As-a-Service business models in the circular economy

There are multiple drivers for the introduction of as-a-service business models and thus for the shift away from product sales towards services:

• Shorter product life- and development-cycles increase product innovation, creating customer demand for new product generations
• Users increasingly see ownership as a burden and want quick access to new solutions and technologies.
• Users no longer want to take responsibility for machines in operation (maintenance, servicing, repair) or for the costly disposal process.
• The pressure on companies to introduce recyclable products is also increasing due to corresponding regulations (e.g. ESRS 5 - European Sustainability Reporting Standards)

Wanting to be a pioneer in the circular economy and the associated reputational bonus are not sufficient motivators for alternative business models.

Rather, the change must also contribute to the financial success of providers. Monthly recurring revenue (MRR) is therefore the main argument in favor of switching from selling products to providing them, including a corresponding service package.

Equipment-as-a-Service offers the following benefits for the service provider:

• Increase in turnover through ongoing revenue
• Predictability of revenue through long-term contracts
• Transparency regarding the condition of the equipment
• Reuse of machines and subcomponents at the end of the life cycle
• Compliance with sustainability standards (e.g. in connection with CSRD)
• Increased customer loyalty and access to usage data

From the user's perspective, some of the most important benefits include:

• No one-off acquisition costs
• Cheap & easy access to the latest products, updates, and features
• No unexpected maintenance and repair costs as they are included in the service package
• Reduced internal workforce and spare parts inventories
• No disposal costs

The introduction of new business models is accompanied by a change process. It is therefore advisable to initially start the changeover for a specific product line or for a selected area - for example, for a selected country. To increase acceptance within the company, a corresponding budget must be allocated to each pilot project.

Uncertainties exist above all in the financing of the new business models. Product sales are suddenly cancelled and instead of cash-to-order flows, the same revenue is now split into many smaller payments over an extended horizon. This has a direct impact on the annual financial statements. The finance department could therefore resist these new models. It is therefore important to involve them and the company auditors in the decision-making processes. To overcome initial resistance, external financing platforms and banks have started to offer corresponding financing models. To facilitate the transition, it is advisable to work closely together with an external financing expert and solution provider.

Users are focusing on flexibility and lower capital commitment to react more quickly to market changes. In the long term, there will therefore be no way around the new business models.

inloop works with you to develop the new business model, the associated processes, and we facilitate the selection of new billing systems. In most cases, these can be easily integrated into the existing systems.

Further information: Bill Fischer bill.fischer@inloop.at