Buying a product has been the default way we’ve “consumed” products in modern industrialized nations. However, more and more companies and consumers are “leasing” products instead of buying them. This method of consumption could be a model for a better, cleaner and more circular economy. Some call this model “Product as a Service” and it is the topic of this blog.
Service, not product
Leasing products is hardly a new or revolutionary concept. Especially in the business to business-market leasing has been fairly common. What makes Product as a Service (PaaS) a potentially very powerful is the emphasis on “Service”.
PaaS is a particular way to view leasing. It is about decoupling the product itself with the intended goal of using that product. Most products are bought as a solution to a problem. Therefore it is about solving the problem, not owning the product that solves it. Most consumers don’t need to own a product, they just need to get the benefits of using it.
Switching on the light
If a business would need to illuminate an office space it would need a product to light it with. LED lighting seems an obvious solution. What is less clear is the rationale behind owning the lighting system. If you own something, it becomes your responsibility and therefore your problem. Things like installation, breakage, energy consumption, maintenance, upgrades, and recycling are for the most part your responsibility and consequently a liability. Besides the legal obligations like the warranty, the company that sold you the lighting system has little stake in what happens after the sale. Once you bought it, it is your problem.
From problem to solution
But what if you would lease those lamps in a Product as a Service-model. With this “Lighting as a Service” the business incentives change completely. The company that leases the product to you provides you the service of “illumination” and needs to do so in the most convenient and cost-effective way. How the company achieves this is up to them. The incentive is to provide a fitting solution for the problem at hand for a monthly fee.
Changing from a business model where you buy and own a product to a model where you provide a subscription-based service changes the relationship with the end-user. The incentive changes from making the customer happy upon purchase to keeping the customer happy for as long as possible, to keep them subscribed. For businesses to achieve the latter they need to keep fulfilling the needs of their subscribers. If a business stops providing the solution with its product, the subscriber could cancel their subscription. Therefore there is a strong incentive to be really solution-oriented as a business.
An important effect of the need to stay relevant for the customer is the need to be constantly improving product and service. For some types of product-service combinations, this would mean product updates. For others, it would mean the ability to switch between products depending on individual needs. In all cases, it is important for PaaS-businesses to be responsive and attentive to the needs of their subscribers. They need to get their priorities aligned with those of the consumer, thereby being more solution-oriented.
There are many more ways in which the Product as a Service-model is beneficial for “People, Planet, and Profit”. Solution-oriented commerce is one of the most important. A lot of other benefits flow from this shift in thinking about commerce.
This blog will try to explore all the upsides and downsides of PaaS and keep you up to date on the biggest developments regarding PaaS.