Cam Winstanley looks at an emerging business model that could make for a leaner, greener world
Everyone now accepts that obesity is a major problem in the Western world. In Mindless Eating: Why we eat more than we think, American food scientist Brian Wansink said, “We have millions of years of evolution and instinct telling us to eat as often as we can and as much as we can.”
He argues that this genetic imperative to feast before famine has been twisted by modern farming and supply chain techniques that provide us all with a never-ending surplus.
But has the same thing also happened to the West’s obsession with material possessions? Globalisation and mass production have created conditions of constant surplus, with goods so abundant that it’s usually cheaper to buy new rather than have old ones repaired. Even with the occasional recession and financial market meltdown, living standards have been on the rise for decades, allowing several generations to mark their successes through retail acquisition.
We are fast approaching ‘peak ownership’. That’s not to say that everyone owns a yacht and private island, just that within our individual spending brackets, most of us have as many TVs and phones as we want, along with houses filled with all manner of other stuff.
Peak ownership creates a number of problems for a consumer-driven society. At the bottom of this list is the shared embarrassment of all the waste associated with our collective greed. Top of the heap is that the wheels quickly start to come off a supply-and-demand economy once all demands have been met. That’s why the concept of ‘product- as-a-service’ has come about. Because PAAS doesn’t just supply a finite number of products, it also serves our never- ending need for services.
Everything comes in a bundle
PAAS is a business model that uses technology to deliver a complete service to the satisfaction of customers and the profit of suppliers. On the surface, it sounds like the kind of rental agreement that has existed for years, albeit one that’s better attuned to the internet. And while it hasn’t yet been widely adopted, D/SRUPTION thinks that PAAS will usher in a quiet revolution. To explain why, let’s first outline what PAAS provides before looking at ways that it could disrupt different sectors. . .
Supply a solution – A person who owns a car takes possession of an expensive object with wheels. A person with a PAAS contract will be supplied with a complete transport solution. We’ll explain the distinction in a moment.
Own what you make – Customers never own the products they use and manufacturers never sell the products they make. This cradle-to-grave ownership compels each supplier to strike up a long term, meaningful relationship with each customer.
Create a revenue stream – Customer don’t have to pay upfront for the product they are using and manufacturers don’t get an immediate return on their investment. Instead, a ‘long tail’ approach of monthly payments offsets the short-term win of a sale with a long-term revenue stream.
Stay in control – While the Internet of Things offers suppliers the means to automate stock control, that’s just the start of it. Through the IoT, products can report their own mechanical failings to allow seamless repairs and maintenance. Additionally, the usage data generated by products can create additional income for suppliers – and offer additional services to users – when it’s sold to third parties.
Keep customers happy – Is a PAAS contract worth it? To answer that, all a customer has to do is see whether the service they’re getting is worth the fee they’re paying. If it’s not, they can move on. If it is, then suppliers can expect loyalty and income for years. Because of this rich reward, it’s worth supplying a better service than a cheaper one, even if that means tailoring the service or payment plan to each customer.
Existing lease models already allow individuals to ‘own’ a new car every year and for companies to operate fleets of up-to-date vehicles. PAAS allows for even greater flexibility of fleet ownership while handing over the responsibility of car ownership to the supplier. They take care of the service but you pay them for it.
What might a PAAS ‘transport solution’ look like? A vehicle manufacturer could provide a customer with a car for their weekly commute, with a van for the one weekend they go to IKEA and with a people carrier for the six weeks of the school holidays. Insurance would be supplied by an offshoot branch of the diversified manufacturer. Through IoT, each vehicle would monitor itself and check into a garage – also owned by the parent company – for service and repairs.
This flexibility of use could extend to flexibility of payment. Different payment plans could range from a simple per month or pay-as-you-drive rate to more sophisticated pay-how-you-drive rates, with insurance and maintenance fees adjusted in real time through constant evaluation of speed limit observation and aggressive braking. Careful driving could save money as well as lives.
