Playbook: Product-as-a-Service

Adopting an As-a-Service model is a full rethink of practices that have been in place for decades. It changes operations and, harder still, mindset. Success depends on explaining the benefit clearly: long-term growth, stronger customer relationships and steady, predictable revenue.

What the research found

• Among companies yet to launch or complete the transition, 80% cited a lack of CEO and executive support as the main obstacle.
• 62% of the panel reported internal resistance, concentrated in sales teams and usually mild - scepticism rather than opposition, especially where the existing model still performs.
• Firms with the least resistance shared values such as sustainability and an entrepreneurial culture that already fitted the new model.
• Beyond CEO commitment, PaaS metrics need to sit in the balanced scorecards of key managers. Under pressure, what gets measured gets prioritised.

There is no universal pricing model. Spreading the cost of the asset and its services over the contract improves affordability and cashflow, but the metric has to fit the industry and the customer base.

What the research found

• Fixed fee for availability: a consistent fee for guaranteed access, simple to plan for both sides, with maintenance and operational risk shifted to the provider.
• Variable fee on usage, output or performance: charges follow the value delivered. One panel company bills per cubic metre of compressed air delivered.
• Around 29% have adopted usage-based pricing, still constrained by uneven levels of digitalisation and machine connectivity.
• 40% use a hybrid structure: a base fee for access plus a variable component, for example per kilowatt-hour of cooling delivered.

Because ownership stays with the provider, PaaS builds in the incentive to design durable, maintainable, recoverable equipment. The panel maps against the narrow-slow-close framework (Bocken et al., 2016).

What the research found

• Narrowing: fewer resources per unit of value, for example the move to low-GWP equipment in cooling.
• Slowing: modular systems designed to move between sites, with older units repurposed as standby capacity.
• Closing: partnerships with specialist providers to recover and recycle materials at end of life.
• Among companies with sustainability as a primary driver, engagement in closing strategies rises from 56% to 64%.
• 13 companies act on the usage phase, reporting results such as 70% energy saving, 40% CO2 reduction and a 10-15% cut in fungicide use.

Recurring models change cashflow dynamics on both sides. Customers convert capital expenditure into operating expenditure; manufacturers absorb higher upfront investment and longer revenue recognition.

What the research found

• High upfront cost was cited by 10 companies as the barrier the model removes for their customers.
• More than 50% of interviewees said the shift lets customers access premium equipment without capital outlay, and redeploy that capital elsewhere.
• For manufacturers the fish model applies: a pronounced dip in earnings as one-off payments give way to recurring streams.
• Financing routes split between self-financing from the balance sheet, external leasing or asset-finance partners, and hybrid vehicles.

PaaS turns a purchase order into a long-term agreement covering service quality, responsibilities and end of term. Maintenance, repair and performance guarantees move to the provider.

What the research found

• Most of the panel use fixed durations, minimum usage requirements, minimum fees and length-based discounts to secure commitment.
• Financial assessment is common: one company requires at least two years of trading and proof of solvency before granting access.
• Loop clauses allow price adjustment where, after six months, actual usage deviates significantly from projections.
• Five end-of-contract strategies appear in the sample: ownership transfer, purchase option, renewal, technology upgrade and manufacturer take-back.

The sales function moves from transaction to partnership. New roles, new targets and new material are needed to reach decision-makers who now include finance and the C-suite.

What the research found

• The LAER model - land, adopt, expand, renew - structures the subscription relationship, with account managers weighted towards renewal.
• 79% of companies openly promote their subscription offering; 21% introduce it only after first contact, citing complexity or competitive sensitivity.
• Proof of concept with innovative, forward-thinking clients is the most common entry route.
• Interaction frequency and data sharing are adjusted to the size and criticality of each client.

Measuring a subscription business means tracking profitability, customer relationships, environmental performance and asset behaviour together, not in isolation.

What the research found

• TCO analysis is actively used by 74% of the panel as the core value message to customers.
• Customer metrics centre on NPS, exclusive loyalty rates and usage frequency, communicated through dashboards.
• Environmental reporting ranges from CO2 reduction of up to 70% at one company to a full life cycle assessment showing improvement in 18 of 19 dimensions.
• Profitability moves to ARR, assets under management, contracts signed annually, pull-through rates and churn, with IFRS 15 and 16 reshaping recognition.

Digital infrastructure is what makes usage-based billing, predictive service and customer reporting possible at scale. Legacy ERP built for one-off transactions is the usual constraint.

What the research found

• Essential layer: IoT sensors for real-time performance data, cloud for scalable processing, APIs for integration.
• Strategic layer: big data, AI and machine learning for insight and automation, digital twins for risk-free optimisation.
• Security layer: cybersecurity to protect customer data, edge computing to cut latency, blockchain for transparent recurring transactions.
• 40% extend legacy systems through API integration rather than replacing the ERP; 20% built in-house tools, an approach the panel largely advises against.