What Is Product-As-A-Service? Product-As-A-Service In A Nutshell

Q: What is product as a service example?

Some examples of product-as-a-service comprise: Leasing or renting a car Tool and equipment hire Airport lighting Aircraft engines

Product-as-a-service is a business model where a service is provided in an area traditionally served via the purchase of a product. Product-as-a-service enables consumers to purchase a desired result rather than the product responsible for delivering that result. In the Web 2.0 era where subscription-based business models took over, many companies turned their static products, into dynamic services, sold on a product-as-a-service business model.

Aspect	Explanation
Definition	Product-As-A-Service (PaaS), also known as “Product-Service Systems” (PSS) or “Servitization,” is a business model where companies shift from selling physical products to offering those products as a service. Instead of customers purchasing and owning the product, they pay for the utility or outcome it provides. This approach often involves combining hardware, software, data, and services to deliver a complete solution. It transforms the way companies create value by focusing on outcomes and customer needs rather than just the product itself.
Key Features	– Subscription-based: Customers typically pay a recurring fee for access to the product or service, rather than a one-time purchase. – Ownership and Maintenance: Companies retain ownership of the product and are responsible for maintenance, updates, and repairs. – Outcome-driven: PaaS emphasizes delivering outcomes or performance rather than selling a physical item. – Data and Connectivity: Many PaaS offerings leverage data and connectivity to enhance services and gather insights. – Customization: Some PaaS models allow for customization based on individual customer needs.
Benefits	– Revenue Stability: PaaS generates recurring revenue streams, improving financial stability and predictability for businesses. – Customer-Centric: It aligns with customer preferences for access over ownership and allows companies to better meet customer needs. – Sustainability: PaaS can promote sustainability by reducing waste associated with product disposal and encouraging more efficient resource use. – Data Insights: PaaS often collects data that can be used to gain insights, optimize services, and create new revenue streams.
Examples	– Software as a Service (SaaS): This is a common PaaS model where software is offered on a subscription basis, such as Microsoft 365 or Adobe Creative Cloud. – Car-sharing Services: Companies like Zipcar offer access to cars on a pay-as-you-go basis, eliminating the need for individuals to own cars. – Industrial Equipment: Manufacturers of industrial machinery may offer equipment on a pay-per-use basis, including maintenance and monitoring services. – Smart Home Devices: Some companies offer smart home devices with ongoing support and updates as part of a subscription.
Challenges	– Transition Costs: Shifting to a PaaS model may require significant changes in business processes, technology, and customer relationships. – Data Privacy: Collecting and using customer data for service improvement can raise privacy concerns and require compliance with regulations. – Customer Education: Customers may need to be educated about the value proposition of PaaS offerings and how they differ from traditional product purchases.
Impact on Industries	– Manufacturing: Traditional manufacturing companies are increasingly exploring PaaS to diversify revenue streams and better serve customer needs. – Technology: PaaS is a fundamental aspect of the technology sector, with software, hardware, and cloud service providers adopting subscription-based models. – Transportation: The automotive and transportation industries are adopting PaaS models for car-sharing, ride-sharing, and autonomous vehicles. – Consumer Electronics: Some consumer electronics companies are exploring PaaS by offering smart devices with ongoing services.

Understanding product-as-a-service

Product-as-a-service has gained traction in recent years as more companies attempt to replicate the software-as-a-service (Saas) business model and its associated subscription revenue.

Early in the piece, product-as-a-service was an add-on to standard products.

For example, the purchaser of a new car could also purchase maintenance for a monthly fee because the dealership had access to advanced performance data and technical equipment.

The difference today is ambient computing, a broad term that describes an environment of smart devices, artificial intelligence, and data that enables computers to function without the need for direct human commands.

This environment has been facilitated by the proliferation of cloud computing and Internet of Things (IoT) devices, which means PaaS can now realize its full potential as a business model.

Everything from washing machines to wind turbines are now available as a service, with consumers not purchasing a product in a lump sum but instead paying for access to the product as and when they require it.

This approach means product-as-a-service incorporates the circular economy model, where the product can be reused, repaired, recycled, or redistributed as necessary.

For the manufacturer, PaaS is a business trend that advocates practicality and sustainability over conspicuous consumption.