PAAS in the home
Few of us crave a new dishwasher, tumble dryer or fridge – we just want to use the service they offer us. So, as IBM’s Dave Locke explained in The Anatomy of an IoT Solution, white goods are ripe for conversion to PAAS.
Rival white good products rarely offer a discernible choice, with the cost, power consumption and specifications more or less the same. A PAAS agreement could be a major differentiator by offering a lower upfront cost, superior service, effortless repair or replacement due to IoT monitoring and automated consumables replacement through IoT stock checking.
There are environmental benefits too. Built-in obsolescence is the way that manufacturers have forced consumers to replace their products but under PAAS, any replacement costs them money. By building white goods to last a lifetime (or at least constructing them in such a way that they can be maintained) products will last longer in the home, undergoing updates through IoT-enabled patches and fashion shifts with fascia panels.
Business to Business PAAS
With the lofty expectations of the online retail experience migrating to business, automatic consumable replacement services similar to Amazon’s Subscribe & Save and real time tracking and delivery are expected. PAAS could deliver that, plus many other benefits. Let’s look at how PAAS would work in a B2B world. . .
Under a traditional agreement, a car manufacturer buys red paint from a supplier, stores it on site then uses it to make red cars. If the production run of that colour ends early, or too much red paint has been ordered, the manufacturer is left with a surplus of paint they’ve already paid for.
Under a PAAS agreement, the contract would be to ‘supply paint for cars’ rather than any particular colour or amount. With the paint supplier’s automated system ‘talking’ to the manufacturer’s system, only the required volume of each colour would ever reach the assembly plant, optimising the supply chain, reducing bulk transport costs and almost entirely eliminating warehousing. This efficient use of data management in a PAAS system directly impacts on costs and reduces waste too. Flexibility of payments can drive efficiencies on both sides of any deal by having costs directly linked to efficiency and productivity, with a more effective service costing more but also bene ting the customer.
A construction site just needs ‘earth- moving capacity’, not the burden of a vehicle fleet. A holiday resort chain needs ‘landscaping’, not a workforce of gardeners. A large hospital needs ‘heart monitoring services’, not a vast inventory of devices that require constant servicing and updating. By switching to PAAS to supply these needs, B2B deals could meet end-to-end service requirements.
Service on the high street
High street stores currently face a far more immediate threat than peak ownership – online retail. Yet even as Amazon takes more and more slices of the pie, the much talked about ‘death of the high street’ is unlikely to happen. Why? Because people still love to go out into towns and buy things.
Sure, bricks and mortar stores are struggling at the moment but they’re also adapting quickly. No one shop can offer the same range of products as the entire internet but a physical store can offer more from the experience by becoming an entertainment venue or centre of excellence. By offering something extra, innovative shops can still thrive.
Let’s look at chains such as H&M, Zara or TopShop for a way that PAAS could radically rewrite the fast fashion rule book. Out go store loyalty and credit cards and in comes a PAAS subscription card. Casual shoppers would still be able to buy items but for cardholders, the store suddenly becomes a fast fashion lending library and place to hang out.
Think about how appealing this could be. Fast fashion thrives by converting catwalk trends into high street clothing within weeks, clothes are made to last only as long as they’re fashionable and customers wear them only until the next big thing comes along. So, for a monthly subscription, our fashion PAAS model would let each customer take away up to six items at a time, returning and replacing worn items to prevent them from being resold on eBay. Stores would have to work harder to recycle or repurpose these returns but they’d profit from converting one-off customers into long term subscribers. After all, it’s more efficient to maintain an existing satisfied customer than it is to find a new one.
Who does PAAS serve?
If product-as-a-service takes off then it will be because everyone benefits from it. Manufacturers will produce longer lasting products that will provide them with a revenue stream from the day they’re installed until the day they’re recycled. Customers won’t have to pay upfront for products, or pay to have them repaired or replaced. And we should all reap the environmental benefits of fewer items being thrown into landfill before their time.
All we’ve got to do is shake off that desire to own everything that we use.