Circular

Are users ready for PaaS? (4/4)

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Product as a Service has a future, we wrote about it before, but are consumers ready for it yet? Who is already choosing PaaS, what are the motivations of users, and what are their doubts? And what is already known about actual use and how products are handled? The (first) answers.

The majority of Dutch consumers say they are prepared to consume according to the principles of a circular economy. This is evident from an online survey conducted by the University of Groningen (2019) among just over three hundred respondents. Product as a Service (PaaS) is a form of such circularity It is then no longer about possession but about the use of (or possibly access to) the functionalities of that product.

Without users there are no businesses. In short, who are the users and are they ready for PaaS? To answer this, we distinguish between the characteristics of users, their motives, the barriers and the actual behavior.

Characteristics of users

There is obviously no single type of consumer of PaaS. Nevertheless, it is notable that characteristics can be found among early users.

Age

Age, for example, plays a role in the importance attached to ‘possession’.

Tom Leenders, one of the founders of Gerrard Street, a company that offers headphones as a service, says: “Initially we focused on users between 18 and 25, later this age increased to 30, even 40. You could say that people over 40 tend to place a lot of value on possession, while younger customers look at service rather than having things.”

Income

Colin Bom of Homie, which rents white goods, states “that many users often still have little money to buy something.” Many PaaS customers are students and people with incomes up to two times modal.

Education level

Partly they are students with a higher (academic) education.

Experience

Often customers are already familiar with the phenomenon of a subscription. They already have Spotify, a Swap bike or HelloFresh.

The primary target group seems to be the millenial (people born between 1981 and 1996), now the largest demographic group of our working population, supplemented by students. Of course, there are exceptions: for example, well-paid expats who subscribe their white goods to Homie or Bundles because of the flexibility.

Users’ motives

A handy model to find out what users’ motives are for new services is based on: Gain, Pleasure, Convenience. We add the motive ‘Sustainability’.

Gain

Customers do not always have the money to make large purchases. A smaller monthly amount offers a solution. You can then still use a relatively expensive product without the high one-time costs. The higher the amount, the greater the incentive for a subscription.

Convenience

A subscription for use provides convenience, because if the product (for example, a Swapfiets) is broken or damaged it will be repaired or replaced. The convenience motive seems to apply to all products with rotating parts, such as means of transportation and washing machines.

Pleasure

An (expensive) branded product gives flexibility and/or status (think Gerrard Street headphones or a Volvo V70). People do not want an annual subscription, but a monthly subscription. Incidentally, this is at odds with what the provider wants. If the duration is too short, the logistical costs are comparatively very high.

Sustainability

The motive of sustainability or circularity seems to be less important than convenience or cost. Tom Leenders of Gerrard Street states based on his experience: “Only a small niche pays for sustainability”.

Barriers among users

Not everyone makes the switch from ownership to usage (or access) just like that. Based on her research on the Product as a Service phenomenon, researcher Vivian Tunn states that consumers are sometimes reluctant to give up owning products. This is related to:

  • Fear of Contamination | This is reinforced by Corona and is particularly prevalent in the sharing economy. | “I’m not going to drive someone else’s dirty car, am I?”
  • Lack of control and flexibility | “If I don’t like the product, am I stuck with the subscription for a long time?”
  • Ease of access | “Do I have immediate access to a shared car?”
  • Uncertainty | About risk, cost, responsibility. “What if the headphones break, who will pay for the damage?

Providers will therefore have to take this into account in the design of their product offerings, the services they provide and transparent communication about them.

Actual user behavior

Once they are customers, what is their usage behavior? “Sharing is caring,” says one theory. But “Don’t be gentle with the rental”, is sometimes the practice. So, different insights. Does renting cause more or less responsible behavior than ownership?

The literature provides summary answers or is already outdated. Arnold Tukker stated in 2015 that rented products are generally used less carefully than owned products. It also happens that they are used differently than assumed or intended.

Moreover, rented, leased, or shared products are often returned to the service provider sooner than the lifetime of a product sold in the traditional manner. This seems to be amplified for products that are used for a short(er) time, i.e., the sharing models for cars, bikes and scooters in cities. For example, the first e-steps in Paris from the company Lime only lasted an average of 30 days. Far from sustainable and not cost-effective.

In a study of washing machine and bicycle users, researchers Vivian Tunn and Laura Ackermann show that care for their own stuff (bought both new and second-hand) is greater than for the same stuff they use via PaaS.

Because the care of PaaS users is much lower, improvements to products are therefore necessary. Existing providers of e-bikes and scooters, such as Lime and Germany’s Tier, are therefore constantly making adjustments to the vehicles and providing stronger versions in subsequent generations of scooters, which are also modularly repairable. The same thing Swapfiets does.

Start experimenting alongside your existing business

Unfortunately, not enough is yet known about how consumers are interacting with PaaS. This is partly because most providers have only been around for a few years. They are all still in a steep learning curve. Finally, many providers prefer not to give out such competitively sensitive data. After all, (mis)conduct determines the risk mark-ups you have to take into account and the rate at which you can still offer the service profitably.

That PaaS is a business model with a future does, however, seem a certainty, given the increasing demand from users. Many traditional providers and manufacturers are still waiting, however, with the exception of a smart party like Auping with Bedzzzy. Just like with the rise of the Internet and online shops, you can think: “this will pass”. Or you can get to work early and start experimenting with this model on a small scale, so that in the future part of the €9 billion will run through your company.

Posted in Circular, Innovation, Strategy.

Auke van Stralen

Auke has been developing services for long-term subscriptions and contracts for over 25 years. He has done so in various management positions for listed companies in telecom, energy and waste. He continually strives to add value, so that both clients and companies benefit.

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