The three entities of a PaaS agreement

In a PaaS agreement, there are normally three entities:

The client – who purchases the product as a service.
The manufacturer – who delivers the product and its associated services, and
The platform provider – who handles infrastructure that, depending on the product, may include data collection, installation, transmission, maintenance, storage, security, and analytics. In some cases, the manufacturer and platform provider may be the same company.

The key characteristics of the PaaS business model

The key characteristics of a PaaS business model vary depending on the industry and type of product, but here are several we believe to be the most important.

Ongoing customer engagement

PaaS emphasizes building a continuous relationship with customers beyond the initial sale. This involves continuous engagement with customers with services such as product maintenance, updates, and customer support.

PaaS providers must build strong customer relationships, understand their needs, and proactively address issues to ensure customer satisfaction. Since PaaS is often subscription-based, customer retention is crucial.

Broader responsibility

PaaS businesses have more responsibility when compared to traditional companies because they are involved in (and responsible for) more phases of the product lifecycle. That is, much of the business model occurs outside of a standard buyer-seller relationship.

In addition to product maintenance and updates, businesses are also responsible for product recovery, reuse, refurbishment, and remanufacturing. Others may also be required to deliver services that enhance the customer’s experience, such as installation, training, monitoring, and optimization.

Data-driven approach

PaaS involves the collection and analysis of data to derive insights and optimize product performance. This may include data on product usage patterns, performance metrics, customer feedback, and other relevant data points.

PaaS providers with the ability to collect, analyze, and leverage data can continuously improve the product and customer experience. These companies are also more innovative as they can draw inferences from shifting consumer preferences before the competition.

Sustainability focus

The product-as-a-service business model has clear sustainability benefits which are primarily linked to the efficient use of energy, raw materials, and the product itself.

Consider a company such as Homie, which offers vacuum cleaners and a range of other household appliances on a pay-per-use subscription basis.

The PaaS business model may encourage Homie to prolong the usage phase of the product lifecycle – particularly if it can make more money on recurring revenue than it can on unit sales. Put differently, the longer a vacuum cleaner can remain operational and serve the company, the more revenue it can generate.

One can easily appreciate that keeping the vacuum cleaner in service encourages the company to establish reuse, refurbishment, and recycling processes. All of these contribute to the circular economy and lessen the PaaS company’s environmental impact.

Value proposition

The PaaS model creates several unique value propositions:

Access to the latest tech – PaaS allows customers to access the latest products and innovations without the need for upfront investment. By extension, customers can access regular product updates and benefit from continuous improvements without worrying about obsolescence.
Cost-effective and predictable pricing – the PaaS business model tends to employ a flexible, subscription-based pricing model which can be more attractive than the prospect of a large, upfront purchase. This enables customers to instead budget for predictable, ongoing expenses.
Flexibility and scalability – PaaS allows business customers in particular to scale their product usage up or down based on their needs. When customers can align product usage with demand, they avoid over-provisioning or under-utilization of resources. This results in cost reductions and an increase in operational efficiency.

Product-as-a-service examples

The product-as-a-service model is apparent in any situation where a consumer pays to use a product instead of purchasing the product outright. Examples include:

Leasing or renting a car

leasing-business-model — Under the leasing business model, a company purchases a product and then leases it to a customer for a periodic fee. The seller passes the property of the item to the lessor, which is a financier, that enables a buyer (the lessee) to use the item for a given period of time. In the end, the buyer can exercise the option to buy the item at the current market rate. This agreement makes it possible for the seller to dispose of the item, for the financier to make a profit on it, and for the buyer to use it while avoiding total costs of ownership.

Companies such as Hertz, Avis, Dollar, and even Uber can be considered product-as-a-service providers. Instead of selling cars, they sell transportation services.

Tool and equipment hire

The company hiring out elevated work platforms is in fact selling the service of clean windows to apartment block owners.

Similarly, the company selling pressure washers is selling homeowners a spotless driveway or patio.

Airport lighting

Schiphol Airport in the Netherlands is powered by lighting that is rented from Philips.

The lighting system remains the property of Philips who is responsible for maintenance, repairs, and replacement.

Aircraft engines

As part of its TotalCare service, Rolls-Royce removes the burden of engine maintenance from airline companies and absorbs the associated risks.

