US farm machinery giant John Deere has estimated software fees will make up 10 percent of the company’s revenues by the end of the decade.
Chief executive John May offered the projection in a Wall Street Journal report on how Deere has plowed billions into developing self-driving tractors and crop sprayers that can tell the difference between weeds and produce.
Though farmers are already struggling with operating costs – including fertilizer and fuel – Deere wants to sell software subscriptions for operating its ever smarter vehicles.
Bernstein analysts estimate that the average gross margin for farming software is 85 percent, compared with 25 percent for equipment sales.
All Deere’s tractors and harvesters have an autopilot feature included as standard following decades of ushering farmers into more technology-driven agriculture.
However, the company now plans to have 1.5 million machines and half a billion acres of land connected to the John Deere Operations Center within a matter of years. This cloud service “will collect and store crop data, including millions of images of weeds that can be targeted by herbicide.”
Deere also acquired California startup Bear Flag Robotics for $250 million last year to turn old tractors into autonomous vehicles through software.
For a company that has the heavy machinery market cornered, the shift is unlikely to be popular with farmers.
A number of farm and repair advocacy groups filed a complaint with the Federal Trade Commission (FTC) in March claiming that Deere has unlawfully refused to provide the software and technical data necessary to repair its machinery in violation of the Sherman Act and statutes covering unfair and deceptive trade practices.
“Deere is the dominant force in the $68 billion US agricultural equipment market, controlling over 50 percent of the market for large tractors and combines,” said Jamie Crooks, attorney from Fairmark Partners, which represents the farm and repair groups, in a preface to the complaint [PDF].
“For many farmers and ranchers, they effectively have no choice but to purchase their equipment from Deere. Not satisfied with dominating just the market for equipment, Deere has sought to leverage its power in that market to monopolize the market for repairs of that equipment, to the detriment of farmers, ranchers, and independent repair providers.”
The FTC complaint alleged that Deere’s repair business is three to six times more profitable than its agricultural machinery sales business because farmers and ranchers have to pay thousands of dollars up front for access to the Customer Service Advisor, which provides repair information but still does not enable them to perform common repairs on their own.
It also accused the agriculture giant of gathering data from farmers and using that information to provide optimization techniques to others, eroding potential points of competitive differentiation among its customers.
At the time, the company told The Register: “John Deere supports a customer’s right to safely maintain, diagnose, and repair their own equipment. To facilitate this, Deere provides the tools, parts, information guides, training videos and manuals needed for farmers to work on their machines, including remote access for technicians to provide long-distance support.
“John Deere does not support the right to modify embedded software due to the risks associated with the safe operation of equipment, emissions compliance, and engine performance. We remain committed to providing innovative solutions that support our customers’ needs.”
As the company moves deeper into software, concerns around servicing will only get worse. But there is an upside.
In May, millions of dollars worth of John Deere agricultural machinery stolen from a dealership in Ukraine by Russian Federation forces was traced to the Chechen Republic and bricked, according to CNN, thanks to Deere’s proprietary digital access controls.
On the other hand, a hacker going by Sick Codes was able to jailbreak Deere equipment to run a farmer-themed Doom mod for the DEF CON 30 event this summer. “The main bug is that nothing’s encrypted or checksummed properly or anything like that,” Sick Codes said.
Kyle Wiens, CEO of repair website iFixit, commented: “Turns out our entire food system is built on outdated, unpatched Linux and Windows CE hardware with LTE modems.”
Food for thought. ®
Discussion about this post