Selling goods as services

Selling goods as services,
a business model with a sustainability track record researched since 1987,
by Dr h.c. Walter R. Stahel, founder-director of the Product-Life Institute Geneva

Origins of the concept
Business models of selling goods as services—selling the utilisation of goods, selling services and performance instead of selling the goods themselves—are today generally known and applied, yet promoted by a number of consulting and political organisations as latest “green innovations”.

The first studies on the contributions of these business models to sustainability, the economy and society go back to the late 1980s. The Product-Life Institute in Geneva was first to research and promote “selling goods as services”, but the collective memory of its role is dwindling today.

The researchers of the Product-Life Institute Geneva underlined from the beginning that selling goods as services is the most profitable strategy of an economy in loops—what today is referred to as the circular economy —and incorporates its key characteristics, namely a substitution of manpower for energy in a regional economy, as well as a substantial reduction of energy and material consumption, a prevention of end-of-life product waste and an increase in economic competitiveness, compared to the global industrial economy.

Many traditional applications of selling goods as services were linked to hospitality and mobility, and were used by individuals (B2C) and corporate clients (B2B) alike:

  • Inns, in their dual function of hotels and restaurants, have existed in different forms as an organised way of temporarily putting up travellers, who paid for the utilisation of (shared) goods as services,
  • Ferries, ships and horse-drawn coaches are just a few examples of mobility services where people paid for the utilisation of (shared) goods as services.

Often these services included additional value added, such as safety, security, geographical knowledge, and were thus business models of selling performance rather than utilisation.

Today, these two traditional domains of application still exist and have greatly expanded:

  • Accommodation as a service still includes inns and hotels, but also rental apartments and offices as well as time-share schemes for holiday accommodation,
  • Mobility as a service still includes public transport, airlines, taxis, but also rental cars and car sharing for self-drive, as well as share-owned goods such as “Netjets”.

The business model has spread to many new areas in B2B (Business to Business) sections, such as rent-a-molecule (chemical leasing of solvents), pay-for-results (selling painted car parts instead of paint), selling customer satisfaction (photocopying instead of selling photo-copiers) and selling all-inclusive-performance (power-by-the-hour for jet engines and power turbines), to name but a few. However, the business models of selling goods as services applied to manufactured goods only started at the end of the 20th century.

The background of the research on “selling goods as services”

The early publications may explain this and give hints to opportunities and obstacles. The first research report which analysed the sustainability impacts of selling goods as services dates from November 1987. In this first report:

  • Wirtschafliche Strategie der Dauerhaftigkeit, Betrachtungen über die Verlängerung der Lebensdauer von Produkten als Beitrag zu Vermeidung von Abfällen; Bankverein Heft Nr. 32, November 1987, Basel.
  • Stratégie économique de la durabilité, éléments d’une valorisation de la durée de vie des produits en tant que contribution à la prévention des déchets; Cahier SBS No. 32, Novembre 1987, Basel.

„Economic strategy of durability, elements to valorize the service life of goods as a contribution to waste prevention“

researched by the Product-Life Institute Geneva for the Jubilee Foundation of the Swiss Bank Corporation, Basel (now part of UBS Switzerland), and published in French and German in November 1987, the authors Max Börlin and Walter R. Stahel—directors of the institute—included a case study of Agfa-Gevaert Switzerland, the subsidiary of a major German company. This company operated a fleet of photocopiers under a business model called “Mieting”—a German mix of rental (Miete) and leasing—which sold photocopiers as a service to corporate customers. At the time, photocopiers were expensive optic-electro-mechanical equipment. Xerox, which generalised this business model for photocopying equipment in the early 1990s, was not yet offering its service of selling customer satisfaction in Europe.

Walter R. Stahel, who had earlier coined the term “cradle to cradle”, became a firm promoter of the concepts of the circular economy and of selling goods as services through both conference presentations and publications in Europe and the USA. In his work, he always stressed the holistic dimension of these concepts, including the management of risks:

  • Giarini, Orio and Stahel, Walter R. (1989) The Limits to Certainty, facing risks in the new service economy; Kluwer Academic Publishers, Dordrecht; translated into six languages.
  • "Risk Prevention and System Design: The Role of the Designer-Engineer and the Role of Insurance in Risk Management", Walter R. Stahel; in: Forensic Engineering, vol 2, nos 1/2, pp. 113-117; Pergamon Press, USA. 1990.
  • Eine neue Beziehung zu den Dingen: Verkauf von Nutzen statt von Produkten (die Strategie der Dauerhaftigkeit), Walter R. Stahel; in: Neue Zürcher Zeitung, Beilage Technologie und Gesellschaft, nr. 49 vom 28. Februar 1990.