Both Rolls Royce and the airline benefit from this service.

Rolls Royce makes money when its engines are in service and the airline makes money when its aircraft are in service.

Key takeaways

Product-as-a-service is a business model where a service is provided in an area traditionally served via the purchase of a product. PaaS is a more sustainable business model because products are reused, repaired, recycled, or redistributed as necessary.
There are three entities in a product-as-a-service agreement: the client, the manufacturer, and the platform provider. Platform providers have benefitted from the proliferation of ambient computing, artificial intelligence, and IoT devices.
Product-as-a-service has existed in the leasing or hiring of vehicles, tools, and other equipment for many years. Modern interpretations of the business model can be seen at Schiphol Airport and in Rolls Royce aircraft engines.

Key Highlights

Definition of Product-as-a-Service (PaaS): Product-as-a-service is a business model where a service is offered in an area traditionally associated with purchasing a physical product. It allows consumers to pay for the desired outcome or functionality provided by a product rather than owning the product itself.
Transition to Services: PaaS gained prominence with the rise of subscription-based models in the Web 2.0 era. Companies transformed static products into dynamic services offered through subscription-based models.
Ambient Computing and IoT: The proliferation of ambient computing, artificial intelligence, and Internet of Things (IoT) devices has facilitated the realization of the full potential of the PaaS model. Smart devices and data enable products to function without direct human intervention.
Circular Economy: PaaS integrates the circular economy model by offering products as services. Consumers access products when needed, and the products are reused, repaired, recycled, or redistributed, promoting sustainability and reducing waste.
Entities in PaaS Agreement: A typical PaaS agreement involves three entities:
- The client: The customer who purchases the product as a service.
- The manufacturer: Provides the product and related services.
- The platform provider: Manages the infrastructure for data collection, installation, maintenance, security, and analytics. This role can sometimes be fulfilled by the manufacturer.
Key Characteristics of PaaS Business Model:
- Ongoing Customer Engagement: PaaS emphasizes continuous customer engagement through services like maintenance, updates, and support.
- Broader Responsibility: PaaS involves more phases of the product lifecycle beyond the initial sale, including recovery, reuse, refurbishment, and optimization.
- Data-Driven Approach: PaaS utilizes data collection and analysis to improve product performance and customer experience.
- Sustainability Focus: PaaS encourages sustainability by prolonging product lifecycles and implementing reuse, refurbishment, and recycling processes.
- Value Propositions: PaaS offers access to the latest technology, cost-effective subscription pricing, flexibility, and scalability.
Examples of PaaS:
- Leasing or Renting a Car: Companies like Hertz, Avis, and Uber offer transportation services instead of selling cars.
- Tool and Equipment Hire: Businesses renting tools provide services like clean windows or spotless driveways.
- Airport Lighting: Schiphol Airport rents lighting from Philips, which handles maintenance and replacement.
- Aircraft Engines: Rolls-Royce’s TotalCare service relieves airlines of engine maintenance burdens and shares benefits.
Sustainability Benefits: PaaS contributes to sustainability by extending product lifecycles and reducing the environmental impact through reuse and recycling.

