The automated teller machine manufacturer Diebold Inc., which has been selling hardware to banks for more than a century, is putting a stronger focus on services that go along with the machines.
The North Canton, Ohio, company said that every ATM requires numerous support services to keep it operating properly, and that delivering those services will strengthen its relationships with customers and generate revenue long after the machine is sold.
"The ATM world as we know it today and the business we're in today, we are going to change over the next five years, and we are beginning that shift today," Thomas Swidarski, Diebold's president and chief executive, said in an interview last week. "Where we're investing, really, is on the services side of things."
The main opportunity for Diebold lies with midsize banks, Mr. Swidarski said.
"These are folks that maybe don't have quite the IT infrastructure, don't have all the capabilities," he said. "When you're talking about the ATM, you're probably talking about five or six different vendors" to handle cash, maintenance, transaction processing, and other services. "We can do all those pieces for them. We can handle that complexity and take that out of your hair and manage that for you. And so we're finding a great appetite for that."
Last month Diebold announced that OnPoint Community Credit Union of Portland, Ore., had agreed to replace many of its Diebold ATMs with new machines and would use the vendor to service them.
Kelly Schrader, OnPoint's senior vice president of member services, said the new arrangement "allowed us to basically go from six or seven different vendors for the entire process" to just Diebold.
For any issues that arise with its ATMs, OnPoint now has a single point of contact and can make one phone call instead of seven, she said. "We see" the difference "on a weekly basis."
Mr. Swidarski said that two years ago Diebold got 51% of its revenue from hardware sales, but last year 52% came from services. So far this year 55% has come from services.
"Hopefully, that will grow to 60% and hopefully 70% of our total over the next five to seven years," he said.
To that end, Diebold is offering services that go beyond ATM network management, Mr. Swidarski said. "We're doing the same thing on the security side" by selling monitoring systems for branches. "A robbery's occurring? We're the ones that call the police."
Nicole Sturgill, the research director for delivery channels at TowerGroup Inc., a Needham, Mass., independent research firm owned by MasterCard Inc., said Diebold's strategy for financial services "is a logical one in today's environment, where all the banks are looking closely at how to reduce costs."
Mr. Swidarski said his company is focusing on the financial industry because it knows its core strength is its deep understanding of the banking market.
Diebold, which got its start selling vaults to banks in 1859, has long been one of the dominant ATM providers. However, it has also learned the hard way that it can be difficult to take that expertise to other markets.
Several years ago it developed a machine to automate the dispensing of medication at hospitals. Mr. Swidarski said the machine was better than the ones hospitals were using at the time, but Diebold had missed a critical reason those machines were so widely used: Pharmaceutical companies offered them to hospitals for free, while Diebold was trying to sell its version.
Diebold suffered similar setbacks when it tried to move into video-dispensing kiosks and automated gas pumps, markets where it had little background.
"It's easy to say you understand self-service. It's different to say you understand the industry," and Diebold did not fully understand some of these industries, Mr. Swidarski said.
Though Diebold is focused on banking for now, he said it is also offering to service self-serve machines in other industries as a way to study these markets and perhaps to develop its own machines for them eventually. "We're going to learn it from the service end up."
After entering a new market, Diebold might eventually acquire a hardware provider with stronger knowledge of that industry, but first it has to learn what problems each industry faces, Mr. Swidarski said.
The current strategy is the best way to do that, he said. "The service guy, at the end of the day, fixes the problems."
This strategy is still in its early stages, according to Mr. Swidarski, and he stressed that Diebold has no plans to shift away from ATMs. "There's a huge opportunity still in the financial services industry," he said.
Diebold's strategy is a sharp contrast to that of its chief ATM rival, NCR Corp., which is expanding into a variety of nonbanking markets with self-serve kiosks, such as hotel and airline check-in systems.
Brian Bailey, NCR's vice president of financial industry marketing, said that even though there is plenty of demand for software and services for self-serve machines outside banking, his company has no interest in expanding into a market without providing hardware as well.
"We've been down the third-party services path in the past" and found it unprofitable, he said.
"In the case of airline, health care, we are relying less on hardware platforms. We sell more software and services in those industries today than we do hardware. However, we do believe self-service will utilize automation devices, which are physical self-service solutions."
For example, NCR sells software that lets patients make doctor's appointments online. When it is time for the appointment, patients check in through a kiosk.
TowerGroup's Ms. Sturgill said that both strategies have merit, and that it is hard to compare Diebold's with NCR's.
"They're apples and oranges," she said. "They've both identified their strengths, and they're working through their strengths," often targeting different industries.