Is it a match? Or not? Or maybe?
There are indicators that help to assess the PaaS potential of a product. Not all physical products qualify to be integrated in a winning Product-as-a-Service. Some products are more suitable than others.
From a customer point of view, a product is more attractive to subscribe to if:
… buying it is expensive
… maintaining its condition is annoying
… replenishing it is cumbersome
… it may not be needed forever
… next product versions are expected soon
… there is just so much more value combined with extra service
From a business point of view, a product is more attractive to be offered as a subscription if:
… repair frequency is low
… shipment costs are low
… refurbishment is easy
… product design is made for repair, remanufacturing, reuse and recycling
… legislation is not a constraint
… the product can be deactivated remotely
… customer demand will be stable over years
… expected product lifetime is only a few years
Download the Paas Potential Wheel as Vector file for your own use here: https://circularity.fm/wp-content/uploads/2024/03/PaaS-Potential-Wheel-Clean.svg
The categorization is not clear-cut. While the six customer criteria relate to the business and the eight business criteria will impact customer experience, the separation helps provide clarity.
A single product most likely won’t score high in all criteria. It might be even not suitable at all based according to some criteria. The criteria set serves as an indicator and starting point for conceptual considerations.
Customer-facing criteria
High Price – buying it is expensive
The more expensive the product itself, the more attractive subscribing to the outcomes of it. Customers may not have the resources or the willingness to spend the resources to reap the product’s benefits. Instead of paying the full amount, customers pay a fraction of the purchasing price. That way, PaaS can offer access to the product. While for private customers this can be a matter of cash in the bank account, business customers want to minimise their invested capital (CapEx) to provide a higher total shareholder return.
Examples: No one affords buying a train, people buy access to a seat.
High Service Need – maintaining its condition is annoying
The more maintenance a product needs, the more appreciation of customers for a service covering that. Reality is messy and this can affect complex products. Maintaining their condition is key if they are in contact with many materials or are heavily used. However, who likes maintenance? Right, no one. So, normally it is done poorly by customers. They are happy if someone else does it for them. This is where the service aspect can shine.
Examples: Car leasing is also popular because it usually comes with regular service inspections.
Cumbersome Replenishment – replenishing it is cumbersome
The more replenishment is needed, the more customers are inclined to subscribe to a PaaS plan. This might not cover the complete product. Maybe the PaaS component only or mainly covers the part to be replenished. Generally, the necessity to frequently take care of additional product aspects comes with two pains: First, thinking about it before it is getting crucial. Second, organising the replenishment itself. It’s just more convenient if someone else does it for the customer.
Examples: With HP Instant Ink customers always have ink or toner on hand when they need it.
Low Utilisation – it may not be needed forever
The less intense a product is needed, the more inclined customers are to subscribe to it. A tool for some hours, a hotel room for one night, a car for a few days, a drone for two weeks, a coffee machine for a few years. If a product is only needed for a limited time, it is an optional item people might give back after some usage, or customers don’t know yet how long they need it, then a subscription is attractive. That is true for usage intensity in each time frame: some people need a washing machine twice a week, so a shared laundry room suits their needs. Car-sharing works similarly: the car is just needed for a short distance. The asset can then be shared by multiple people shortly after another. However, it can also be done sequentially, when a drone, a laptop, or an office desk is rented by multiple customers, one after the other.
Examples: With Grover customers can rent entertainment technology for a few weeks or months only.
High Innovation Speed – next product versions are expected soon
The earlier customers expect a new product version, the more interesting a PaaS proposition. Many people value novelty, and sometimes, new products also come with substantially better features and thus better value. If the product is expensive and people feel stuck with it for some time, a subscription that enables upgrades to the next best version can give flexibility and peace of mind to the customers.
Example: Mobile phone contracts come with two-year minimum contract duration to improve the access to the latest smartphone technology (which was much more relevant when innovation speed of smartphones was higher some years ago).
Service Upside – there is just so much more value combined with extra service
The more valuable a product in combination with service is, the higher the relative attractiveness of a subscription compared to buying only the product. This aspects seems to be obvious when looking at the word „Product-as-a-Service“. There better is value in the service dimension. That can be aspects of maintenance and repair (relevant for bicycle subscriptions), aspects of replenishment and product bundles (relevant for coffee machines), and aspects of value combination (extra storage and video editing features for action cameras).
Example: The Supersapiens subscription combines physical biosensors and access to glucose analytics via the app.
