Europe is pushing for digitalisation and circular economy as two of its 2030 Sustainability Development Goals (SDGs). According to research by the European Commission, 56% of European consumers disclosed that environmental issues have a pressing influence on their purchasing decisions. They consume products that are better for the environment. While almost 70% of Americans say that the product's ecofriendliness is an important factor for their purchasing decision. Indeed, there is a rising customer segment that demands flexible, convenient, and accessible usership over ownership, which gives way to product as a service business model.
What is Product-as-a-Service?
Product-as-a-service (PaaS) is a concept associated with usership of products which essentially means that consumers purchase the desired result instead of the equipment or product itself. The system itself is supported via the subscription-based business model. In this model, the consumer does not own the product; rather they pay for the product and the services included in the bundle. They return the product once the subscription period is over or when they no longer need the product. The product owner can then sanitise, inspect, and repair the product, if needed and push it to another rental cycle.
In a product-as-a-service business model, consumers pay for the product's performance, usage, or outcome.
Why Product-as-a-Service Matters?
There are many benefits to offering products in a "as a service" model. For example, it allows companies to tap into new revenue streams, build deeper customer relationships, and create a more sustainable business model. In addition, offering products as a service can help enterprises to differentiate themselves in a crowded marketplace.
However, some challenges are associated with offering products as a service. For example, it can be difficult to transition from a product-centric to a service-centric business model. In addition, selling products as a service often requires a new set of skills and processes, which can be challenging to implement.
Key Considerations When Choosing The PaaS Business Model
If you are considering offering products as a service, there are a few things to keep in mind:
- You need to have a clear understanding of your customers' needs and problems or what pain points you wish to solve.
- You need to build a business model focused on providing value to customers.
- You need to have the right skills and processes in place to make the transition.
With the right approach, offering products as a service can be a great way to build a more sustainable and successful business. If you are ready to make the switch, business owners can automate the whole workflow and operations through a trusted subscription management tool like circuly.
Is Product-as-a-Service Similar to Product Rentals?
Yes and no.
The two terms are often used interchangeably. The major differentiating factor is what is bundled in the service. In a rental model, consumers typically only get access to the product and pay for the use of the product in installments. The duration of the rental contract is fixed and agreed upon in advance. In a subscription model a physical product is bundled together with additional services like maintenance and repair and other such services depending on the product and the industry. The duration or contract length often as the minimum duration but not a maximum duration, meaning that a subscription service is designed to carry on as long as the customer needs it.
Examples of Product-as-a-Service
As the name suggests, the product-as-a-service business model is anchored on tangible, physical products that are durable and non-perishable, have a longer lifecycle, and can be returned at the end of the subscription period to the vendor.
We break down the different types of product-as-a-service to better understand the various sectors that explore the growing customer segment that demands a more flexible usership.
Mobility-as-a-Service
Mobility-as-a-service is the circular solution to transportation needs and challenges everyday in highly urbanised cities.
MaaS has been developed in Europe with two foremost pilots, Ubigo and Whim. In October 2018, the first MaaS Global company was launched in Finland. It is called MaaS Global, and it provides a mobility service called Whim. Whim allows users to plan, book, and pay for their journeys using a single app. The app covers public transport, taxis, carsharing, bikes, and walking.
Since the conception of mobility-as-a-service, some companies in the mobility sector have gradually seen the value of adding subscriptions in their revenue streams to address the growing customer segment that demands more flexible usership. The demand to own a car is declining, and in Europe alone, new car registration is down by 15% as of June 2022.
What Companies Are Doing Mobility-as-a-Service?
circuly's very own mobility service providers clients such as MyTier, AboDeinauto, and Meetse have seen the value and importance of flexible mobility and affordable access to transportation. Recently, Reise and Muller has been added to the customer roster of micro-mobility clients.
Several other companies are working on MaaS solutions as well, including: Citymapper, which offers a journey-planning app that includes public transport, walking, cycling and taxis; Daimler, which is developing an app called Moovel; Ford, which has launched a mobility services division called Ford Smart Mobility; and Hyundai, which has invested in the development of a MaaS platform called Mobis. The German motor vehicle manufacturer Volkwagen has created its own car subscription to reach its sustainable mobility goals.
Mobility-as-a-service's global market is expected to reach 9.5 trillion by 2035, according to Salas, a Statista mobility and manufacturing researcher.
What is Furniture-as-a-Service?
The COVID-19 pandemic has created even more challenges for the furniture manufacturing industry. For example, the decrease in foot traffic to physical stores has forced many retailers to rely more heavily on e-commerce.
At the same time, changing consumer behaviors during the pandemic - such as working from home and spending more time indoors - have spurred a need for different types of furniture, like home office furniture and comfortable lounging pieces. And the current supply chain disruption brought by the economic downturn and the Russian-Ukraine conflict has not made the situation any better for the furniture industry.
But.
Despite these challenges, the industry is expected to grow in the coming years. In fact, the global furniture market is projected to reach $1,757 billion by 2023.
Why Furniture-as-a-Service Business Model Matter?
Furniture subscription is here for good. Original equipment manufacturers (OEM) and furniture dealers see the value proposition of furniture-as-a-service as a circular, sustainable solution to address the challenges the furniture industry has to address.
For example, Live Light, which uses circuly's subscription management software, is committed to creating a more sustainable and circular economy through our furniture and accessories. Their products are designed with longevity in mind, made of high-quality materials that can be (re)used and (re)loved for generations to come. When it comes time for recycling, they ensure that our products are recycled into new designs, closing the loop on wastefulness. Live Light's vision is a future where sustainability is the norm, and they are working hard to make that happen.
Another customer that sees the value of furniture subscriptions is Switzerland-based Swaap, founded in 2016 by Carolann and her co-founder, Jules. They started Swaap because they believe everyone deserves to find their perfect home. Swaap is a community passionate about their homes and wants to share them with others. By joining Swaap, you can connect with like-minded people from all over the world who are looking for their next home.
In the pipeline, circuly has Canadian furniture company Article, the UK first ever furniture-as-a-service marketplace Homebound, a well-established furniture family business Orangelo, and the FaaS-startup Rentchester. These are some of the upcoming furniture-as-a-service trailblazers that will use our subscription management software.
What Is a Baby Goods-as-a-Service
Millennial parents say they would pay more for sustainable or environmentally friendly baby products. So, they are more likely to be loyal to brands that offer these products and willing to spend more money on them!
There are a few reasons why sustainability is so essential to millennial parents. For one, they're very aware of their choices' impact on the environment. They want to do everything they can to protect the planet for their children and future generations.
They're also very conscious of the supply chain and where their products come from. They want to ensure that the products they buy are ethically sourced and produced.
Lastly, they want to be able to trust the brands they're buying from. They want to know that the brands they support are transparent and honest about their manufacturing processes and ingredients.
Sustainability is key if you're a retailer or brand looking to appeal to millennial moms. Offering sustainable or environmentally friendly products is a great way to show that you care about the planet and the people who live on it. It's also a great way to build customer trust and loyalty.
Why As-a-Service Business Model Booming in the Baby Goods Industry
Between birth and 12, the child's body changes and grows constantly.
New parents' biggest expenses are buying clothes and equipment for their growing babies. Every two to six months, babies and young children (3 years and below) need to replace their clothes, furniture, and equipment—they outgrow them so fast.
Green consumption among parents can be seen as a way of caring for their children's future well-being and preserving the environment. Family is an institution where both altruism and collectivism play a crucial role, which may explain why parents are more likely to purchase green products.
It is important to note that while parents may be more likely to engage in green consumption, this does not mean that all parents do. Factors such as cost, availability, and personal beliefs can influence an individual's decision to purchase green products.
Nonetheless, the evidence suggests that parents are more likely to be concerned about their children's environment and future, which may lead them to engage in green consumption.
Some facts about raising a child
Here are some facts about raising a child:
- Clothing costs for infants and toddlers can be higher than many parents expect. The USDA's most recent The Cost of Raising a Child report advises that new parents should estimate clothing costs at around $670 up to $1,110 for the first two years, which leads to the demand for baby clothes-as-a-service. Some baby goods companies like Baumwollbaby are piloting a subscription-based rental model for baby and toddler clothes.
- Every child in Europe has to be secured with a car seat up to the age of 12 years or the body size of 150 cm. Similarly, all children must be appropriately restrained in a federally approved child safety seat appropriate for the child's age, weight, and height up to 8 years of age or 65 lbs in the United States. Children at least 8 years of age or weighing 65 lbs but younger than 16 must be properly restrained in a vehicle's seat belt. Kids outgrow their car seats so fast that it does not make sense to buy a new one, so car seat-as-a-service is now in demand that AXKid delivers.
- The average cost of a stroller can range from 100€–400€, which leads to the more sustainable and affordable model Baby Stroller as a service that baby equipment companies like Stokke Start, StrollMe, and Bugaboo Flexstarted to implement.
- Babies use 6000 diapers during their first two years of life, which take 5000 years to decompose. This unsettling fact gives way to sustainable and affordable waterproof, rentable, reusable diapers like Judes Family's nappy-as-a-service.
- Every two to six months, baby and young children (3 years and below) clothes and equipment need to be replaced—they outgrow their clothes, furniture, and equipment ever so swiftly. So with all the things the baby needs, Nomadi, and Parently rise to the occasion and address the growing customer segment that demands sustainable, accessible, circular, ethical, and environmental baby goods purchases.
- With this, a mix of enterprise and startups pilot a subscription-based business model. In the pipeline of baby goods businesses—Baby Garage, Cosatto, Tradle, Rent a Romper, Greentom, Kindby will use circuly's turnkey subscription management software in managing, streamlining, and tracking all their assets in one place.
Nothing is greener and more sustainable than renting than owning durable baby products and equipment. Kids grew up so fast that they outgrew their clothes, toys, furniture, and equipment in no time, and it makes no sense to buy them all new and let them linger in your basement or go to the dumping site.
What Is Device-as-a-Service?
Device-as-a-service, or DaaS for short, should not be confused with desktop-as-a-service, a parallel ballgame, if not completely different altogether. Device-as-a-service lessens the burden on IT by providing a single point of contact for devices and comprehensive support, from deployment to retirement. It's a model that can be applied to any device, including PCs, Macs, printers, and scanners.
An attractive option for organizations, DaaS can provide a way to outsource and simplify device management. It can help free up resources that would otherwise be devoted to managing devices. For example, if an organization has many devices and only a few IT staff members, DaaS can help to free up time for the IT staff to focus on other tasks.
Device-as-a-service can also provide peace of mind for organizations that are worried about managing their devices. For example, suppose an organization is worried about keeping their devices updated with the latest security patches. In that case, a DaaS provider can help to take care of that.
Similarly, hardware-as-a-service is the circular solution to the problem of obsolescence.
With HaaS, businesses can lease tech assets from a service provider rather than going for its purchase. It gives them the edge over their peers in owning the latest technologies at an affordable cost.
For instance, if the organization has financial limitations for new equipment purchases, it is more sustainable and practical to lease hardware from a service provider. This way, the company saves on costs and gets to use the latest technology. Besides, IT infrastructure can quickly become outdated. As such, it benefits mid-sized companies that cannot afford to upgrade technologies every few years.
Why Device-as-a-Service Matters?
The disrupted supply chain of raw materials has led to a domino effect of shortages in other areas.
One example is the ongoing shortage of semiconductor chips, which has caused production delays and even discontinuations of certain products across several industries.
The main reason for this chip shortage is the Covid-19 pandemic, which disrupted the entire supply chain of raw materials needed to manufacture them.
A side effect of raw material shortage is increased prices along the supply chain — from manufacturing and shipping to assembly and final cost at the retail store. On top, of course, of limited inventory available. Chip component prices rose 40%, following a significant shortage in January 2021 when demand skyrocketed.
Aside from the supply chain disruption, it is estimated that humans produce 50 million metric tonnes of e-waste globally yearly. E-waste includes anything with a circuit board or battery, such as cell phones, computers, laptops, tablets, TVs, and gaming consoles. Only 20% of this e-waste is recycled correctly. This means that 80% of all e-waste is incinerated in landfills.
This is a wasted opportunity. E-waste is valued at USD 62.5 billion, more than the GDP of some countries. For example, one tonne of cell phones contains as much gold as 70 tonnes of gold ore. It is estimated that up to 7 percent of the planet's gold is lost in e-waste. As sustainability becomes an increasing priority for tech companies, they realize they can hit two milestones with the product-as-as-service business model—their sustainability and financial goals. By conserving resources, sustainability ensures business continuity and can help companies avoid costly disruptions.
Least we forget, in 2014, Unilever CEO Paul Polman declared that climate change-related natural disasters are costing Unilever at least USD300 million a year. As the impacts of climate change become more severe, it is clear that sustainability is not only the right thing to do but also good for business.
Any Companies Supporting Device-as-a-Service Business Model?
HP's device-as-a-service business model offers the proper devices, repair services, and AI-driven analytics to address the IT challenges in remote working, security, and digital transformation. The payment is flexible and can be optimized to help the business cash flow.
With this service, the customer can also access software that helps manage their devices remotely. This can include monitoring device health and performance, setting up security policies, and managing apps and updates.
Grover's mission is to democratize access to consumer tech and bring the circular economy for electronics to new countries. Grover will accelerate its mission and expand its operations in existing markets—Germany, Austria, Spain, the Netherlands, and the USA, the latest new markets.
With Grover's funding success, it will be able to continue its mission of providing access to consumer tech and growing subscribers in existing markets. The company has ambitious plans to expand its consumer tech subscription and has forever altered how the consumer electronics industry does business.
Germany's Samsung Electronics partnered with Grover to bring monthly af to Samsung customers. Grover will now offer Galaxy S20 smartphones for rent through Samsung's online shop in Germany.
This new partnership between Grover and Samsung is designed to give German consumers more flexible and affordable access to the latest smartphone technology. With Grover, customers can choose to rent a Galaxy S20 for 12 or 24 months, with the option to upgrade to a newer model after 12 months.
Apple is coming up with its own hardware-as-a-service. This program would allow customers to subscribe to hardware with the same Apple ID and App Store account they use today to buy apps and subscribe to services. In doing so, Apple would make buying an iPhone or iPad as seamless as paying for iCloud storage or an Apple Music subscription each month.
While the details of this program are still unclear, it has the potential to revolutionize the way we purchase Apple devices—and other hardware, for that matter. If successful, this program could set a new standard for how we view and value our devices.
In a nutshell, device as a service, which also takes the name of hardware-as-a-service and tech-as–a-service, is here to stay for all the economic and environmental benefits businesses can rip.
What is Fashion-as-a-Service?
Fashion-as-a-service (FaaS), otherwise known as clothing-as-a-service (CaaS), is a circular business model where clothes, shoes, bags, jewellery, and accessories are rented, swapped, or purchased second-hand instead of new.
New services are making it easier for consumers to access fashion without buying new clothes. These services allow consumers to borrow, swap, or buy used clothes.
There are many benefits to using a fashion-as-a-service model.
One advantage is that it allows customers to have a larger variety of clothes without the need to buy them. This is great for people who love fashion and want to be able to try new styles but don't want the commitment of buying new clothes.
Another benefit is that it helps to reduce the number of clothes that end up in the landfill. By renting, swapping, or buying second-hand clothes, the life cycle of clothes is prolonged, giving them a second (or third) chance at being worn and loved.
Finally, fashion-as-a-service models tend to be more sustainable and environmentally friendly than traditional fast fashion models. This is because clothes are made to last longer, producing less waste.
Why Fashion-as-a-Service Matters?
The fashion industry has a major impact on the environment. According to UN Climate Change, it is responsible for 10% of global greenhouse gas emissions, more than aviation and shipping combined. In addition, the average person now buys 60% more clothing than they did just 15 years ago, and each item is kept for only half as long. The amount of waste and pollution offset by this habit is unthinkable.
The fashion industry is also big, valued at about $2.4 trillion. But due to its lack of recycling, upcycling initiatives, and garment mass production, it loses about $500 billion annually, a colossal waste of resources. In addition, the fashion industry often relies on forced and child labor, which creates social problems.
We cannot deny the clear environmental, economic, and social reasons to make changes in the fashion industry. To meet the UN Sustainability Goals by 2030, especially Goal 12 Responsible Consumption and Production, consumers and the fashion drivers have to reroute towards the circular road—by eradicating the fast fashion concept, by bettering the clothes' potentials, and changing the way we purchase clothes—which is fashion-as-a-service is all about.
Any Fashion Companies Doing Fashion as a Service Business Model?
Fashion rental has been in the market for a while, but fashion-as-a-service with the feel and experience of online shopping is a novel concept that has gained traction in the past five years.
Palanta is the perfect way to explore sustainable fashion and support independent designers and brands. Their handpicked collection of vintage and contemporary pieces offers something for everyone. Their commitment to sustainability led me to use circuly's subscription management software for product-as-a-service, which means customers can feel good about their choices.
The first designer bags rental shop in Switzerland, Secondhandbags, was founded in 2006 by Roman Brawand. Secondhandbags.ch, the company's online store, was launched four years later in 2010. This was entirely novel at the time and caught the attention of major news outlets such as Neue Zürcher Zeitung, Tages-Anzeiger, and Blick. The store has been successful and has continued to grow in popularity.
The number of FaaS clients is expected to grow in the coming month. In the pipeline are Mutterkleid, WAUW Closet, Libetlou, Myonbelle, La Mas Mona, Capsule Rent.
Fashion subscription is the circular sustainable business model to address the demands of a growing customer base that wants sustainable, ethical, accessible, and affordable clothes and accessories.
What is Equipment-as-a-Service?
Another example of a subscription business model, equipment-as-a-service (EaaS) allows customers to rent or lease equipment from the provider. The provider includes maintenance, installation, and other services in the subscription fee. This business model can appeal to companies because it allows for a stable and recurring revenue base. In addition, it provides an opportunity to increase market share by starting early while competitors are still risk-averse.
Equipment-as-a-Service can be a successful business model for companies willing to embrace it. By carefully managing the risks, companies can turn them into strengths and create a successful subscription business.
A final advice for companies considering Equipment-as-a-Service: don't be afraid to take risks. Innovative models like this have the potential to generate significant rewards. As the saying goes, "No risk, no reward."
What are the companies that Use the EaaS business model?
With a catchy and straightforward slogan, "Let's use, not own it," KnowTheDrills adapts to its customer's demands for flexibility and sustainability. Mietfit and NovaGym will soon join the fitness equipment rental business that uses circuly's subscription management software.
Heavy equipment rental businesses like Equipzilla and Akkurent have a vast potential. In Canada and the United States alone, the total annual sales of heavy equipment rental businesses are about $50b, and it is expected to grow 5% annually. Sunbelt Rentals, United Rentals, Home Depot Rentals, Herc Rentals, and Ahern Rentals dominate the North American heavy equipment rental market.
What are the bundles in product-as-a-service?
