The nature of how businesses sell to consumers is changing dramatically.
For years, companies sold products to customers in one-off transactions. The customer would buy an air conditioner or automobile, and aside from the periodic maintenance request or product recall, companies would rarely deal with them again.
What if, instead of simply selling the customer physical products, businesses sold them richer experiences? What if they turned products into services, bringing a mixture of cost savings and higher margins while improving the customer experience? Thanks to technology, that’s happening.
Welcome to the world of product-as-a-service
B2B companies have led the way in implementing this exciting new business model. For example, instead of simply paying for an engine, Rolls Royce customers can pay based on the quantity of thrust it produces, in a concept known as "power by the hour."
What does the product-as-a-service proposition look like in the consumer space? Outside of specific cases such as mobile phone contracts, consumers are often reluctant to enter into long-term financial agreements with companies. There must be a solid value proposition, offered in a consumer-friendly format, to overcome this natural barrier.
Some companies are finding it. Amazon’s Kindle would be useless without the service that lets users buy books to read on it. Satellite radio users need a subscription to give their hardware a reason to exist. Software-as-a-service replaces the disk and traditional one-off software product license altogether with a monthly service.
These examples all have one thing in common: they’re selling outcomes, not products. The customer’s focus isn’t entirely on the physical product being sold, if at all. Instead, the emphasis is on the platform that it creates for other experiences.
Your music and your computer aren’t the only places where outcome-based sales are making an impact. Product-as-a-service models are also making their way into the connected home.
Take your printer, for instance. Running out of ink used to involve a system test to work out which cartridges you needed to replace, and then a confusing trip to the local store, where you tried to find ink for your exact model. Now, HP’s printers will tell the company when they’re running low, and it will automatically ship you new ink, on a subscription basis.
Telecommunications companies are partnering with IoT companies to create monitoring and control services that fully automate the home. Comcast’s Xfinity service will install products that let you control your lighting, thermostat and security cameras, recording security footage directly into the cloud.
Taking product-as-a-service on the road
In the car, things have evolved far beyond OnStar, the original product-as-a-service play from General Motors. VW’s Car-Net service shows how vehicles are becoming platforms for service delivery. For a subscription, drivers can get a crash notification, roadside assistance, and stolen vehicle assistance, along with help finding destinations and automatic vehicle maintenance scheduling.
Expect more innovation as these services evolve. Insurance company Metromile is using its Pulse sensor embedded in cars to determine how far people drive, adjusting insurance premiums to reflect their mileage. The sensor may be a product, but it’s the service it provides that counts.
What’s the ultimate product-as-a-service play in the automotive sector? Perhaps it isn’t owning the product at all. Consumers have always been able to rent cars by the day, but thanks to connected sensors and mobile apps, drivers can locate the nearest available vehicles and rent them by the minute.
Traditional product vendors recognize the value of this model. Daimler launched Car2Go, and BMW started ReachNow. These are good examples of business models that expand revenues by recasting products as services to those for whom traditional ownership doesn’t make sense.
Manufacturers should take note of these new opportunities and consider their implications for the product lifecycle. Do product design and development support an enhanced, service-based product lifecycle? How can you use connected sensors to change the customer proposition? Should intelligence be embedded locally or in the cloud? Do you, like Tesla, embed future functionality into the product that can be unlocked on demand?
As products and services combine, these conversations will become deeper, and product design will require more innovation and planning. Be prepared for the product-as-a-service phenomenon. It promises to be a wild ride.
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