So, it seems Nike is getting in on the ‘As A Service’ act with its Nike Adventure Club trainers for kids program. Which begs the question, are there any products or services that cannot be sold through an ‘As A Service’ billing model?
__AAS fill in the gap… ok so there may be a shortage of acronym choices left but why are n’t more businesses using this beneficial billing model?
What is ‘As A Service’
In simple terms, it’s a change of product ownership and the way in which product use is paid for. With an as a service model the customer never actually owns the product and pay at a frequency for continued use rather than a one-time payment.
Fundamentally it’s a subscription service, which while you’re paying you have access when you stop paying your access ceases. Born out of the digital world Software As A Service, or SAAS, it has taken over as the primary billing model for most software companies with them preferring to move away from the one-time payment which was prevalent as little as a few years ago. Microsoft is certainly one company looking to move away from the perpetual license.
‘As A Service’ Billing Models
Flat – regardless of usage, the quantity of users, feature use, the same fee is charged each month for continued use
Tier – each tier enables additional functionality
Usage – commonly known as pay as you go, you only pay whilst using the product
Single – Similar to tier but more focus on things like the number of users, the more users the more cost you pay
Combination – Combines the single and tiered models, the more feature use and the more users both increase the cost
Pro’s and Con’s of ‘As A Service’
- Reliability, better Cash Flow management with more visibility of revenue coming in more consistent revenue generation
- Generates more revenue for longer periods
- Greater management of product demand
- Greater control of product
- Higher customer retention
- Opportunities for marketing, insight and data acquisition
- Removes competition visibility
- Continued use (and continued revenue) requires continued value
- Greater need for a legal contractual agreement
- Non Payment management
- Latest updates or products
- Low or no initial outlay
- No buyers remorse (assuming you’re not tied into a 5-year contract..)
- Visibility of cash flow
- No product ownership
- Continued payment ability
Will ‘As A Service’ work for any product?
As mentioned, even Nike is getting in on the act with ‘As A Service’ trainers for kids with its Nike Adventure Club. If it can be applied to trainers are there any products or services that AAS simply won’t work?
Consider some of the following (you’ll need some imagination and caveats would be needed, see ‘The Keys to Getting it Right’ below)
- Solicitors as a Service – paying a solicitor a fixed monthly fee every month and for this, you get to call on their legal expertise as and when required.
- Food as a Service – what if you paid a fixed amount each month for your families food, based on family size, appetite size and food quality (value, mid-range, and premium) and for this, you can choose whatever food you want within parameters
- Predictive Maintenance As A Service – a factory owner pays a machine parts distributor a fixed amount each month for which they get access to any components needed to keep their machines running.
- Any Digital Services as a Service – if you’re a provider of development, marketing, coding, IT services, all these can be wrapped into a subscription service where there is no initial outlay to build or implement, instead it is distributed across an agreed period of time.
With these in mind, by getting a few things right (and being brave), its possible any product or service can be sold through a subscription billing model and organizations brave enough to try it will disrupt their industries.
The Keys to Getting it Right
Continued Value, customer perception must be one of continued value and fairness, without both they will leave in droves. We must ensure the value is easy to see and a fair price is levied. Confidence in the product and its adoption by consumers is essential unless you’re going to tie customers into minimum period terms which will cover the cost of the product but be careful as this will only serve to cause brand animosity if the wrong customer signs up.
Simplicity – with complexity comes uncertainty as the saying goes, so keep it simple and be careful with the combination model, layering on lots of billing levels could cause customers to lose clarity on payment and they might get a big shock at the end of the month.
Ability to serve, logistics is everything, whether you have a physical or a digital product it will need to be seamlessly delivered, upgraded, exchanged, downgraded, supported.
Ability to manage (and cancel!), customers must have the ability to easily access and manage their services and most importantly of all, easily cancel. Don’t make customers jump through hoops to cancel and make very transparent how to do it upfront because customers will always check if you make it difficult to find this out it will only raise alarm bells for potential buyers.
Caveats, be sure to understand exactly what should and should not be included as part of the service. If your product or service has the potential to incur huge costs due to a particular scenario beyond your control (consider the solicitor scenario above), you must decide how these will be managed and communicate them to your customers at sign up.
Cashflow, Ask yourself (or your accountant)can you afford the cost to outlay the product to the customer and essentially not have the money required to pay for it until some time in the future.
The mathematics, OK this is not school, but the numbers have to stack up. The amount invested must be returned for any business to survive. A clear understanding of the following is a good starting point:
- The TOTAL cost of your product or service
- The initial outlay to get setup
- Cash flow
- Minimum term required to return this cost
- How maintaining customer use for the minimum term will be achieved (contractually or through continued customer value)
- How the value of your product decays of time
- What other revenue channels will be opened through the approach (advertising, services, upgrades, data, insight, etc)
Back to the Question
So, Can ‘As A Service’ Billing Model be applied to any Product? At the moment we cannot see why not but time will tell. Like it or not, the world is seemingly moving away from ownership towards subscriptions due to the value that business gains from it.
Can you think of any products or services that cannot be sold through this route?