Related Concepts	Description	When to Apply
Product-As-A-Service	Product-As-A-Service (PaaS) is a business model where companies offer products to customers through subscription or usage-based pricing, rather than outright purchase. It allows customers to access products on-demand while providing companies with recurring revenue streams and opportunities for upselling and cross-selling additional services.	– When transitioning from traditional product sales to subscription-based models – When seeking to increase customer retention and loyalty – When exploring new revenue streams and business models – When aiming to enhance customer experience and value proposition
Subscription Economy	The Subscription Economy refers to the shift from ownership to access, where consumers prefer subscription-based models for accessing products and services. It offers businesses predictable revenue streams, ongoing customer relationships, and opportunities for personalized offerings and upselling.	– When adapting to changing consumer preferences and market trends – When seeking to build long-term customer relationships and loyalty – When exploring revenue diversification strategies and recurring revenue models – When aiming to enhance customer engagement and satisfaction
Servitization	Servitization involves integrating services into product offerings, transforming traditional product-centric businesses into service-oriented ones. It allows companies to provide added value to customers through services such as maintenance, support, or customization, leading to increased customer satisfaction and loyalty.	– When expanding product offerings to include value-added services – When aiming to differentiate products and create competitive advantages – When seeking to increase customer lifetime value and recurring revenue – When responding to market demand for integrated solutions
Usage-Based Pricing	Usage-Based Pricing involves charging customers based on their usage or consumption of a product or service. It aligns costs with usage levels, offering flexibility and cost savings for customers while providing companies with revenue opportunities proportional to usage volumes.	– When targeting price-sensitive customers or markets – When offering products with variable usage patterns or fluctuating demand – When seeking to optimize pricing strategies and revenue generation – When aiming to increase market penetration and customer acquisition
Recurring Revenue	Recurring revenue is revenue that is expected to continue regularly in the future, typically generated from subscription-based business models. It provides businesses with predictable income streams, improves financial stability, and enhances valuation metrics such as customer lifetime value (CLV) and revenue growth.	– When aiming to stabilize revenue streams and improve financial predictability – When seeking to enhance business valuation and attractiveness to investors – When transitioning from one-time sales to subscription-based models – When aiming to increase customer lifetime value and retention
Customer Lifetime Value (CLV)	Customer Lifetime Value (CLV) is the predicted net profit attributed to the entire future relationship with a customer. It helps businesses understand the long-term value of customers, make informed decisions on acquisition and retention strategies, and allocate resources effectively to maximize profitability.	– When evaluating customer acquisition and retention strategies – When segmenting customers based on their value and profitability – When optimizing marketing and sales efforts to target high CLV segments – When aiming to increase overall revenue and profitability by maximizing CLV
Digital Transformation	Digital Transformation involves leveraging digital technologies to transform business processes, operations, and customer experiences. It enables companies to adapt to changing market dynamics, improve efficiency, and deliver innovative products and services that meet evolving customer needs.	– When modernizing legacy systems and processes to support subscription models – When enhancing digital capabilities for delivering personalized customer experiences – When leveraging data analytics and AI to optimize pricing and revenue management – When responding to market disruptions and competitive pressures with digital solutions
Customer Success	Customer Success focuses on ensuring customers achieve their desired outcomes while using products or services. It involves proactive customer engagement, support, and guidance throughout the customer journey to drive satisfaction, retention, and advocacy.	– When building long-term customer relationships and loyalty – When aiming to reduce churn rates and increase customer lifetime value – When seeking to improve product adoption, usage, and satisfaction – When enhancing overall customer experience and brand perception
Agile Business Models	Agile Business Models emphasize adaptability, flexibility, and rapid response to changes in market conditions or customer preferences. They enable companies to experiment, iterate, and pivot quickly, allowing for continuous innovation and optimization of products, services, and business processes.	– When responding to shifting market trends and customer needs with new offerings – When experimenting with pricing, packaging, or delivery models to drive growth – When seeking to enhance organizational agility and responsiveness to market changes – When fostering a culture of innovation and continuous improvement
Ecosystem Partnerships	Ecosystem Partnerships involve collaborating with other companies, organizations, or platforms to create value-added solutions or offerings for customers. It enables companies to leverage complementary capabilities, access new markets, and deliver integrated solutions that address complex customer needs.	– When expanding product offerings through partnerships with complementary service providers – When entering new markets or industries through ecosystem collaborations – When aiming to create integrated solutions that offer greater value to customers – When seeking to leverage partner expertise and resources to enhance product offerings

What is product as a service example?

Some examples of product-as-a-service comprise:

What are the advantages of product as a service?

Transforming a product into a service can set various advantages for the business. Some of these advantages comprise:

Recurring revenues.
Predictable cash flows.
Better customer retention (as moving a product from one-time to recurring forces the company to make it appealing on a continued basis.
Improved customer relationships.
More effective sales funnel, skewed toward retention and referral.

Is Netflix a product or service?

Netflix is one of the best examples of subscription-based business models. The company has been able to build a viable consumer subscription-based business at scale with a straightforward subscription plan. Netflix also launched its ad-supported tier to enable more people to join its service.

What does it mean to offer a product as a service?

Transforming a product into a service means making a one-time offering into a continuous service, which can be charged with a subscription-based model. That requires a shift in mindset from a one-time transaction between the buyer and seller of a product to a continuous interaction between the buyer and seller of a service.