There’s a theme in today’s highly competitive product-centric world: people no longer want to actually buy products. And though that may seem counterintuitive to the business model of making “things” for sale, it’s not the product that’s unwanted, it’s the business model that’s unwanted.
We have seen this trend take hold in software with the Software-as-a-Service model (SaaS). People don’t buy shrink-wrapped software anymore, they buy the right to “use” the software. They don’t pay in full upfront, but rather monthly as long as they use the software. They don’t have to worry about buying servers to run the software or about upgrades and backups or security—they just subscribe and go.
The benefits are well known for the client. But there are also massive benefits for software vendors: they can outsource the servers and backups, etc., to a cloud company like Microsoft Azure or Amazon AWS and concentrate on just creating and developing great software. The SaaS model has revolutionized the software industry in how software is developed, delivered, and even supported. This revolution has been blazingly fast—less than five years.
Companies used to just sell the software, get paid in full upfront, and hope the client never called with a problem, leaving support as a back-office necessity of low priority to the C-suite. Now, with SaaS, support is ongoing, upfront, and center. The customer support team is now finally respected by the C-suite.
SaaS was, like most software, developed by a technological change: the internet and browsers. But that’s not what drove its adoption at such a frantic pace. It was the customer. The customer said that the old model of software delivery and support “sucked.” The customer not only embraced SaaS, they demanded it.
Now the same thing is starting to take hold in product companies: Product-as-a-Service (PaaS) and the customer is driving its adoption.
In our new twenty-first century economy, the thought of actually buying products (things) is quickly becoming an old-school idea—a relic of the past century when the concept of ownership was important. However, though the need for products has not diminished, the way we consume them is about to change forever.
Customers want to use your products and enjoy the capabilities they provide for their expected lifetime, but they don’t want to have to maintain them or be responsible for them—just like software. They certainly don’t want to pay in full upfront for them, they want and expect service over the products’ entire lifetime. In other words, they want to buy the service, not the asset.
Customers today want a product experience that releases them from the trappings of ownership, leaving nothing but long-term benefit: a life-long “use” experience where the simplicity of product-as-a-service becomes the true prize.
The challenge to this new economic model for product-centric vendors, however, is that the journey is going to be tough because the fact is that today to be successful one needs to move away from a business model that is over a hundred years old. For product companies especially, the glacial speeds at which things usually change will have to be met with a never-before-seen fervor and enthusiasm to drive the needed change before the lights go out—remember, SaaS domination only took five years.
So, how does this happen?
The willingness to admit to change is the first step: realizing that the comfort-zoned business model is no longer viable will start the journey toward a far more lucrative future. Do this and the rest simply becomes process planning and the adoption of new technology.
As for the technology, the ecosystem that governs the development, delivery, and service of products is going to drastically change. The customer demand is there. And whether that’s B2B or B2C, companies are going to have to vastly modernize the customer experience to create a true product-as-a-service model.
From ordering, to upgrades and, of course, to service (my favorite topic)—all roads will lead to a world where digital transformation delivers the desired life-altering experience. So, piled on top of the ever-present need to still develop production capabilities to make quality products as efficiently as possible, now companies will need to also connect that technological ecosystem to a more servitized and subscription-based business model.
However, technology is a fickle mistress even for those who are considered advanced for their time. Product-centric businesses today, even the ones that are well into in their servitization journey, are still dominated by processes, systems, and organizational structures that were designed and built to sell products, not service after-sale for the lifetime of the product. The sad reality is, you can’t run a company effectively in the subscription-based economy with systems, processes and organizational attributes built for making and selling widgets in the 1970s.
This is where investment in technology and people becomes the recipe for success. With the focus and investment firmly pointed at aftermarket models, making do with the same information systems from the 1970s like ERPs and MRPs is not an option. With the new subscription-based model the service team will no longer be considered a necessary evil or a cost, but rather it will be considered the essence of the sale: we sell service, not equipment.