Product as s service

The popularity of XaaS models in the IT industry, and the new possibilities unveiled by restructuring ownership of the software, shifting of responsibilities, and focus on outputs resulted in many manufacturing companies becoming interested in offering outcomes

rather than tangible products (Bibi et al., 2012). The already existent trend of servitization in manufacturing (Baines et al., 2009) and the XaaS movement in IT industry have in-spired manufacturers to also start developing as-a-service offerings (Classen et al., 2019). However, as noted by Classen et al. (2019), manufacturing companies usually operate in more complex environments which are likely to influence their path towards XaaS offerings.

One of the commonly used denotations of XaaS models in manufacturing is the product as a service model. The term product-as-a-service (PaaS) is discussed in non-academic publications relatively often while most of the academic sources do not discuss the term in much detail. Nonetheless, product-as-a-service model appears mainly in circular economy context (e.g., Lacy and Rutqvist, 2016, p. 99-114) as a circular business model in which products are provided through lease or pay-for-use agreements and the provider ensures durability and upgradability while seeking benefits through long-term use, reuse and sharing. Then, in engineering and manufacturing domains, products as a service appears in context of servitization as the highest degree of an extended product offering that belongs to the category of PSS (Ducq et al., 2012) as Figure 10 illustrates.

Tangible product

Product and supporting services

Product and differentiating services

Product as a service

Core product (tangible) Tangible

product shell

Supporting services

Differentiating services

Product as a service representation by Ducq et al. (2012).

Figure 10 resembles the product-service continuum with the domination of products on the product side of the PS continuum and service orientation on the service side of the continuum (Rathmell, 1966; Oliva and Kallenberg, 2003). PaaS offering, as presented in Figure 10, emphasizes the intangible qualities of the offering as the tangible product remains in the ownership of a manufacturer, and revenues come uniquely from services (Ducq et al., 2012). Following that, Classen et al. (2019) state that “as a service” offerings in manufacturing stem from renting and leasing business models, and they define a PaaS offering as a single service offering comprised of the bundles of products and services.

They also continue that, in case of such a service offering, customers may use products while the suppliers ensure the product’s functionality. Otherwise, the notion of the PaaS

offering is barely mentioned. When this notion appears, it usually applies to those man-ufacturers who utilized their product sale potential and could expand their portfolio by offering their standard products as a service, i.e., manufacturers can ‘sell’ their products using service revenue models (Cusumano et al., 2015). Rolls Royce’s “power by the hour” service is one of the most commonly used examples of a product sold as a service.

Despite the scarce academic discussion on PaaS offerings, the existence and the mean-ing of the concept are fairly well acknowledged. It is rather the matter of nammean-ing of con-cepts and phenomena within the servitization domain. It is also notable that the PaaS offering in many ways resembles the software industry SaaS model, and hence, the product-as-a-service offerings constitute the group of most servitized manufacturing so-lutions. Figure 11 aims to define main qualities of product-as-a-service offerings.

Product as a service

• Most advanced forms of PPS offerings

(e.g., Mathieu, 2001a; Oliva and Kallenberg, 2003; Baines and Lightfoot, 2013)

• Intangible, heterogenous, perishable, inseparable (e.g., Edvardsson et al., 2005)

• Focus on use, functionality and performance rather than a tangible product

(e.g.,Tukker, 2004; Classen et al., 2019)

• Responsibility and costs of product remain with service provider (Sekhar and Rao, 2014)

Service strategy: service enthusiasts (Raddats and Kowalkowski, 2014)

Applicable business models: use and result oriented(Tukker, 2004)

Revenue models: innovative (Bonnemeier et al., 2010)

Drivers: financial, strategic, marketing (Baines et al., 2009)

Basic characteristics of the offering:

Product as a service (PaaS) definition.

As Figure 11 presents, PaaS entails the group of most advanced forms of product-ser-vice offerings. Those offerings include, for example, the advanced serproduct-ser-vices (Baines and Lightfoot, 2013) focused on customer processes (Mathieu, 2001a), enhancing supplier-customer relationships and manufacturer taking over some of the customer’s operations (Oliva and Kallenberg, 2003). PaaS offerings bring high level of intangibility and hetero-geneity (Edvardsson et al., 2005) as use, achieved functionality and performance may differ among customers served by the same manufacturer. Moreover, while a PaaS of-fering is promoted by promise of certain benefits, functionality or performance (Classen et al., 2019), there might be no pre-determined product involved (Tukker, 2004). Similar, to SaaS model (Sekhar and Rao, 2014), with PaaS offering the costs of product owner-ship and responsibility for product management during its lifecycle remain with the man-ufacturer (Lacy and Rutqvist, 2016).

Hence, offering product as a service requires the strategy of a service enthusiast that expands its service portfolio to not only to differentiate its product but to grow its business (Raddats and Kowalkowski, 2014). Furthermore, not all the business models are

appli-cable for PaaS offerings as mechanisms of value creation, delivery, and capture signifi-cantly differ from the mechanisms relevant to most product or service business models.

However, use- and performance-based business models (Tukker, 2004) employing in-novative revenue models (Bonnemeier et al., 2015) enable building attractive PaaS of-ferings. While manufacturers are motivated to expand towards PaaS offerings attracted by strategic, marketing, and financial benefits (Baines et al., 2009), customers have sim-ilar reasons to pick this kind of offerings. Shifting of the costs and responsibilities for product on the manufacturer allows the customer to slim down their capital expenses making the organization look less capital extensive and enable various maneuvers based on more operational cost structure. Furthermore, customers can adapt extensiveness of the offering to their own customer demand, and hence they are more flexible and less likely to be impacted by changes in economic cycles.

However, to achieve the benefits of inclusion of PaaS offerings in the business portfolio, manufacturers must also convince their customers of the superiority of their offerings.

The superiority of the manufacturer’s offering can be discussed in terms of the customer value the offering provides to customer. Hence, customer value and communication of the customer value are discussed next.

3. ANALYZING AND COMMUNICATING