From SaaS to HaaS, to LaaS
The past decade has been dominated by companies moving towards a subscription based business model. From Adobe formerly selling its enterprise caliber software bundling them into the Adobe Creative Cloud. Content producers rather than focusing on a few potential hits a year, offering consumers, against a monthly fee, access to low, medium and high quality content, and trimming its offering along the way based on viewer data, rather than only using hinge of a few executives. The knowledge economy has even gone so far as to provide access to expert education via subscriptions to EdX, Coursera and the likes.
In the mid 2010’s Amazon released its branded buttons to gurantee users a full pantry. While this was not as frictionless as it could have been, the online monitoring of the consumption of physical products is also not there yet, requiring human input to initiate a reorder. While Amazon provides a subscription flatrate with Amazon Prime, it has still miles to go until it will automatically dispatching products to consumers.
The 2020s will most likely become the decade in which a the digital subscription model of SaaS will transform industries selling physical products. Dubbed HaaS, hardware as a service, is already making inroads. The headphone maker Nura is now offering its premium headphones via subscriptions to customers, instead of the 229$ and 399$ upfront costs respectively.
Apple’s iPhone plan has been offering a customers the latest phone every year for a monthly fee rather than requiring them to pay one thousand Dollar every autumn.
There is an argument to be made that this business model is only viable for high margin products, as the subscription for physical products basically compensates for the markup and instant depreciation after purchase, while at the same time providing the company with more operating capital.
In light of issues such climate and an increasing population, subscriptions offer corporations not only an alternative way to operate, but to also tackle sustainability concerns and supply chain efficiencies due to a more plannable demand.
This arguably will lead to more monolithic and monopolistic companies that will focus on further supply chain control, and as a result reduce competition and innovation in the supplying sectors. Amazon offers itself as the prime (pun intended) example as to how a customer’s living as a service (LaaS) day might look like. But given how much is written about the logistics and webservice company from Seattle, I would like to entertain this thought process as well as three additional companies.
More monoliths
Amazon has recently filed the patent US10664797B2, which will consist of what is commonly refered to as a supplier audit. The only difference being that Amazon’s audit will not be managed by independent third parties, but by Amazon itself. It calls it “distributed ledger certification”, and it aims to contain a digital track record of items on Amazon. From the materials used, to the country it is produced in, to safety.
While this kind of auditing is not uncommon, doing it independently of third party auditors, and government institutions is uncommon and not conducted for a reason. Yet it is in line with Amazon’s business practices to vertically integrate, in addition, auditing is a highly profitable business.
Amazon has launched a wide variety of brands in recent years, in the beginning it was Amazon Basics, but today it has more than 80 different brands. Customers are able to buy anything from cables, to detergent, to towels, dresses and snacks. By offering these products, given Amazon’s data insight, the company is able to produce according to trends, demands and performance of a product and price it competitively against incumbent brands. The amounts of data would allow the company to map not just the customer journey towards one product, but drive an entire suite purchases based on historic customer profiles.
If Amazon deployed its vast data sets at scale, it could not only influence a more sustainable supplychain, but also offer subscriptions that would include not just movies (Amazon Prime Video) and free deliveries but seasonal apparel from its in house brands, a flue shot voucher via PillPack, weekly bottled water shipments based on historic consumption data. Add a premium layer for new furniture, books from the NYT bestseller list and maybe Champagne to celebrate a customers birthday ? You get the gist.
Fancy
Let’s move further up the spectrum to LVMH, the French luxury conglomerate. Sustainability has long been a focus of the fashion industry, especially in the luxury segment. The current fashion cycle with its up to 52 collections however, is not in line with sustainability. While high touch experiences are an important part of luxury brands, transferring them into the 21st century, will require some adjustments to the current modus operandi. Some companies such as Bulgari (LVMH) whose hotels, managed by Marriott, have already taken a step towards diversification. Moet Chandon operates the Chateau de Saran, an invite only vineyard in France. Operationally, a subscription model offers even more opportunities than just location based experiences. Let’s take Berlut ifor example, LVMH’s premier menswear brand. Customers could pay an annual fee and in return get a box of the brands signature shoes, two custom shirts and a rtw suit as well as the choice of some leather accessories, rather than having them stroll in to the store occasionally ? It would not only limit the fabrics and leathers produced for each collection, but also save the company from having to put large amouts of a collection on sale, and then move them to outlets. Better product development and targeting due to more detailed customer profiles could further enhance the CLV and customer satisfaction.
Dietary subscription
Now the third case, Nestlé, the Swiss multinational. The company has been trialing a nutrition subscription in Japan. The concept is easy. Consumers sign up after an initial check up to get the optimal nutrients delivered to enhance their wellbeing. Nestlé will collect data from consumers via a mobile app and sensors, in cooperation with Samsumg, and alter the products it ships accordingly. This could spin off into additional services like insurances, gym memberships, and much more.
Mobility
Last but not least, mobility services. This is anecdotal, but during an internship, years before Uber was even founded, I attended an internal meeting of a large German automotive company about its long term strategy, which was public at the time already. It concluded in the transformation from being a manufacturer to a mobility services provider. A monthly subscription would allow users to drive any vehicle at any time for as long as they wanted. Ultimately, if self driving ever becomes a reality, this would be preferred business model of many companies. Cadillac briefly offered such a subscription service called “Book by Cadillac”, which is set to return in 2020.
To wrap it up, in the future customers will be able to subscribe to any kind of product category and brand in the same way companies subscribe to enterprise software (SaaS). If you want to innovate, lessen the friction for your consumers, look at the data and purchase patterns, maybe charge a premium for convenience, maybe pass on savings from an optimized supply chain and unsold inventory. We will see many companies enter this business model as part of a continued shift towards the direct to consumer distribution. To conglomerates/multinationals it offers an even bigger opportunity to aggregate and bundle brands and increase not just corporate profitability, but also leverage the bundling of underperforming products with top performers. The possibilites and opportunities are almost infinte.
Thank you to Barry Enderwick for the editorial feedback
