Subscriptions as a Service (SaaS)

216702_new_volvo_xc40_exteriorFor many years we have been hearing the term Software as a Service (SaaS), where software is licensed on a subscription basis and charged on a monthly or yearly cycle. Companies like Salesforce and Dropbox have built their companies on this pricing model.

In 2012, Adobe which is known for products like Photoshop and Creative Suite took a chance and decided to move from a traditional pay once license model and move to a SaaS model. The first year was a disaster for revenues and their stock price took a hit. Today, in retrospect that move was brilliant – revenues are up, more people are using their products since the price points are reasonable and software piracy has come down. With the success that Adobe showed many other large companies are moving to a SaaS model, most notably is Microsoft.

Over the past couple of months, Porsche and Volvo have announced their subscription programs for cars. The two programs are very different, Porsche charges $2000 a month and gives you access to a fleet of vehicles such as 718 Boxster, Cayman S, Macan S and Cayenne which you can pick and choose each month. The plan includes vehicle tax, registration, insurance, maintenance and detailing. This is not a lease, where you typically have a large upfront deposit and still have to pay for your own vehicle tax, registration, insurance and maintenance. The Volvo plan is for $600/month and gives you access to an XC40 SUV.

For many people the above model for cars is super. You get a new car every couple of years and the biggest issue of maintenance is solved. It’s in the best interest of the car company to make sure their cars are trouble free since in the end they will be footing the bill if something happens. Of course, what will happen to the car dealers with their showrooms?

Software and cars are not the only businesses I see where this subscription business model can be implemented, what I’m calling Subscriptions as a Service (SaaS). I envision many physical products moving to this model of essentially renting something and all the costs are covered in the monthly/yearly fee. In your home white goods like TVs, refrigerators, washing machines, a dryer or an air-conditioning unit would be a perfect fit. Yes, there are places where you can rent or rent-to-own these devices but those companies are notorious for renting at insane markups and usually do not cover the maintenance or service costs. I’m talking about the manufacturer offering these products directly on a subscription model to the end consumer under their existing brand or a new private label.

Suppose you put your property on Airbnb. You rent it out and something happens to the TV or refrigerator you will most likely have to coordinate with some local person to get those issues resolved. With a subscription service all the issues and headaches are handled by someone else.

Also, you can space out your payments and if you don’t want to rent the property for a year, you can cancel the TV, washing machine, dryer, etc. This model for white goods works brilliantly. This again ensures that the manufacturers make great products because if not, they will end up eating the cost of fixing any issues. With this shift to a sharing economy model, subscriptions for everything makes sense.

Update:
1. A great article on the history of renting white goods
2. NerdWallet series on Rent-A-Center horror stories

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