Business-inherent criteria
High Durability – repair frequency is low
The more durable a product is, the more suitable for a Product as a Service proposition. Providers need to do the math. Part of it is the repair costs. They are supplemented by logistics or travel time. Either the product needs to be shipped to and from a repair centre. Or a service technician needs to go to the product. Also, spare parts can cause significant extra costs. Hence, the more durable a product is, the lower the repair costs; therefore, the more attractive it is for a provider to offer the product as a service.
Example: Hilti’s Equipement-as-a-Service offers durable Hilti tools for rent.
Low Freight Costs – shipment costs are low
The lower the shipment costs of a product are, the more attractive a Product-as-a-Service proposition. A primary commercial and environmental intent behind PaaS is to increase the utilisation rate of a product. That can be done by having a higher utilisation in a given time frame, extending the product use time, or both. Some products stand in one place (e.g. washing machines in laundry shops), some are merely exchanged by customers directly (e.g. car sharing), and some products must be shipped from the provider to the customer and back. The bigger the product and the more it travels, the more costs for the business case.
Example: Tulu put shelf units in residence, business, and student housing; the units can include various products like drilling machines, vacuum cleaners, extra chairs or scooters; the unit serves as a logistics hub so that users have the products close.
Easy Refurbishment – refurbishment is easy
The lower the refurbishment costs of a product are, the more attractive for a Product-as-a-Service proposition. A product that is easy to refurbish is easy to reuse. Easy to refurbish means fast, without super-special knowledge, without special equipment, possible in various locations. Generally, easy refurbishment is a result of conscious product design. Products that are designed with refurbishment in mind can be reused faster. That does not only mean lower refurbishment costs but also earlier return to paying customers.
Example: Washing machines usually come with self-cleaning programs that make it easier for professional staff to refurbish them.
Circular Product design – product design is made for reuse, repair, remanufacturing, and recycling
The more a product is designed for circular practices, the lower the costs for the provider during the use phase. Work done with the product and its components is constrained by the design of this product. Can other customers reuse the product without barriers? Can broken parts be replaced easily? Can working components easily be separated to reuse, resell, or integrate them in new products? Can materials be separated easily to enable efficient recycling?
Examples: The circular product design of Fairphone and Shiftphone enable subscription provider Commown to keep the phones as long in use as possible.
Enabling Laws – legislation is not a constraint
A Product-as-a-Service proposition can only be offered if the law does not prevent it. Usually, the law does not exclude a PaaS proposition altogether. However, the law can make it hard to run it with a profitable outlook. There are at least two possible limitations. The first springs from consumer protection law. This is only valid for private customers. Consumer law might limit contract durations to protect consumers from inflexible or expensive contracts. The second limitation might come from leasing-related regulations. There is financial leasing, operational leasing, and manufacture leasing. The first can only be run by banks, the latter by manufacturers. All three have advantages and disadvantages and come with criteria a proposition must fulfil to be considered as such a type of leasing. These criteria might have national or sector-related elements, limiting contract duration, pricing, risk distribution and other duties. As regulation is a broad field, different in every country and with room for interpretation, it should be checked before starting a Product-as-a-Service proposition, especially towards consumers.
Example: The limit to minimum contract durations for an operational lease of home appliances is seen at 75% of the expected appliance lifetime, which the Dutch home appliance association declares to be eight years hence six years is the highest possible minimum contract duration, while the actual contract duration can be longer.
Kill Switch – the product can be deactivated remotely
A product that can be deactivated remotely is cheaper to protect against non-payers and fraudsters. The products of a Product-as-a-Service subscription are most likely outside the physical control of the provider. They are either in public spaces or private areas of the customers. If a customer does not pay, getting the product back requires compliance from the customer. If the customer does not comply, the asset is lost or can only be returned with the help of law enforcement agencies. Both options carry costs. Depending on the product value, these costs could be too high. An alternative is to deactivate the product if the customer does not pay the bills. Deactivation is only an option for products containing electronic components and connectivity. Additionally, a feature to deactivate the product remotely needs to be developed, too, causing costs and additional complexity.
Example: Car-sharing providers have geo-fencing technologies that trigger alarms once a car leaves a specific area or country.
Lasting Demand – customer demand will be stable over years
The longer customers demand a product, the more eligible it is for a Product-as-a-Service. An obvious character of a PaaS model is something that can be easily overlooked anyway: assets come back and ideally, they can be rented out again. For that hypothesis to be true, customers must be in demand for these refurbished products. This enables a second, third, fourth and further use cycle. Fast innovation cycles or dynamic regulation make this pattern harder to establish. In that case other strategies like repurpose and remanufacture get more relevance.
