Winning in the Ag Machinery Space: Integrated Tech Stacks and Precision Technology

Conservation of Attractive Profits, Integrated Systems and Winning in Agricultural and Precision Equipment

When I first meaningfully wrote about autonomy and automation of smart equipment in August of 2021, I talked about my view that integration in the equipment space will win out. While this view isn’t universally agreed upon, I think it is worthwhile to dive deeper into what "integration” means and why I think this approach is important in the context of equipment manufacturers and various precision and autonomous functionality.

With recent smart spraying announcements from AGCO and Bosch/BASF along with the CNH International acquisition of Hemisphere GPS I thought it would be a good time to dive deeper into integration.

Tech Stack’s and the Conservation Of Attractive Profits

First, let’s define tech stack.

The term “Tech Stack” originated in the software development community as a set of technologies an organization uses to build a web or mobile application. It is a combination of programming languages, frameworks, libraries, patterns, servers, UI/UX solutions, software, and tools used by its developers.

It has progressed to be a set of technologies an organization uses to build differentiation.

John Deere enthusiasts and frequent Upstream Ag Insights readers will recognize the John Deere tech stack that commonly shows up in their materials:

Each layer of the stack is a unique technology and internal capability that Deere has. We will talk more about the “hardware and software” layer in a bit.

Business strategy legend Clayton Christensen developed what’s known as Conservation of Attractive Profits.

The Conservation of Attractive Profits starts with a categorization of how all of the different components of a product or service interact with each other: predictable and independent (modular) versus proprietary and interdependent (integrated).

Modular is defined as constructed with standardized units or dimensions for flexibility and variety in use. Integrated is defined as combine (one thing) with another so that they become a whole.

A modular architecture specifies the fit and function of all elements so completely that it doesn’t matter who makes the components or subsystems, as long as they meet the necessary specifications. Modular components can be developed in independent groups or by different companies working at arm’s length.

Example: Apple iPhone’s vs. Samsung/Android

We can think of this in the context that Apple iPhone’s are integrated with their chips, hardware, software and services. Whereas Samsung is dependent on a modular chip and outsourced software, in their case Android by Google, as an example.

It’s important to note that while Apple’s iPhone as of 2022 only had about 24% market share, Apple collected 85% of operating profit and 48% of revenue from smartphone sales over the course of the year. Integration gives Apple the ability to cultivate a superior experience and ecosystem around the hardware and software, leading to higher profits and loyalty.

Said in the context of agribusinesses, a modular product means a product that plugs into and works across a variety of other systems. An example is the Greeneye Technologies see and spray system, it is modular in that it can go onto a variety of sprayers, being brand agnostic.

John Deere with their See and Spray Ultimate for example has an entirely integrated system— from the sprayer itself, to the software, to the sensors, GPS and more. They are integrated and control all technology necessary to deliver high end performance and customer experience.

‍Modular architectures maximize scale, but because they require tight specification, they give engineers fewer degrees of freedom in design. As a result, modular flexibility comes at the sacrifice of performance.

When we talk agricultural machinery, performance is the ultimate driver of product success. Otherwise, the product gets commoditized (more on this later).

Performance being defined as reliability of the system, speed or accuracy. System performance leads to better outputs by the system—placement of seeds, less waste of a crop protection product/better targeting of weeds, ability to drive faster while achieving the same outcome etc.

However, it is important to play out the rest of modularity theory.

Modularity theory predicts that as competitive environments mature, the initial performance and predictability advantage of integrated systems eventually lose ground to the cost, flexibility and compatibility advantage of modular systems.

The theory over the long term has generally proven to miss in the real world, though it is generally specific to the consumer realm, there are reasons I believe we will see it be wrong in the ag equipment space too.

Integration will win out because it enables a better user experience, performance and because it will allow for ultimate differentiation at the field level.

Systems Over Point Solutions

Anytime we are talking about agricultural equipment and precision technology, such as John Deere products like See and Spray on a sprayer or ExactShot on a planter, we are talking about full stack solutions. These offerings are a combination ofdisparate parts, such as: