Manufacturers and businesses have typically focused on selling physical products in a one-time transaction. And often, the product is followed by a warranty or service contract to replace or repair the product, which is a service.
Product-as-a-Service fuses physical products, accompanying services and monitoring software to enable new offerings where the buyer may no longer own a physical thing—the product is delivered as an service or virtualized experience. Instead of a one-time-transaction the customer subscribes to the product and pays a recurring fee.
The most prevalent example of Product-as-a-Service is the comprehensive leasing programs offered by many major car manufacturers. The customer purchases the car and all maintenance work is included during the lifetime of the lease. In a variation on that model, Zipcar buys, operates and maintains a car (and pays for gas!) and then lets people access it on a per-use basis. In fact, one of their current marketing mantras is “Upload Yourself To The Cloud”. Zipcar has created an entirely hassle-free, frictionless experience. Uber is another form of product-as-a-service. The car and driver are fused together to deliver the output of a car—which is a ride.
Not only does Product-as-a-Service allow sellers to create recurring revenue, it by definition creates long-term relationships with buyers. Many companies talk about customer intimacy, in Product-as-a-Service there is no escape from the intimacy. For companies with a service mentality, this can enable powerful, highly differentiated positions in a market. For companies with a poor service mentality (i.e. “we’ll just sell parts!”), it exposes them to high risk of getting disrupted by a competitor or upstart.
For both types of companies, starting the journey is daunting. Product-as-a-Service may decrease the initial sale and result in short-term revenue losses. But statistics show that sellers moving from a physical sale to a recurring service fee get more stable, profitable and larger overall revenue streams than one-time sales.
Transforming products into services also allows bundling of both internal and external services for the seller. For example, a car could be leased and then the seller can add 3rd party insurance, roadside assistance, premium satellite radio services, and more. The manufacturer and distributor get a cut of 3rd party services bundled in with their core product, increasing overall revenue potential.
Perhaps the best thing about Product-as-a-Service is that it increases the seller’s market size. A buyer’s entry price is reduced with less capital expenditure, therefore expanding the number of customers that can be sold to.
SeeControl’s IoT cloud enables a universe of larger, longer and more profitable streams coupled with the possibility of expanded markets. Clients have fused their product, parts, repair labor, replenishment materials and 3rd party services into game-changing offerings that put them on the path of winning entire industries. Our partners such as Logic PD and Optimal Design know how to walk you through the business and technical aspects of a connected product strategy—and determine if it fits for you at this moment in time. Get in touch below if you want to learn more!