What Is Product as a Service

Karri: Maybe you can start by defining what is product as a service or servitizing products.

Tuomo: Sure, I think product as a service, again, a lot of concepts that are related to it, but maybe the most simple way to define it is that when you access the product, you don't buy the ownership of it as part of the accessing of the product. So if you, instead of buying a car, you rent the car. So you rent the concept of the car or you can rent even the concept of a Mercedes or whatever. Similar models, leasing or similar, where the main gist being that you don't get the ownership of the car, you just get access to it. That's how to define the kind of idea of servitizing a product. That being said, usually I think there's things that are connected to it. So not only getting access to the product, but there might be some additional servitization connected to it. So for example, promise of free or repair or maintenance and these other quality of life services that are attached to the idea. So I think that's the main definition. So instead of buying a bike, buying the experience or buying access to a bike and potentially other add-on services.

Karri: So I guess the product as a service can actually be multiple different type of business models or different lengths of purchasing the access.

Tuomo: Yeah, definitely. I think there's different parts that we can go into. There's variations on the length of the access, for example, whether it's a fixed-term access, also fixed-term rental, short, long term, or whether it's a continuation subscription, for example. And then there are things like, does it include add-ons? Does it include, for example, X amount of maintenance repair? Does it exclude some other additional services that might be, for example, digital in nature? So all of these things come into play and from the seller perspective, usually they end up making a bit more cash, for example, on the add-on services that might be non-physical in nature, so digital services or similar, so with better cross-margins. So it's the quality-of-life issues that people tend to pay more for.

Karri: And are businesses able to provide these different type of or different lengths of service or are they usually focusing on, for example, short-term rentals or how flexible are these different models or lengths?

Tuomo: I think it's connected to the kind of root product that you have. So if you have an extremely durable good, then it can withstand, for example, many cycles, many different users. So a car rental, a bike rental, sports equipment tend to be such that it can go from one user to another. There's probably no hygienic issues in most of those or at least it's easy to kind of refurbish the item to be ready for the next user. So there you can probably utilize more of these models of short-term rentals and having many of those. If you're, for example, renting extremely high-end garments, it starts to be a question of the garment quality, how many usages you can actually get out of it. So there it might be a different, quite a question or if it would be like, well, someone might have socks as a service. I don't think that they're going to wash the socks and then give it to the next person. So there it's likely a subscription, an ongoing subscription that you're delivered, fresh pair of socks, for example, every month. And maybe part of the service is that you return the old ones so that you don't have to do laundry or whatever. But then how they use the old socks, I would imagine that they probably then just recycle the materials or something like that. But you have these old school subscription services from like makeup and similar where you kind of keep getting, for example, a refill bottle to some item that you use regularly. That is kind of product as a service. So, but yeah, you kind of end up consuming it as part of the usage.

Karri: So it can actually, part of the product as a service can be that it's kind of selling the ownership or it's only one user per product. But then the company actually takes care of it like rest of the life cycle that that can also be for the end consumer kind of purchasing the ability to use socks all the time rather than these exact pairs.

Tuomo: That's kind of the idea. So I think we can go to so many different categories of products that we could go through. But that's the main gist that you're kind of buying the idea, buying the access, buying the experience of something. And then there's X amount of servitization that is either happening for the storage on the ownership side, on the kind of other servitization side of things. If it's about consumables, so for example, one could say that you know shampoo is a product. But then you end up consuming the contents. But maybe the next kind of if you're delivered the next delivery of the shampoo, you get for example just a refill back or similar. So there's you know you still have the outer bottle that you keep on to or something like that. So there's there's so many different variations that we could probably find out. I think kind of all of those fall under a wide umbrella of product as a service, where the idea is that the seller establishes some kind of a service relationship with the customer rather than doing a one-off sale, and then kind of trying to convince you to come again to the store to figure out what to buy.