Four Questions to Consider When Adopting a Products-as-a-Service Model

Posted by on May 30, 2018 at 5:00 AM Carmi Brandis  
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The Internet of Things (IoT) provides a new way for companies to offer their products to consumers. Fusing physical products, accompanying services, and monitoring software, the Products-as-a-Service (PaaS) business model maintains ownership in the hands of the seller, who leases their product to customers on an as-needed basis. From ride-sharing companies like Uber and Zipcar to General Electric’s line of jet engines, consumers have shown increasing interest in leasing certain products for specific uses rather than buying them outright.

The PaaS model often benefits the customer by placing the responsibility for and associated cost of maintenance with the manufacturer. However, with IoT connectivity, manufacturers gain access to continuous real-world product application data that they can leverage to improve their products and create new revenue streams through real-time service-oriented business. Rather than a linear, one-time transaction with aftermarket support, PaaS enables continual earnings through a pay-per-use structure, as well as unparalleled actionable data collection while allowing companies to retain control of their product offering through IoT connectivity. If done right, both the customer and the manufacturer benefit

Along with new business models, such as circular supply, resource recovery, product life extension, and sharing platforms, the pay-per-use structure of PaaS is seen as one of the backbones of the growing circular economy. The circular economy decouples company growth from the use of scarce resources, both through disruptive technology and through business models based on longevity, renewability, reuse, repair, upgrade, refurbishment, capacity sharing, and dematerialization. According to McKinsey & Company, the circular economy could facilitate a three percent resource productivity boost in Europe by 2030, generating cost savings of €600 billion ($703.8 billion) a year and €1.8 trillion ($2.1 trillion) in other economic benefits.

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In light of these new revenue advantages, more companies are exploring ways to transition their offering to a Products-as-a-Service model. According to a report from Manufacturers Alliance for Productivity and Innovation (MAPI), 30% of companies surveyed offer an IoT-related Product-as-a-Service. In addition to these companies that already provide PaaS offerings, another report from IDC Manufacturing Insights estimates that 40% of top 100 discrete manufacturers and 20% of top 100 process manufacturers will provide PaaS platforms by the end of 2018. However, a business seeking to move into a PaaS structure has many things it needs to consider before making the transition.

Four Questions to Address When Creating Successful PaaS Models:

Will I Need to Redesign My Product and How Much Will It Cost?

Before shifting to a Products-as-a-Service model, manufacturers and product designers must take an honest look at how their product is used by consumers and how it can be changed effectively to implement PaaS IoT. This includes clearly mapping out the type of data to be gathered, how often the data will need to be analyzed by operators, how many sensors are needed, and where these sensors are installed on the product. If the product already is designed to gather data (for example a smart phone or smart speaker), how can they be bolstered and integrated into PaaS IoT functions? Businesses also should factor in the upfront costs of any redesigns and the costs of ongoing product maintenance to ensure that the total cost of ownership still creates profitability in the market space.

What Organizational Changes Do I Need to Implement to Increase My Service Offerings?

PaaS models also signal a change in a company’s level of service. For example, General Electric’s (GE) leased IoT-enabled jet engines help airlines optimize fuel consumption and provide GE with ongoing operational data that they can use to guarantee the quality and the uptime of the engine. This new level of service, closely tied to their engine product through IoT connectivity, allows GE to maintain a positive customer relationship and demonstrate benefits that lead to customer retention and continual revenue from the same product. To facilitate this level of service, however, a company looking to emulate GE in their own space must reorganize itself to meet customer service demands and take advantage of this value chain transformation. Everything from internal business procedures to R&D to marketing and sales must shift its focus from one-time transactions to maximizing product value over time.

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What Do I Do with the Data my Product(s) Gather?

Perhaps most importantly, the key benefit from an IoT-enabled PaaS model is the collected data. Product data has a number of applications beyond the basic customer service aspect. For example, real-time knowledge of product usage creates a detailed profile of its users. These user profiles can be employed by the PaaS company to adjust their product or craft new products that respond to discovered consumer needs. The data itself also can be sold to the consumer as a service, providing an extensive overview of their employees and operations.

How Do I Make Sure the Data is Secure?

As a result of these lucrative uses for product data, robust data security measures are of paramount importance to a PaaS company. Risk models must consider and make plans to protect against potential security threats to the device, the network, and the product cloud. Data anonymization, VPNs, and regulating who has data access are basic steps that can be taken to ensure IoT data is protected.

Facilitate Your Products-as-a-Service Transition

Aeris IoT delivers unparalleled scalable, cost-effective, and secure IoT solutions for companies looking to switch to PaaS business models. With experience managing millions of devices through the intuitive, customizable, cloud-based Aeris Mobility Platform, our technology infrastructure sets standards for tomorrow’s enterprise IoT deployments.

To learn how you can transition your organization to offer Products-as-a-Service, contact Aeris today.

Topics: IoT data, iot business models, iot strategy, Product as a Service