loss leaders! Many of their customers give their new integrated products away for free, in order to kick-start smart, mutually-beneficial subscription-based relationships.
As Anderson notes, when you put sensors on everything you create data about everything. And that lets you charge in completely different ways: “For instance if you had a pacemaker that had sensors in it you could charge for a subscription for heartbeats! If you had shoes that had sensors in them you could charge for how many kilometers do you want to walk per month! Those kinds of business models never existed before.”
Today the IoT is making every single industry and every single company a potential subscription business model participant. “If you are a fan of innovation, you are fundamentally a fan of the subscription economy,” says Anderson.