Service as a Product/Product as a Service

There has always been an element of service as a product but it is accelerating in recent years and may become the dominant method of delivery for sophisticated goods over the next several years. The question being asked by manufactures is, do consumers want a “thing” or do they want the service that the product delivers? Do consumers want to buy a device and use and maintain it or would they prefer to pay for the actual use they get from it? A traditional example of this was the car lease. Consumers get a car to use and effectively pay for the miles they drive. The repair and maintained costs are covered in the lease fee paid. The same concept can now be applied to almost anything a consumer uses. As the Internet of Things has become more robust it has made it possible to monitor more closely the operation and failure of appliances, and to do predictive and preventive maintenance.

There are three main reasons for this shift. The first is to provide better service to the end user. The second is to provide additional revenue for the manufacturer. Third is the fact that the technology made possible by the Internet of Things now make it possible to sell service as a product. The price of sensors and actuators has come down over the past few years, making implementation cost effective. Global manufacturing competition has reduced the prices and margins on many items. To make up for the reduced profit of selling the items it has become important for manufacturers to develop new sources of revenue built around aftermarket service. To make this happen, they looked for ways to connect and engage with a customer base that has higher expectations for service and support, but is less loyal, given all the choices of brands and suppliers they can chose from.

It is true that major firms pioneered the service as a product early on. John Deere and GE were two prime examples. Although giants like have been experimenting with the business model for years, others are rapidly joining the trend. International Data Corporation (IDC), the premier global provider of market intelligence, estimates that 40% of Top 100 manufacturers will provide service as product platforms by 2018.

Philips Electric is even working on reducing the costs of lighting and light bulbs by selling light as a service and including all the cost involved in delivery this to the consumer. The options in service as a product will no doubt grow beyond what we presently visualize. Product as a service starts with sensor-based products that continuously feed information about product usage and condition to manufacturers. The manufacturers can then leverage the data for a variety of purposes, from delivering proactive and preventive maintenance to creating entirely new service-oriented business models. It is in their interest. If they can provide the right mix of services at the right price it can also be in the best interest of the consumer. Time will show us how these trends work out.