Everything as a service - the ultimate business model in the digital age?

Digital technologies are revolutionizing how products and services are being delivered to customers and consumers. They are enabling businesses to provide a more personalized experience for their customers, improving their satisfaction and loyalty. Additionally, digital technologies are making it easier for businesses to collect and analyze data, which can help them improve their operations and better understand their customers.

Today, customers have already processed significant information before their purchasing decision ending up in being highly empowered when taking a decision how to experience a certain product or service.

Customers are expecting an entire experience eco-system, where consumer goods in B2C but also investment goods in B2B are being provided as experience use cases – to respond to a shifted expectation, which is considering ESG, health safety and other very much human needs AND their demand is increasing.

Experience use cases target very much at human-centered needs allowing for instant, personalized, seamless and ideally mobile-first access to a product when the need emerges.

But how can companies respond to this changed demand and what is a suitable business model to stay relevant and competitive in our online world where every usage of technology does leave a digital footprint behind, which can be used?

In this article I am sharing some views how service models can be an optional response to emerging experience demands which go beyond pushing products into a mass market.

Everything as a service - what does it mean?

When you’re looking up the definition of service models, chances are that you’re more confused than before exploring the meaning. In those cases, I try to find my own explanation in order to help people understand a complex sometimes opaque matter by providing simple explanations based on evidencing experience and research. In doing so I would like to focus specially on selling products as a service - commonly applied to many software systems, where formerly license-based software has been transited into SaaS (Software-as-a-Service).

But now to the definition: Selling products as ?aaS“ does imply that, instead of selling units a company is then selling outcome or performance over a specified duration, which translates into

• providing access to a (physical) asset that‘s functioning —> performance on demand
• in a certain quality (i.e. fulfilling the specific need to the customer) —> outcome in the context of the customer value creation
• during a determined time duration —> this may imply the provision of typical adjacent services like maintenance, spare parts etc.
• at predictable payment terms —> calculable cost for the customer

Performance, outcome and time are thus the determinants of a service model and all together not really new in business execution. Data, however, and instant information processing to ensure performance and outcome is easing significantly the value proposition in service models. Intelligent maintenance tasks are catering for consistent performance and outcome over the specified time.

In its very simple version operating leases are service models, where a customer agrees to use a product for a period which is agreed on in advance. If the customer decides that he or she no longer wants to use the product, the remainder of the period still has to be paid in full (or a ‘fine’ is applied). In contrast, an ‘As a service’ contract is very flexible and can often be terminated on a monthly basis.

Selling products as a service has tremendous impacts on the entire operating model of the company, as the ?sold and gone“ mentality needs to be substituted in all business and core processes. But it‘s definitely worth, as a product sale is an occasional customer facing whereas a service provision is a permanent customer facing and thus holding additional opportunities for sales.

Selling “as a service” means anticipating customer needs?

In the past, sellers were used to push their products in to a mass market and after a selling transaction, the seller only offered warranty required by law or charged an additional fee for follow-up services. Back then, prosperity was determined by ownership and asset-heavy growth. Technology employment had the ultimate goal to achieve higher productivity, and scalability was achieved by standardization efforts. Affordability of new products for a wider community stimulated then increased consumer activity that led to job security and societal progression.

Now, customer engagement patterns are purpose-driven, decentral and requiring a human-centered design for the service provision which is asked to be ESG compliant and sustainable to calm customers’ consciousness what environmental and ethical aspects are concerned.

More than ever knowledge about customer behavior is important to innovate today and information and software driven business models are key for capturing value of the knowledge about customer behavior. The key aspect here: information-based business models are fueled by any traceable digital footprint a human being, a physical item, a machine or a service may leave behind.

So, selling ‘as-a-Service” requires a data and software driven business setup to actually harvest and process information for service excellence and customer centricity. Higher asset utilization by considering total cost of ownership in service models has an additional positive cost effect.

Question is now what should a company which is having a strong focus on assembling and selling products?

Depending on the concise asset, with an increase in providing access to this asset by service models, new demand for this asset may stagnate. However, there are two general options for manufacturing / product assembling companies:

• become a low-margin, high-volume assembler
• become a “aaS” provider of customer journeys with human needs

Value is then being created by data and software-driven systems and platforms that unleashes revenue pools for advertising, data monetization, entertainment, etc.

When should a company favor a service model?

This question has no easy response - the following aspects might serve to cheat into a favorable direction:

?How (long) can a technology leadership be translated into high product margins?

?Are customers willing to pay a premium for being first and early adopters and for how long?

?What are entry barriers for R&D spent for new market entrants?

The commonality in above questions is time and companies need to decide how their innovation cycle relates to the time frame of a leading market position created by technology leadership and its R&D entry barrier. In general digital technologies are reducing market entry barriers and the advantage of large organizations for division of labor is diminishing. Thus, there might be only very few technologies with significantly high R&D efforts justifying a product unit selling and at considerable margins.

Another aspect are flywheel concepts for growth rates in service models and platforms based on data and software driven business setups. Fueled by data, which is harvested from users during service utilization, such a concept basically increases attraction for customers and sellers by incremental service improvements and product innovation.

At its core, are incremental innovations and launches of new products and services motivated by data, which evidence unmet needs. This flywheel concept for growth accelerates the innovation cycle and leads to cost reduction or improvements for existing products and services.

An agile decision regime on strategic choices when extending service offerings complements this concept for capital efficient investments into insight generation / data exploitation.

Business model transformation is a continuous, liquid change

Favoring a service business model is often a direction into an asset-lean business execution. But why is it that companies still decide to stick to asset-heavy assembling and selling product business? In my view there are among other reasons two, which are quite decisive:

1?? legacy business: it’s often easier said than done to discontinue an established business with functioning operations for the benefit of something unexplored new

2?? accounting rules: assets which are dropped and making noise are much easier to be booked than so-called intangibles, like data, software and any activity which is not representing a physical item.

Furthermore, change today isn’t a “once-in-a-lifetime” exercise anymore but a continuous endeavor - and while technology advances are unleashing new business potential, most transformations are about people and how they are embracing the impacts and consequences in their personal environments.

Organizations have to position themselves differently in the digital age. Structures that offered a good basis for predictable growth in the industrial age now seem almost, prehistoric. While highly standardized and rigid guidelines were sufficient to guarantee survival in the past, today the epic center of this change is the way information and know-how are being managed through the organization. This means essentially: digitizing information processing and knowledge management and pivot in digital business models to accelerate growth.

Agile and tech-savvy leaders need to create learning and trustful environments if business model transformation doesn’t stop at the marketing department but impacts an entire organization.

If you want to discuss above concepts in depth or learn more about digital transformation, please leave a comment for entertaining an inspiring conversation.