This is the first part of our five-part series on how to seize the potential of a PaaS business model in your business context.
Product-as-a-Service (PaaS) is a cornerstone in the transition to a circular economy where materials and products are kept and cared for as long as possible.
Why? Because in a Product-as-a-Service business model, the provider keeps product ownership while offering usage or a pre-determined result to the customer. Instead of being rewarded for a high output of new products, businesses will benefit from delivering usage or results as cost-efficiently as possible. This promotes the use of fewer and more durable products, as well as resource-efficient operations.
PaaS business models are not a new phenomenon. But the adoption of PaaS has fallen short of its potential. There are several reasons why, and we have identified 9 business-centred challenges directly hindering implementation.
The good news is that practitioners can take action to avoid common pitfalls when designing their PaaS business model. We’ll cover some of the most critical actions in our 5-part series on how to seize the potential of a PaaS business model in your business context.
The first action is to consider what and who you target.
PaaS business models are better suited for some products and customers. Therefore, it is important to be strategic about what and who to target.
When it comes to product characteristics, there are certain aspects that make PaaS more or less feasible. Generally, cheap, consumable, and personal products are more challenging to include in a PaaS offering than expensive, durable, and non-personal products. There are, however, grey zones. Product segments with rapid technology development (e.g., smartphones) are one example that have traditionally been considered less suitable for PaaS as products quickly become obsolete. However, companies have been able to overcome this challenge by adopting strategies to counter fast obsolescence, such as using hardware and software upgrades.
To help businesses, we have put together a summary of advantageous and challenging product characteristics. Businesses can use these insights to evaluate their products, choose which products to first include in their PaaS offering, and take on actions to address challenges early on. Actions may include anything from changing the product design, developing added services, or working proactively to change your customer’s attitudes. Download the tool "Product Assessment example" to find out more.
It is also important to carefully consider who your ideal customer is, as it will impact how you design your operations and activities. Generally speaking, PaaS is more likely to appeal to B2B or B2G customer segments, as B2C segments are often more trend-sensitive and less used to procuring a function instead of a product. Moreover, B2B and B2G segments tend to generate higher-value contracts, while B2C segments involve a larger number of smaller transactions. This risks increasing both your administrative and logistical burden. With that said, organisations that have a high digital maturity are well-positioned to reduce these burdens through efficient and automated systems to handle administration, logistics, and customer relations.
To help businesses choose their customer segment wisely, we’ve summarised our key findings in the form below.
Download Customer segment assessment
It will be difficult to hit the ultimate sweet spot when developing your PaaS business model. But several cases show that it is not necessary to fulfil all the advantageous criteria in order to design a successful offer. What is important is to address challenges early on and stay focused on your customer’s needs. Using our insights on what and who to target will help you in the process of identifying those challenges. This will help you get a good start in your PaaS transition.
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Stena Circular Consulting is an international consulting business, part of the Stena Recycling group.
Our mission is to support companies in their development toward sustainable circular solutions that will provide both environmental and business value.
The report is part of the project "Service-based business models - transition to PaaS in practice" funded by the European Regional Development Fund (ERDF).
The report and methodology have been developed by Stena Circular Consulting and Cradlenet.
Please note that the methodology presented in this article is part of a prototype that will be further developed during the period September 2022 to May 2023. If you find these insights useful or have any other thoughts, we would love to hear from you!