Examples: NorNorm rents out office furniture that will most likely be required in coming decades.
Short Product Lifetime – expected product lifetime is only a few years
The shorter the product lifetime, the less risk for the Product-as-a-Service provider to offer the product. A short product lifetime will result in short rental periods. Short rental periods mean (a) fast learning, (b) earlier break-even, and hence (c) lower risk. Imagine a product to last, on average, ten years in a proposition with low additional service value in which the provider likes to get the product back. To create an attractive offering to the customer, the pricing must be near the ten-year break-even point – otherwise, the mainstream customer segment will regard it as too expensive. However, such a late break-even point requires the company to take a lot of risk (and cash) before having enough confidence that the model will be profitable. A way out of this situation can be a financial lease, which means dropping the ambition to get most of the appliances back at the end of the contract.
Example: Cyclon by On Running focuses on a customer segment that changes running shoes every 6 to 9 months, allowing On to validate customer behaviour faster compared to longer-lasting products.
All depends on the target group
A Product-as-a-Service proposition delivers different value to different personas. The same PaaS proposition might be useful for one persona but totally unattractive to another. Therefore, finding the right proposition-persona fit is essential for making the offering work.
Two examples: washing machines and running shoes
Putting this PaaS Potential Wheel into practice helps to understand the underlying logic. As the dimensions lack numeric scales, it comes down to relative comparisons based on ideal states or various options in the context of a certain target group.
Two PaaS propositions serve as examples, electronics-based BlueMovement with a washing machine as a service and the textile-based Cyclon with a running-shoe-as-a-service.
| Criteria | Washing Machines for double-income family | Running Shoes for amateur runner |
| Example | BlueMovement | Cyclon |
| High Price | Medium to High, with prices from 600 € to 1,400 € | Medium to Low, with monthly price of 29,95 € |
| High Service Need | Rather high, multiple mechanical parts that have the potential to malfunction or get blocked | Rather low, next to cleaning no special care needed |
| Cumbersome Replenishment | Medium, as washing machines need detergent and machine care | Rather low, no additional products needed, just replacement after certain distance adviced |
| Low Utilisation | Medium to low, as washing machine normally frequently used, but less utilisation than in laundry shop | Low, as the amateur runner runs a few times per week |
| High Innovation Speed | Medium to high, product innovation likely faster than normal life-span of appliance | Low, product innovation usually not faster than normal life-span of running shoe (for amateur runner) |
| Service Upside | Medium to high, potential for combination with care products, IOT-based insights or premium repair/replacement services | Low, as no additional service available |
| High Durability | High, washing machines typically last many years without major incidents | Low to medium, as running shoes wear out too fast, Cyclon seems to mirror just poor market average |
| Low Freight Costs | Medium, as expensive two-man truck delivery and installation needed | High, as cheap parcel-shipment possible |
| Easy Refurbishment | Low to medium, as product design provides just cleaning program, functional check and outside cleaning which is hard to automate | Medium, as mono-material product design allows automatic grinding and reuse of material for new shoes (but not actual refurbishment) |
| Circular Product Design | Low to medium, appliances are not pre-dominantly designed for circularity but allow various repair options | High, product is designed for closed loop operations based on renewable resources |
| Enabling Laws | High, general option to provide the service, with some constraints | High, general option to provide the service, with some constraints |
| Kill Switch | Low, as no kill switch implemented | Low, as no kill switch possible |
| Lasting Demand | High, people will always need to wash clothes | High, people will always need shoes for running |
| Short Product Lifetime | Low, washing machines typically last many years | High, as amateur runners need to replace shoes after a few months anyway |
The scoring of both models does not reveal the total potential for people, planet, and prosperity. Both propositions have strengths and weaknesses. One might work better than the other. The PaaS Potential Wheel can help to spot areas of risk and opportunity for each PaaS proposition.
Instrument for potential assessment
The framework is qualitative without absolute numeric scales. The 14 dimensions are presented as if they had the same importance. In reality, they will have different weights. In some contexts, just one or two favourable characteristics can be enough to create a winning PaaS proposition (e.g., product design and product lifetime). In other contexts, just one or two adverse characteristics can be a barrier hard to overcome (e.g., laws, and freight costs).
The PaaS Potential Wheel criteria will not provide definitive answers; they are meant to enable a holistic approach towards the assessment of PaaS potential.
Is it a match or not? It’s up to the specific implementation to decide.