John Deere– From Equipment Manufacturer to Tech Firm

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Good morning! It's Tuesday, September 26th. Today we are taking a close at John Deere, the largest farm equipment manufacturer that market experts are now classifying as a tech firm!

THE FEATURE

John Deere— From Equipment Manufacturer to Tech Firm

For 186 years, John Deere has dominated the agriculture manufacturing industry since its founder invented the first commercially viable self-scouring steel plow in 1837.

Though it may be a nearly two-century-old company, Deere and its $164B enterprise value aren’t showing any signs of slowing down. In fact, the company is speeding up as it rapidly transitions its focus to software and AI farming products (which have already led to double-digit revenue growth!).

What’s The Business?

Deere holds the largest share of the global agriculture equipment market by far with 25.3%. For comparison, CNH Industrial is second in the industry with a market share of just 12.9%.

When the public thinks of John Deere, they imagine the quintessential green and yellow tractor, but the company is loved by farmers for a whole lot more than that.

Deere consists of six brands that cover everything farmers need, from roadbuilding (Deere & Co, Wirtgen), and crop spraying (Hagie), to even tech solutions (Blue River). For simplicity's sake, we can break down Deere’s estimated 2023 annual revenue into three streams:

• Agriculture & Turf Equipment ($40.5B): Deere’s largest revenue stream covers all the agriculture equipment farmers need and has seen record growth with the expansion into software and AI products.

• Construction & Forestry Equipment ($14.9B): Farmland doesn’t clear itself, and machines are needed for earthmoving, timber harvesting, and road building.

• Financial Services ($3.4B): While financial services only make up 5% of total revenue, this sector expands the consumer pool by facilitating leases and financing options for expensive agricultural, forestry, and construction equipment.

Deere is expected to generate $59B in annual revenue this year with agriculture and turf equipment making up 69%. Revenue from this sector has increased from $22.8B in 2020 to $40.5B this year. Deere’s been able to nearly 2X this revenue stream by deploying a new portfolio of software and AI tools.

By investing heavily into this new portfolio, Deere has acquired a lucrative recurring revenue stream from software subscription sales, akin to what tech companies like Tesla and Apple enjoy.

How They Win: Transitioning into a Tech Company

If you were to go to a John Deere facility, you’d expect to see mechanical engineers working with large steel parts. In reality, you’d see the 2,600 employees at the core of the business who are busy writing software.

Much like Apple and Tesla, combining cutting-edge hardware with software subscription models is the primary driver behind Deere’s success.

From 2012 to 2016, Deere spent big on research and development on tech products like automated seeding protocols, irrigation systems, and GPS-guided tractors. This early investment certainly paid off considering the exponential growth of Deere’s agriculture and turf sector.

Though a $500,000 autonomous tractor used to be a hard sell, Deere is finding that more and more farmers understand the value behind their tech tools. For one, AI can automate and increase the efficiency of many repetitive farming tasks. However, the data collection capabilities of Deere’s equipment are even more valuable to farmers.

Essentially, Deere provides their customers with top-of-the-line precision agriculture tools that take the guesswork out of farming. For example, Deere’s platform Harvest Profit helps farmers strategize how to maximize crop yields based on things like weather patterns and soil conditions– making it a subscription service that pays for itself.

So What?

John Deere is one of America’s oldest companies, and ironically, one of the nation’s most agile. Rather than stagnate in the face of new tech trends, Deere has completely shifted its business model to maintain market dominance.

Famous entrepreneurs often cite the principle that businesses that don’t continually improve will fail. Deere has taken this idea to an extreme by revolutionizing itself to address the needs of modern farmers, even if that means becoming a tech firm.

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