Say Goodbye to Purchases and Hello to Rentals in the New Economy

BusinessSay Goodbye to Purchases and Hello to Rentals in the New Economy

Say Goodbye to Purchases and Hello to Rentals in the New Economy

The mobile phone sitting in your pocket right may be the last you’ll call your own. More than that, the next new car you drive and the next bed you sleep in may never be yours.

If forecasters are right, very soon everything from mobile phones to cars and everyday domestic items – right down to evening meals – will be provided as part of a subscription deal.

As consumers increasingly focus their buying habits on outcomes and what they can get from a product, rather than on owning it, companies will look to offer Netflix-style business models that offer all-you-can-eat packages of goods and services.

Tipping Point

The trend, called servitization, has been gathering pace over the past few years. Analysts are so sure it’s reaching a tipping point of global acceptance that they confidently predict today’s teenagers will be the last generation to remember a culture of owning things.

The next will know only a culture of product-service bundles sold “directly to users from makers”, said manufacturing conference producer Thomas Igou. “Absolutely, we are heading in the direction of an economy where everything is part of a service-based, or shared, offering,” said the Stockholm-based expert for Copperberg.

“It happened quickly in the music industry, it will happen in manufacturing too.” Servitization envisages producers taking full control of the experience consumers have with their products. For phones, that could mean offering the handset, a network service, a repair programme and an upgrade plan. Igou even suggests family life can be shaped by servitization.

The Experience Economy

“You can have your meal provided and brought to you and even the cutlery and everything you need brought to you and then taken away for cleaning afterwards,” he explained. “Lots of people call it the sharing economy but it’s actually the experience economy.”

The concept of non-ownership and borrowing is not new; libraries have been lending knowledge for centuries. But technology and big data are making it possible for all aspects of life to be provided for through a servitized model. Software platforms are being developed to coordinate efficient uses of assets without companies or customers ever having to own them.

Spotify’s music streaming site is an obvious example. Its music-as-a-service business model, offering a limitless choice of record labels’ songs, has replaced ownership of physical music media, such as CDs and downloads, and traditional music players.

Uber is another servitized household name. It isn’t a taxi firm. It owns software that matches vehicle owners with people needing rides: essentially a car-as-a-service package.

Generation Z

The change that prompted GE to suggest Generation Z – people born between the mid-1990s and the early 2000s – will wave goodbye to outright ownership, is the adoption of servitization by manufacturers. They’re increasingly selling subscriptions to use, rather than own, their products in deals that come bundled with backup services.

German carmaker Mercedes-Benz, for instance, recently launched its Collection product, which sees customers pay a monthly fee entitling them to pick and choose cars packaged with breakdown, insurance and other services. Volvo, Fiat and Porsche have also introduced some sort of subscription service.

“Carmakers today have an opportunity to take control of the entire customer journey,” Mikael Söderberg, senior technical director of software provider Luxoft Automotive told Information Age.

Servitization is relatively new to the manufacturing sector. Its progress has been slower than in the services industries because it requires coordination of more moving parts – from product construction and maintenance to technical advice and parts replacement.

Different Mindset

Anthony Bourne, president at IFS Industries, a software maker, characterised the process of change as a three-step evolution.

“At the most advanced level, the manufacturer goes to the customer and offers to help with products and solutions,” he told Chief Executive magazine. “Rather than charging or selling directly, it may involve a risk and revenue-sharing agreement. Very few manufacturers are at that level, because it’s a very different mindset that they need to operate with.”

A recent study by Cambridge University suggested full adoption of servitization would accelerate as manufacturers grasped new data technologies. Predictive analysis and remote communication with products would help providers identify when failures are likely and speed the repair process, the study said. Similarly, measuring consumer usage of products and keeping them updated via mobile platforms would also advance the transformation.

Rapid Expansion

Some sectors, including the car industry, have been fast adopters. Igou estimates about 30% of the global manufacturing base has some sort of servitized element and he expects that to expand quickly.

“Everyday you see a new mission statement of a company popping up,” he said. “It may take years or decades, but there’s no reason everything can’t eventually be servitized.”