The bundles in PaaS greatly depend on what the client and business need. Say, car-as-a-service bundles will be somewhat different from fashion-as-a-service.
But overall, from a B2B perspective, the following are the foundations of the product-as-a-service business model, which circuly's subscription management software is designed for.
- Hosted checkout
- Seamless customer journey
- Recurring billing and invoice
- Reporting and analytics
- Product return and tracking
- Hosted checkout
- Hosted customer self-service
From a B2C lens, this bundle may include repair and maintenance, insurance, and other industry-specific customer demands.
Major benefits of PaaS
Sustainability is becoming an indicator of quality.
By 2030, it is estimated that the circular economy will be worth $4.5 trillion. That is 10% of the world's GDP! The Product-as-a-Service model is a big part of the reason why.
The traditional linear economy is based on a "take, make, waste" philosophy. Businesses take resources, make products, and then those products become waste. In the circular economy, resources are used for as long as possible and then recycled back into the system.
The Product-as-a-Service model is a vital part of the circular economy.
Frost & Sullivan's study predicts that more companies will move toward a Product-as-a-Service business model in the next few years. This means that instead of simply selling products, they will offer their products as part of a service package. This could include subscription plans, pay-as-you-go models, or even bundled services with other products.
The PaaS business model is environmental, economical, and ethical.
Instead of owning products, consumers rent or lease them. The consumers return them when they're done with them, and the product can be used repeatedly.
The Product-as-a-Service model has many environmental benefits. For one, it reduces waste because products are used for more extended periods. It also saves money because you don't have to keep buying new products. And it's more sustainable because it reduces the need for new resources.
Is Product-as-a-Service Business Model Right for Your Business?
As a business owner, understanding your customer's wants and needs is essential to success. However, customers' needs are constantly changing, so it can be challenging to keep up. Offering a product as a service can help you better understand and serve your customers by giving you a constant feedback loop.
Here are five questions you should answer before offering a Product-as-a-Service:
1. What are your goals when setting up a Product-as-a-Service?
- Do you want to increase your revenue, extend your customer base or increase customer lifetime by binding them to your brand or products?
- Do you want to access a new customer target group?
- Or do you want to differentiate from your competitors?
Be clear in your goals and measure them against the PaaS model.
2. What is the job your product is fulfilling?
If you have never heard about Clayton Christensen and "jobs to be done" —this is the essence.
"What causes us to buy products and services is the stuff that happens to us all day, every day. We all have jobs we need to do that arise in our day-to-day lives, and when we do, we hire products or services to get these jobs done."
Christensen uses the example of a milkshake. At first, the job of a milkshake seems obvious: customers want food, and Christensen found that actually, people are hiring the milkshake to kill the boredom on their daily commute to work! So—think about it—for what job do your customers hire your products?
Understanding this is the secret formula to 100% customer satisfaction with a Product-as-a-Service.
You have to ask yourself the question: Can we create more services around our product that get the job done for our customers?
3. What's your market position?
Is your company market leader or always chasing the number one?
Offering a Product-as-a-Service is an excellent way to distinguish yourself from competitors with a new business model for more customer-centricity and satisfaction.
A second business model can be easily set up with the help of the right software.
But be aware: PaaS offerings can also disrupt a whole market, like Uber did with the transportation market.
So better be the leading force in the disruption and guide the way for your competitors.
4. What ecological impact does your company want to achieve with a PaaS model?
Customers want to buy sustainable products. The only question is—can you offer your products in a sustainable way?
With a Product-as-a-Service model, you take on responsibility for your products as the ownership of the product remains with you. Ultimately you contribute to waste reduction when your products are returned instead of disposed of and used repeatedly.
So, what are you waiting for? Gather some clever minds in your company and think about your possible future business model for Products-as-a-Service!
Also, get a demo from circuly and find out how we empower companies to take a step towards sustainable e-commerce with a Product-as-a-Service.
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