Tech, ExplainedIndustrial tech and mobility
Concept

Installed base

Bought once, kept for decades.

HOW IT WORKSA buyer chooses amaker's system for thefirst timeThe system isconnected to machines,data and trained staffYears pass andthe buyer addsto the systemReplacing it wouldmean stopping work,moving data andretraining staffThe buyer stays withthe maker and renewsthe contractsThe cost and risk of switching are higher than the cost of staying, so the maker keeps the customerfor decades.HOW IT WORKSA buyerchoosesa maker'ssystemfor thefirst timeThe system isconnected tomachines,data andtrained staffYears passand thebuyer addsto the systemReplacing itwould meanstoppingwork, movingdata andretrainingstaffThe buyerstays withthe makerand renewsthe contractsThe cost and risk of switching are higher than the cost of staying, so the maker keeps the customerfor decades.HOW IT WORKSA buyer chooses a maker's system for thefirst time↓The system is connected to machines, dataand trained staff↓Years pass and thebuyer adds to the system↓Replacing it would mean stopping work,moving data and retraining staff↓The buyer stays with the maker and renewsthe contractsThe cost and risk of switching are higher than the cost ofstaying, so the maker keeps the customer for decades.
A system installed at a customer runs for decades, so replacing it is costly and the customer stays with the same maker.
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Installed base means all the systems of one maker that are already running at customers. In many industries, such a system is used for 20 or 30 years and is almost never replaced. Examples are a factory control system, an engineering design tool, a dealer system at a car showroom, or the fare system of a metro. So a buyer who starts with one maker usually stays with that maker.

Here is why this happens. A system like this is joined to many others: machines, staff training, spare parts, records and other software. Replacing it means stopping work, moving old data, retraining people and proving that the new system is safe. The cost and risk of that are far higher than the cost of continuing. So buyers keep the system, add to it and renew its contracts, and the maker earns for decades. This effect is also called lock-in.

Three kinds of cost hold the buyer. The first is technical: the new system must connect to the same machines and read the same data. The second is people: staff trained for years on the old system must learn again, and mistakes during learning are costly. The third is risk: if the new system fails on its first day, a plant or a station may stop, and the person who chose it is blamed. The buyer also holds years of records in the maker's format, and the maker may not hand them over in a form that another system can read. Some makers make leaving harder on purpose, but the effect appears even when they do not.

Take, for example, a power plant with a control system installed in 1998. Its operators know it, its spare parts are on the shelf and it has run without trouble, so they extend it instead of replacing it. Consider a car company that has stored every vehicle design in one design tool for twenty years. Moving to another tool would mean converting millions of files. Imagine a metro rail that chose a fare-collection system when it opened. Each new line uses the same system, so automatic fare collection vendors compete hard for the first contract.

The idea shapes how makers behave. They bid low for the first sale and earn later from upgrades and service; see aftermarket services. It also explains why new companies find it hard to enter, and why government tenders matter so much.

How is it different from the network effect? In an installed base, buyers stay because switching is costly. In a network effect, buyers join because other people are already there.

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Industrial tech and mobility
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