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.
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.
Leasing or renting a car
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.
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.
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.
- 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.
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As you can see from the visualizations above, cloud players are manufacturing models and algorithms, that becomes an integrated part of their cloud-based offering and platform. This is what attracts more AI developers and companies to become part of the ecosystem, thus, in turn, consuming more cloud infrastructure.