Stahel’s 1991 speech at the Santa Barbara conference of the U.S. Engineering Foundation led to a lasting cooperation with the U.S. Academy of Sciences and the English University of Surrey. In the same year, he was nominated in Germany as director of the 1992 conference of the International Design Forum Ulm—the successor of the Bauhaus Ulm—on the subject of “Common utilisation instead of singular consumption”. A number of publications resulted from these initial conferences, the most important ones are:

  • 1993: IFG (ed.) Common utilization instead of singular consumption—a new relationship with goods, proceedings of the International Design Forum 1992 Ulm, Germany; Anabas Verlag, Giessen. ISBN 3-87038-252-X. Gemeinsam nutzen statt einzeln verbrauchen; Bericht über das internationale Forum für Gestaltung Ulm 1992, Intendanz Stahel Walter R. und Gomringer, Eugen,
  • 1994: The Utilization-Focused Service Economy: Resource Efficiency and Product-Life Extension, Walter R. Stahel; in: Allenby, Braden R (ed.) The Greening of Industrial Ecosystems, National Academy of Engineering, National Academy Press, Washington DC. pp. 178-190. ISBN 0-309-04937-7.
  • 1997: The functional economy: cultural and organizational change, Walter R. Stahel; in: Richards, Deanna J., The industrial green game, National Academy Press, Washington DC. pp. 91-100. ISBN 0-309-05294-7.
  • 1997: The service economy: ‘wealth without resource consumption’? Walter R. Stahel; in: Philosophical Transactions A of the Royal Society London, (1997), 355, 1309-1319.
  • 1998: From Products to Services: Selling performance instead of goods, Walter R. Stahel; in: The IPTS Report n° 27, September 1998. IPTS, JRC, Seville. IPTS Reports were published in six languages: this article is available as: «De la notion de produits à celle de services: vendre des performances plutôt que des marchandises», «Von Produkten zu Dienstleistungen : Leistung statt Waren anbieten» as well as in Spanish translation.
  • 2001: From “Design for Environment” to “Designing Sustainable Solutions”, Walter R. Stahel; in: Our Fragile World: Challenges and Opportunities for Sustainable Development, pp. 1553-1568, EOLSS Publishers.

Selling performance in the 21st century
When the business model of selling goods as services started to be recognised as a general research topic, new terms were developed, such as “Product-Service-Systems” in the late 1990s, and “servicising” in the first decade of the 21st century. These terms are synonyms for selling goods as services, but often have an ecologic focus and may miss the chances and risks involved in the shift to selling utilisation—which means performance—such as regional job creation, retained ownership of goods and materials and the internalisation of the costs of risk and waste.

From a philosophical point of view, there is nothing really new in this approach:
“True wealth lies in utilisation, not in ownership” had already been stated by Aristotle.

Today, many forms of the business model of buying performance exist in competition with each other, in Business to Business (B2B) as well as Business to Consumer (B2C) markets:

1 buying goods as services at a Point of Service, e.g.

  • renting goods, such as cars, handbags, clothes, tools, computers, mobile phones, apartments, offices,
  • using shared goods, such as washing and drying in a Laundromat instead of buying a washing machine, car sharing, public shared bicycles,

2 sharing public spaces, such as roads and parkings, parks, theatre and concert halls, and sharing public equipment, such as telephone booths (‘payment’ is done indirectly through taxes),

3 buying performance,

  • have your clothes washed to drycleaners, and all forms of textile leasing,
  • use city-bikes, taxis, pay roads, bridges and tunnels,
  • use public transport (railways, airlines, metro, busses),
  • use hotels, B&Bs, instead of renting an apartment,
  • use services available over Internet, smartphones, cloud computing, e-banking.
Buying performance has rapidly—but less visible—developed in the B2B markets, such as:
  • buying customer satisfaction (leasing of photocopiers for a price per copy),
  • power by the hour for jet engines and gas turbines,
  • pay by mileage for lorry tyres.

Buying physical goods as services gives customers flexibility, they can be fashionable (a different good every day) and have zero responsibility for the goods’ maintenance and repair and end-of-life waste costs. The discussion of product quality, warranties, repairability and longevity would be solved intelligently by the producer in order to achieve highest profits.

Manufacturers and fleet managers selling performance instead of selling goods:

  • switch from a throughput to a circular economy, from an industrial to a service economy,
  • switch from a linear production optimization to an asset management culture,
  • retain ownership of the embodied resources, gaining resource security for the future,
  • internalise the costs of risk and of waste and therefore have economic incentives for loss and waste prevention.

The user (formerly consumer) now has no more uncertainties about product quality, warranty periods, repair costs, end-of-life fees.

Green procurement can in many cases be defined as buying performance: U.S. administra-tions (including NASA and the Pentagon) state that their preferred procurement option is buying performance, not hardware.

The business model of selling utilisation and performance—selling goods as services—has started to conquer the markets in many countries. It is hampered by the high costs of (and high taxes on) labour in industrialised countries; a shift to sustainable taxation systems would speed up the transition from an industrial to a service oriented economy in industrialised countries.

The following publications are detailing the development of the concept of selling performance in the 21st century:

  • 2010: Stahel, Walter R., The Performance Economy, 2nd edition, Palgrave MacMillan, UK. Chapter 2 is devoted to the concept of “selling performance”; chapter 1 to “producing performance”; chapter 3 to “maintaining performance over time”, chapter 4 to “sustainability and the Performance Economy”.
  • 2013: Policy for material efficiency—sustainable taxation as a departure from the throwaway society, Walter R. Stahel; in Phil. Trans. R. Soc. A 2013 371, 20110567, published 28 January 2013.