Turning products into subscriptions (everything as a service) is a big business shift many believe is irresistible. Automating the process of buying staple products or discretionary products Is a way to lock in repeat business. And some would note that 41 percent of all consumer purchasing is repeat business.
Communications providers have some experience with turning products into services. Hosted business voice (hosted IP PBX or hosted IP telephony) provides a recent example, where a recurring subscription replaces a customer’s need to own and manage a business phone system.
Smartphones often are functionally subscriptions, not “products.” Even if consumers actually buy their devices, they often do so as two-year payment plans. And as support for many devices now routinely lasts for only three years, for many consumers “ownership” of a smartphone resembles a “phone subscription.”
Most of the time, a user is making monthly payments on a device. By the time the device is fully paid for, it might be time to get a new model, either because the battery no longer holds a charge well, or because the phone has wear and tear. Personally, I find battery life is the key driver of replacement cycles.
Application and software providers likewise are attempting to turn their shrink-wrapped products into recurring subscriptions. Even jet engines now can be used as a subscription, rather than a purchased product.
Many believe cars will become a service. As the example of pizza might suggest, “build versus buy” or “own versus lease” applies to enterprise computing. The issue is how much IoT as a service might be leveraged by communications service providers.
The key issue for communications providers is that most of the legacy services already are subscriptions. So the chief issue is what new lines of business can be created that take advantage of the “subscriptions, not products” trend.
Almost by definition, that requires service providers to move into new areas of the value chain that traditionally have been purchased, rather than leased or rented. Smartphones would seem to be such an area.
But bigger opportunities probably lie in the internet of things value chain, where service providers could bundle devices, applications, monitoring, analytics, installation and maintenance “as a service.”