Some SaaS companies sell hardware. Yes, hardware! The most common examples are point-of-sale terminals, desktop phones, IoT-connected sensors, cameras, and telematics devices. To be clear, hardware is not a strategic offering for any SaaS company. You won’t find a line item for hardware on the income statement of any publicly traded SaaS or cloud company.
It is offered with the goal of providing a complete, turnkey solution for the business problem being solved. For example, Paycom sells physical time clock terminals as part of its holistic payroll solution. Employees at their customer accounts can swipe a badge or scan their fingerprints to clock in and out.
Most of the software companies selling hardware are either vertical SaaS (health care, retail, foodservice) or horizontal business applications (e-commerce, payroll, payments).
Vertical SaaS Companies that Sell Hardware
Shopify Hardware Products
Retail
Although Shopify is best known for enabling e-commerce, the company wants to enable merchants to sell anywhere, including brick-and-mortar stores. Shopify offers POS software that can be downloaded onto a tablet or other device. The POS software synchronizes orders and inventory across a retailer’s channels. For customers who prefer dedicated POS hardware, Shopify offers its own branded countertop POS and tap/chip card readers that allow for contactless credit/debit cards and digital wallets. The hardware is pre-configured to work seamlessly with Shopify’s payments offering. The company also offers compatible accessories from third party hardware manufacturers including cash drawers, barcode scanners, receipt printers.
Toast Hardware Products
Restaurant
Toast offers a full suite of products for restaurant operators – from soup to nuts. Their products include marketing software to manage loyalty programs and send email campaigns, digital storefront sites to capture orders for delivery and takeout, as well as back office software for inventory management and employee payroll. Toast even offers payment processing and loans to purchase equipment or renovate restaurant locations. To support in-store operations, Toast offers a variety of hardware products.
For dine-in customers Toast offer self-service kiosks to skip the line and place orders as well as point of sale terminals for contactless or traditional magnetic-stripe reader payments. Toast also offers kitchen display systems that can be mounted in the food preparation area to present orders for dine-in, takeout, and delivery channels. Drive thru staff can use mobile handheld POS devices to capture orders and accept payments. Toast advertises its hardware as “restaurant grade,” which includes lightning fast processing speed, long-lasting battery life, and durable enough to survive the hazards of high-temperature kitchens.
Samsara Hardware
Logistics
Samsara uses Internet of Things technology to help businesses monitor vehicle fleets (e.g. trucks), equipment, and warehouse operations. Although the company focuses on software and services, a critical part of the solution is installing hardware devices to monitor, manage, and secure the vehicles and assets. As a result Samsara sells a wide variety of hardware products. Examples include GPS devices that provide live location sharing and geofencing. Telematics devices that can be used to monitor fuel consumption, asset utilization, and ambient temperature. Security sensors to monitor doors opening/closing and cargo movements as well as remote kill switches. Cameras for real-time driver coaching, AI training models, and dock loading safety concerns.
Weave Hardware Products
Healthcare
Weave is a customer experience platform to SMB healthcare businesses. The company enables healthcare providers to communicate electronically with their patients via phone, text, email, and mobile app for routine activities like appointment scheduling and reminders, privacy consent and medical history forms, insurance verification, billing and payments. As part of a full-service solution, Weave also sells handheld and desktop phones for medical office staff to use for internal and customer communications.
The Business Model of Hardware Products
Benefits of Selling Hardware
Hardware is important. Not everything can run in the cloud and be accessed on a smartphone or PC. Many software applications interface with specialized hardware devices on the edge of the network or the customer’s premise. Providing both the software and hardware provides a complete, turnkey solution to the customer.
Hardware reduces churn and retention issues. In a BYOD model where the customer supplies their hardware, there is no guarantee that it will be compatible with the SaaS application. Even if the customer brings the recommended make/model, the version of the firmware on the device could create a compatibility issue. Supplying the hardware ensures it works correctly with the software to avoid implementation challenges or other customer satisfaction issues.
Commercial Models for Hardware
Some design and develop their own hardware devices. Assembly and production are usually outsourced to a contract manufacturer in a low-cost geography. Other SaaS companies focus on their core competency of writing code and choose to resell third-party hardware.
Hardware can be leased or sold to customers. The commercial model will determine whether the hardware is recurring revenue or a one-time sale. Revenue recognition varies for hardware that is resold versus self-produced.
Challenges with Selling Hardware
Selling hardware introduces logistical challenges for SaaS companies. The devices must be shipped to the customer’s location, then installed and connected to the web. Hardware devices break from time to time. A technician will need to be dispatched to repair it. Alternatively, the customer may need to pack and ship it back to the software company for repair. The useful life of hardware varies but typically is only a few years. End-of-life hardware needs to be decommissioned, returned, and replaced with upgraded devices.
Infrastructure SaaS Companies that Sell Hardware
RingCentral Hardware
Telecommunications
RingCentral sells a variety of phones to offer a complete communications solution to its customers. Desktop and cordless phones as well as specialized multi-line phones for receptionists and conference room speaker phones. Customers can purchase the phones for a one-time fee or rent them as part of a bundled subscription offering. RingCentral does not design, develop, or manufacture the physical phones. It relies on third-parties to produce and service the devices. However, RingCentral does ensure compatibility between its software and the recommended hardware products.
Backblaze Hardware Products
Data Protection
Most customers backup and restore data over an Internet connection. However, for customers with a very large storage volumes Backblaze offers physical hard drives to simplify data transfer. Businesses can request to have a “Fireball” device shipped to their location. The latest version has a storage capacity of almost 100TB and offers a 10 Gigabyte ethernet connection for rapid local transfer. A similar option exists for consumers to restore data. They can request to have their files copied to a physical hard drive which is shipped FedEx to their location. They can download the files and then return the hard drive for a full refund.
Hardware is Embedded in Every SaaS Application
Every SaaS and cloud solution has hardware embedded in it. Although it’s not presented as a separate line item on the sales order (or in the shopping cart), the underlying cloud platform that the SaaS app runs on has servers and storage powering it.
The Biggest SaaS and Cloud Mega-Vendors Sell Hardware
In addition to the vertical SaaS and horizontal app companies discussed above, its worth noting that all the tech mega-vendors sell hardware – Alphabet, Amazon, and Microsoft. And these companies have the biggest market share in many cloud infrastructure and application categories.
Google’s Hardware Products
Alphabet (Google) sells Google Cloud Platform and Google Workplace (Gmail, Google Docs, and Drive) SaaS applications. It also sells hardware products like the Pixel smartphones, Fitbit wearables, and Nest security devices.
Amazon Hardware Products
Amazon Web Services has the leading market share in cloud computing services like EC2 (compute), S3 (storage), and CloudFront (CDN). Amazon also sells Kindle tablets, Echo speakers, Ring, and Blink home security devices, among other products.
Microsoft Hardware Products
Microsoft, like AWS, has a $10B+ business in cloud infrastructure. In addition to Azure, it sells SaaS business applications like ERP and CRM through its various Dynamics suites. Microsoft also sells collaboration and productivity software like Office 365, Teams, and SharePoint. The company also sells Xbox gaming consoles and Surface-branded PCs, tablets, and accessories.
