By Seb Saboune
15 Nov 2021
Post outline
Currently, we live in a "linear economy" world where products have a life that ends without anyone really knowing what's happening to it. This happens because the ownership of a product is currently being transferred between a producer and user. And while the consumer might know how to use the product, in most cases, they know very little about what to do after they have finished.
We believe a circular business model is a great tool to combat this wasteful process. And to get there, producer ownership is essential.
Producer ownership takes many forms, most commonly as hardware-as-a-service but also as product-as-a-service, performance-as-a-service, material-as-a-service etc. The two main elements being the physical product and the service that is built around the product. For example, a laptop manufacturer may go from selling a laptop for £1500 to £50/month and bundling in additional services like: free servicing, insurance, upgrades and even recycling once the product is deemed to have reached the end of its life.
And the impact this has on a business is significant. Rob Makin, Executive Director of Lenovo's device-as-a-service (DaaS) business says, "as a percentage mix, probably 30% of our DaaS customer base were those who historically were leasing either through us or through somebody else. And they’ve obviously migrated to more of a DaaS service. The other 70% are net-new customers moving from a capex to an opex solution – or as-a-service solution – and we’re seeing very strong demand for that."
“The number of seats we manage is into the millions of DaaS customers." says Rob Makin, Executive Director of Lenovo's Device-as-a-service segment. Image courtesy Channelfutures.com.
The benefits of operating this model are many, but here are some of the main ones from a producer perspective.
Operating a producer owned model, or an as-a-service model, allows a producer to have a more expansive connection with their customers. This allows for the addition of service elements to your offering that can extend the lifecycle of your products and increase your revenue per product and customer over time.
For instance, consider Caterpillar's data offering. A mining customer recently spent $650,000 to repair and rebuild a key machine that failed unexpectedly, resulting in 900 hours of downtime. Caterpillar's 'Cat Connect' service team plugged in relevant variables, such as usage history and performance metrics (collected using specialised IoT sensors), into its proprietary algorithms to demonstrate how the data could have warned the miner before problems occurred. The situation could have been a $12,000 repair with 24 hours of downtime. This value creation can be captured by the product manufacturer to increase their revenue streams.
Image courtesy equipmentjournal.com.
A linear usage model disconnects a producer not only from the customer but also from the product itself. Once it is out in the wild, it's hard to understand how the product is used, how often it's used and when parts of the product might need replacing. With an as a service model you can get more data on your product and feed that directly into your operations and strategy.
As an example, iconic guitar maker Fender was able to identify that most people buying its guitars stopped playing them within a year. To combat this they started Fender Play which includes guitar classes and other how to videos. Now subscribers to this service (which has exceeded 1 million) spend 40% more on Fender products than non-subscribers. This is of course a more comprehensive subscription offering, but even just the ability to provide product warranties can enhance the producer-user relationship and unlock new value streams.
Image courtesy Fender.com.