Extract from the book "As-A-Service: Turn your product based business into a subscription model" of Yann Toutant, CEO at Black Winch.
It’s not the As-A-Service model itself that is new, but the areas and industry sectors it’s being applied to – ones that were unthinkable until recently.
We’ve been using the concept for decades, applying it in many forms to objects like company cars, copiers, printers and even coffee machines. Or simply by borrowing books via the public library. More recently in the software world, we’ve become familiar with subscription models such as Audible, which provides audiobooks, or Headspace for guided meditation.
From Blu-ray to Netflix
Back in 2010 while being in Paris, I had a conversation with a sales-man in Fnac, a French book, DVD and CD chain. I was intrigued by Blu-ray technology, and wanted to find out more about it. He said that in his opinion, there was no point explaining the improved sound and vision quality because it required a substantial hardware investment to fully benefit from it. I was rather taken aback that he didn’t even attempt to sell me a Blu-ray player!
He went on to explain – somewhat dejectedly but with what turned out to be surprising foresight – that Blu-ray was the last vestige of a dying technology trend, one in which films and TV series were stored on physical media and that the way forward was streaming. At the time of course, neither of us knew that Netflix was about to take the market by storm.
Netflix is a game-changer, in that they have shown the world that you can turn an entire industry into a subscription model in less than a decade. They have single-handedly ushered in the new As-A-Service era. The potential is obvious – and yet, only a fraction of this potential has been tapped into in terms of the types of industry to which the model can be applied. The opportunities are, therefore, huge.
Origins
The concept of As-A-Service originated in the IT industry. With the advent of cloud computing and remote access - offered as a subscription - IT vendors have changed their business models, switching from licensing software to subscription-based. By doing so, they have shown how a transactional business model can be turned into a subscription model.
As-A-Service went on to become a buzzword that was bandied about at every board meeting: it’s become the holy grail of new business models. However, the concept itself remains somewhat nebulous. Board members of companies want to make it happen, because it generates recurring revenue, helps retain clients and increases shareholder value. Customers, meanwhile, want it because they prefer to just use a product or solution without the hassle and expense that comes with ownership. In both cases, the term is used to cover a multitude of ideas, ranging from a basic lease to a fully flexible subscription model.
Although it seems that everybody wants As-A-Service, between C-level and the customer there is a layer of management and their operational teams who have to put it in place. They have to tackle the challenge of defining what is or isn’t included in the As-A-Service offering before they implement it – and they need to do this regardless of the legacy culture of the company and its associated points of resistance.
Four principles
To define As-A-Service more precisely and start working out how you can turn your product-based business into a subscription model, let’s look at four examples at each end of the spectrum.
1. Pay-per-use or flat rate?
At one end of the spectrum is the electricity model that you use at home, which is a true pay-per-use model: you start paying when you turn on the lights and stop when you switch them off. At the other end are offers whereby you pay a flat rate per month for “unlimited”use – but with certain restrictions. This is the case with Netflix, where you don’t pay per movie or hour, but on a fixed monthly basis. For example, if I’m offline and don’t watch any movies for three weeks, I still pay my subscription, whether I use it or not.
2. How many services are included?
Another way to look at the limits of an As-A-Service offer is to consider the amount – and type – of services included in the offer. Spotify, for example, gives you access to music and services as part of its package. You can follow artists and proactively share new releases and tour dates. Spotify introduces you to new music and artists by monitoring your musical tastes and preferences. It suggests playlists and allows you to share music with your friends.
Other examples include those with a broad service offering, such as car leasing. The types of services included vary from admin to hands-on support. Car lessors offer a wide range of services including insurance, registration, fuel card, monitoring, winter tires and roadside assistance, as well as a host of services to keep you mobile.
Another possible service to include in the As-A-Service offer is an enriched experience, based on data generated by end-users (in the same way that Audible recommends books based on your previous purchases).
The types of services that are suggested for inclusion in the As-A-Service offer will depend on the creativity of the teams that are in charge of developing these offers. In the USA, I have seen a hairdresser offer combined with a car-leasing offer. The driver of the caris invited once a month to the dealer to have his car cleaned and at the same time, to get a haircut!
3. Does it include a device?
An important question to bear in mind is whether or not there’s a device included. Some As-A-Service solutions work with your own device, while others, such as Sonos Flex or Swapfiets (a Dutch company offering a bike-rental subscription service), provide you with a device with which to use the service. In the case of Swapfiets, the device (a bike) is the most important component of the service. The offer also includes repairs, insurance and replacement. Whatever the solution, if there’s a tangible asset, such as a device or piece of equipment, it remains the property of the solution provider – which has considerable implications regarding the risks associated with retaining the ownership that are described later in the book. When a Spotify user stops paying, Spotify stops their service and that’s it. However, it’s a different story with a car-leasing company or Swapfiets; when their user stops paying, they have to take various measures – invariably involving logistics and costs – to collect their product.
4. As-A-Service for free?
A last point to consider is whether users can use a platform or a product free of charge.
This is the case with Facebook or LinkedIn, for example. Just by having users on the platform generating content and providing data, the provider benefits. Such platforms make their profits by monetizing the community and the data collected. This is the ultimate As-A-Service offer on the market: use the service free by generating valuable data.
Once you apply these four principles to a product-based business model, the blue oceans in your industry soon become apparent. Do you make washing machines? Offer Washing-As-A-Service. Do you sell shaving products? Do Shaving-As-A-Service. The possibilities are endless.
I remember having dinner with the board of the Amsterdam Arena to celebrate a deal we had closed for IT Storage As-A-Service with my team at Econocom. Emboldened by a few glasses of wine, I asked what they’d like to see as the next As-A-Service model. After a few seconds of silence and exchanging some mischievous looks with his team, Henk Markerink, the CEO of the Arena, said to me: “Yann, we’d love to hear about Lawn-As-A-Service for our stadium!” So, if any gardening firms are reading this book, give me a call and we’ll start ‘Lawn-As-A-Service’!
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