Product as a Service: from owning to using

Why would anyone want to own a car? Or a washing machine? Lights in the office? What we really want is transport, clean clothes and lighting. We want the service, not necessarily the product. Product as a Service (PaaS) not only frees us from a lot of hassle, it’s a lot better for our planet into the bargain. Read on to find out what it means.

What is Product as a Service?

You may have been using the PaaS model for a very long time, without even being aware of it. If you’ve ever attended a gala ball, you probably hired your black-tie suit or ball gown – what’s the use of having such an expensive item of clothing in your wardrobe year round? If you listen to music, you probably do so through a streaming service such as Spotify. We no longer own the music, as we did when we were still buying CDs. And perhaps you’re already cycling on a Swapfiets bike – you know, the ones with blue tyres. It’s not your bike, you pay a monthly fee to use it. Nice and easy, because if the chain comes off, you simply give Swapfiets a ring and they come and repair it. These are all examples of a global trend: from owning to using. Product as a Service, in other words.

Is it the same as renting?

Partly, yes. But product as a Service is more. The main difference is the service you receive, of course: if your product breaks down, the supplier will come and repair it or swap it for a new one. Plus which, the product will return to its supplier at the end of its life and not end up as landfill. These are important principles as they should ensure that suppliers provide superior quality products, so they won’t have to come and repair or swap them so often. And they’ll also be more likely to choose products that are easy to disassemble, with parts and basic materials as recyclable as possible. 

Radically different

Let’s say you take out a subscription for a bed. You pay not only to use it, but you also get maintenance, tips and services, for example a new mattress cover every six months. Product-as-a-Service is radically different from traditional linear economic models (make, sell, throw away). The fact that the producer retains ownership has significant advantages for both consumers and producers. Consumers avoid spending big sums up front to purchase products, additional services are included in the subscription, and, importantly, it’s a sustainable choice, because at the end of the contract, the product is refurbished or recycled. For producers, too, PaaS is worthwhile. Their customers are likely to be far more loyal, and their input costs are lower, because used goods are collected and reused.

Product as a Service contributes to the circular economy

In this way, Product as a Service contributes to the circular economy, with ‘waste’ serving as raw material for new products. By contrast, in the linear economy many products end up as waste, with suppliers often making no real effort to make them last as long as possible. Your tablet or smartphone are a good example: with new models rapidly succeeding previous versions, it only takes a few years for your current model to stop functioning well or no longer be supported. 

How far can we take Product as a Service?

Quite far. Amsterdam architect Thomas Rau, for instance, has decided he no longer wants to own the lighting in his office and has agreed with Philips that his company will purchase an X amount of lighting every year. How Philips meets this lighting requirement is up to them, but the lighting remains the property of Philips, which replaces items and takes them back if they malfunction. Transport looks likely to go down the same road, as research by ABN AMRO in the summer of 2019 found that nearly fifty per cent of people in the Netherlands are open to Mobility as a Service (in Dutch only). In future, an app will advise users on the most efficient way to get to their destinations, including public transport and car-sharing vehicles parked down your street. If this works well, we’ll need far fewer cars in the future as they’ll be used much more efficiently and not – like now – be parked and unused most of the day. 

What can I do?

We may wonder whether we really need to own many of the things we have. Equipment we hardly ever use – such as a power drill – is easier and cheaper to rent, of course. And for stuff you do use more often, joining a scheme might be a great idea – from cars to bicycles and washing machines. In fact, this kind of service is now even available for beds and mattresses. Auping has recently started providing Sleeping as a Service, where you don’t own your bed – and where it is recycled rather than ending up in landfill.

How is ABN AMRO helping?

Circular and sustainable companies often work with radically new business models. Product-as-a-Service companies go from selling products to selling service contracts. It takes some getting used to: for consumers, for companies, but for us as a bank, too. Like consumers and companies, we as a bank have to learn how best to estimate the value of Product-as-a-Service companies. That’s necessary when they come to us for a loan, for instance, or when we procure such products for our own operations (the lifts in our circular pavilion Circl at our Amsterdam headquarters being a case in point.) The example below illustrates why financing these sustainable companies is as yet quite tricky. 

Selling beds versus Sleeping-as-a-Service

As a bank, we provide loans to companies. Companies pay us back with money that they are able to earn thanks to the loan we give them. The risk models for a linear company (one that makes and sells goods) are familiar to us as a bank. With our experience, we can assess the risks and take decisions about credit applications. Let’s look at a traditional company selling beds. They buy raw material and parts. Then they produce the beds and sell them. In our turn, we can now make a sales projection. The process of making and selling products (which consumers eventually throw away) repeats itself again and again. Our financial risk models are based on this business model and can adequately identify the risks involved.

In a circular business model, it’s a different story. Let’s return to the bed company of our example, but now offering Sleeping-as-a-Service. The company buys all the raw materials and parts it needs to build the bed. Then is puts it out to contract as a service, and receives in return a regular (lower) subscription fee. Regular subscription revenues are more stable and predictable than income from one-off sales, but our risk models don’t recognise that. Another difference is that the company collects the products at the end of the contract to recycle them. That creates new value, but what value exactly?

Every day, an ABN AMRO team is busy looking for solutions to these new and sometimes challenging problems. In this unchartered territory, we’re pioneering side by side with our corporate clients. ABN AMRO believes that the corporate sector is going to drive the transition to a sustainable economy. So we’ve set a target for ourselves: ABN AMRO is looking to provide one billion euros in loans to one hundred circular projects by 2020. And some of these projects are definitely going to involve the Product-as-a-Service concept.

Would you like to know what else we do to build a sustainable, better world?

Check out our sustainability page.

Jan Raes

Jan Raes

Sustainability Advisor +31 (0)20 383 1753