The era of Everything-as-a-Service

We are going through an era in which the concept of ownership is undergoing a profound transformation. An era in which the idea of "access," comes before the idea of "having." Think that Philips is providing light as a service to the Schiphol Airport in Amsterdam.

This paradigm shift that is reshaping not only the way companies operate, but also the way consumers engage with products and services. At the heart of this transformation is Product as a Service (PaaS), an innovative business model that is redefining the relationship between consumer and business.

What is Product as a Service (PaaS)?

PaaS (not to be confused with Platform as a Service) is a business model and concept of offering a product to customers in the form of a service or subscription, rather than as a traditional one-time purchase.

From Ownership to Usership

Even if the PaaS model may seem like a recent innovation, the concept of pay-per-use has older origins. Consider the Roman public baths, where citizens paid an entrance fee for access to bathing facilities, saunas, and exercise areas. In a similar way, libraries have also offered an alternative to book ownership, allowing users to borrow and return books.

Credit: Midjourney

In contemporary times, the Product-as-a-Service model has become very popular, with many companies seeking to emulate the successful SaaS business model and its recurring subscription revenue stream. In the automotive industry, for example, it has gone from being offered as an add-on to maintenance services at the time of purchase to becoming the core of its business models.

Companies such as Lynk & Co, a joint venture between Geely and Volvo, have embraced PaaS to address the problem of underused cars while boosting profit margins. This shift is not exclusive to Lynk & Co; also Volvo and Polestar, owned by the same Chinese holding company, have also followed the example. The results speak for themselves: in 2022 Lynk & Co's membership base grew from 60,000 to more than 170,000, highlighting the effectiveness of this approach.

Sustainability and Circular Economy

One of the most interesting aspects of this model is certainly its alignment with sustainability and circular economy principles.

In the traditional model, products are typically wasted at the end of their use. In contrast, PaaS promotes a more conscious approach in which products are designed to be reused, repaired, recycled, redistributed, and refurbished.

This change results in extending the product life cycle, cutting out the waste step. This not only reduces the environmental footprint associated with producing new products, but is also a way to conserve valuable resources.

While previously the only transaction was due to one-time payment, now you have recurring revenues that come from multiple steps in the journey, linked to services around the product.

This aligns profit motivations with sustainability goals, a win-win scenario for both companies and the environment.

A new value proposition

User experience takes center stage, redefining the value proposition for consumers. This innovative model has a number of compelling benefits that meet the evolving needs and preferences of users.

Among the main ones is to solve the need for experience. Cost of ownership played a key role but now, users are moving toward the subscription model. In return, they receive the appeal of something deeper: a transformative experience.

Thus, users gain access to the latest technology, attractive and affordable subscription prices, and unparalleled flexibility. In addition to these pragmatic benefits, it is often provided a personalized experience tailored to one’s needs.

The appeal of experience > ownership is reshaping consumer behavior. As individuals increasingly prioritize access, personalization, and seamless interactions, PaaS emerges as the driving force behind this change.

The life cycle extends with Product-as-a-Service

Benefits for the companies

The benefits of this model are not limited to the consumer experience; it can also benefit the companies that adopt it:

• Predictable and recurring revenues: the main reason this model is chosen results in consistent revenue streams, less revenue volatility, which leads companies to be profitable

• Enhanced customer relationships: ongoing engagement through subscriptions fosters stronger, longer-lasting bonds with customers. Brands become an integral part of customers' lives, rather than one-time transactions.

• Sustainability: encourages longevity and reuse of products, reducing waste. In the fight against climate change, it is definitely a more useful approach than greenwashing.

• Improved sales funnel: shifts the focus from one-time sales to continuous engagement. This means more effective sales funnels geared toward retention and referral rather than acquisition.

• End-to-end customization and personalization: from product features to subscription plans, companies can fine-tune their offerings to meet the unique needs of each customer, further increasing customer loyalty and satisfaction.

A blueprint for the future

As we navigate the changing landscape of business models, it’s clear that Product as a Service is not just a passing trend, but a transformative force. To succeed in this dynamic environment, companies must consider a few key strategies.

1. First, adaptability is key. Keep an eye on consumer preferences and market trends.

2. Second, dive into circular economy. Embracing sustainability is not just a marketing ploy-it is a fundamental change that resonates with conscious consumers.

3. Third, leverage technology to offer users seamless personalization and experiences.

Finally, embrace user-centricity. PaaS is about delivering exceptional user experiences. Listen to their feedback, iterate your offerings and make them an integral part of your product journey.