Circular economy and the rise of dispropriation (or dis-Ownership)!
Romain POULLES, December 2021
In private life as well as in business, paying for a use or a service is becoming a norm, a habit that is becoming more and more imposed. Renting and consuming services rather than owning a good or a product: a trend that has a name: the service economy, in which use takes precedence over purchase and therefore over ownership.
Dispropriation is not a forme of expropriation !
The service economy is an offshoot of the circular economy, which consists of producing goods and services in a truly "sustainable" way and thus moving from a throwaway society to a circular model in which waste, or rather the concept of waste, no longer exists.
First of all, there is a structural factor: the redefinition of patterns of success. Access to property and the possession of iconic objects of the consumer society, such as the car, are less and less considered as priorities.
The private car market has changed dramatically in the last two decades, leasing has taken a large share of the market, car-sharing and ride-sharing models have appeared and are growing. Many young people do not even consider buying a car or taking a driving test anymore. And the worst is yet to come (at least from the point of view of the car industry): electrification and autonomous cars, mobility as a service, etc.
The possession of goods tends to be no longer a status symbol. Citizens/consumers want to have experiences that are in line with their values.
On the other hand, a cyclical factor: the pressure on their purchasing power is pushing consumers to look for flexible solutions (smoothed payments) in order to benefit from a qualitative and personalized experience without breaking the bank.
From consumer to user
In this context, companies must completely reinvent their business model to offer them a personalized service. Another imperative is added to this expectation: to gain flexibility and visibility in order to be economically efficient. This economy favors use rather than the sale of a product and aims to develop integrated solutions of goods and services in a sustainable development perspective. Thus, economic exchange is no longer based on the transfer of ownership of goods but on the willingness of users to pay a use value.
The consumer then becomes a user (except of course for pure consumer products such as food).
Is the service economy the business model of the future?
Subscription, the basis of a service economy, responds to the challenge of economic performance of companies, it offers a flexible and reassuring model. Most subscription companies have experienced constant growth, even during the pandemic, because this model is based on predictable and regular revenues and 80% of companies in the subscription economy continued to grow during the Covid crisis. This model also responds to the consumer's need to be an actor in his consumption: how he wants to use a good or service, how long he really needs it... he gains visibility and freedom. In addition, the subscription allows for exceptional customisation of the service for each customer.
What are the trends and developments in this business model?
There has been a clear acceleration: subscription has grown between 5 and 9 times faster than traditional business over the last 6 years.
This acceleration is obviously linked to the new digital services and the Internet of Things. There is now a total convergence between the physical service and the intangible, no longer any real frontier between hardware and software. This convergence allows value to be captured, by creating new services and revenues around data. These new models represent strong opportunities thanks also to connected objects, which allow companies to offer their customers products in the form of uses and services.
In which sector is the subscription most popular or appropriate?
Given its advantages, the subscription economy is a groundswell that affects all economic sectors. We can distinguish between "advanced adopters" such as Netflix, Spotify, Apple Music, Zoom, Slack Google workspace, Doctolib and hybrid BtoB models such as Schneider Electric or PSA with its "Free2Move" offer (connected vehicle and a global mobility solution).
Xaas: More and more examples
XaaS stands for Anything as a Service.
The term XaaS came about after certain technologies and innovations were connected over networks and converged to become productive.
XaaS leverages computing in the cloud instead of local on-premises software to deliver various services and reach customers.
In the world of XaaS, there is the well known and well known Saas (Software as a Service) but also PaaS, short for Platform as a Service, IaaS (Infrastructure as a Service), STaaS (Storage as a Service), DBaaS (Database as a Service) etc.
The physical world is also getting involved
In 2012, Textifloor launched the leasing of floor coverings, providing installation, maintenance and replacement under a single rental agreement.
In 2014, light becomes a consumable like any other with Clarlight or Philips. Gone are the days of buying lights, replacing bulbs and signing contracts with electricity suppliers: Clarlight takes care of all that and only charges users for the actual amount of light they consume and really need. A unit of measurement has even been created for the occasion: the CLAR®, equivalent to 1,000 lumens per hour.
Michelin: replacing the sale of tyres to road hauliers by the introduction of a payment system based on the number of kilometres travelled, with a complete life cycle management service (personalised optimisation of pressure, advice, maintenance, etc.).
Xerox: provision (without sale or rental) of photocopiers on the customer's premises, and invoicing by the sheet, with follow-up and maintenance service for the equipment and consumables.
Beyond the functionality economy: the circular economy
The circular economy is the complete opposite of the traditional economy. While the latter has always been based on increasing the number of products sold to ensure a company's prosperity, the circular economy focuses instead on selling less. This economic model, which aims to produce goods and services in a sustainable way, avoiding the consumption and waste of resources and the production of waste, thus breaks with the linear economy model (extract, manufacture, consume, throw away).
Circular economy actors - including companies that have never stopped aiming for profit - are working to design products that will not be destroyed at the end of their life, or even recycled into something of lesser quality, but reused (or repaired to be reused), all while limiting the production of waste during manufacturing.
Above all, they are part of an economic logic in which value is derived from the usefulness of their solutions (products or services) rather than on their production per se.
In addition to usage, other companies are now selling usage performance. In other words, the company makes money when its customers perform better thanks to its solutions. Since its customers aim to make all their internal and external exchanges more fluid, the company makes money when they spend less time in meetings or use less energy or light thanks to the innovations and services provided by the company...
The performance logic as a way out of the old volume logic of our linear economies
As proof that it works: Clarlight, a real company that we presented above, makes money by giving its customers not as much light as possible (volume logic) but as little light as possible until the ideal threshold is reached that corresponds to the real needs of the users (performance of use), allowing substantial savings for its customers. And this could be adapted to all industries.
From ownership to dis-ownership or dispropriation !!
Many examples of the 'rental' or service economy have existed for hundreds of years (or even millennia) - we are familiar with service models from buying airline tickets, cinema tickets, museum or opera subscriptions. But it is true that in our daily lives the vast majority of objects still belong to us and the linear economic model in which we live is based almost exclusively on the sale of products.
With the gradual introduction of the circular economy, use, sharing, exchange, rental and performance models will become the rule, the norm.
The user of the product will no longer be its owner and ownership will gradually be replaced by dis-ownership.
The prefix "dis" expresses separation, cessation, abandonment or even negation.
Of course, the new norm, the new customary state of ownership, will be a paradigm shift and will require numerous legislative, fiscal and behavioral adaptations.
The transition to dispropriation is underway, it is currently taking place invisibly but its undeniable acceleration will bring it to light and create the necessary questions and even some slowdowns.
And ask yourself the following honest question: if you are willing to pay €1,000 for a new phone and you refuse to pay €10 for the same phone when it no longer works, aren't you already paying exclusively for the service and not for the product?