Mindsets are changing as they relate to the true value of ownership, so it’s no surprise we’re seeing traditional ownership models evolve into usage-based models in the consumer space. Think about Airbnb, Uber, and Spotify—these businesses shifted the hospitality, transportation, and music industries, respectively, by allowing users to pay for how much they use while providing a simplified customer experience. As we’ve seen in the past, human and consumer behavior is typically a catalyst for new business behavior.
For many years, businesses bought equipment as needed, with the goal of maximizing value, or said differently, achieving the lowest possible total cost of ownership (TCO). Even when leasing and financing options were introduced, optimizing cost remained the primary goal for many businesses. However, the usage economy is based on a different set of motivations and principles that more closely resembles the consumer space, where the emphasis is on outcome and flexibility. More and more people and businesses are using and not buying. Here’s why.
Where Are We in the Innovation Adoption Curve?
The adoption bell curve describes how one reacts to and accepts innovations. There are five types of people with different motivations when adopting new technologies: innovators, early adopters, early majority, late majority, and laggards.1 Laggards are the people who feel comfortable with the state of their existing processes and lack the motivation to see how new technology could benefit business. In the digital transformation era, resisting change is equivalent to falling behind.
Blockbuster is an oft cited example of how innovation delay can lead to ultimate failure. As the story goes, Blockbuster’s brick-and-mortar, weekly movie rentals model quickly fell out of favor to Netflix and its original video-by-mail business concept. Consumers saw Blockbuster as inconvenient and offering less variety for users. Blockbuster even turned down the opportunity to buy Netflix in 2000.2 In this scenario, Netflix was an innovator in the technology-driven, service-based adoption curve, offering a subscription-based, Pay-per-use model. As a laggard, Blockbuster resisted change, missed its moment to adapt to society’s modern preferences, and… you know the rest.
Innovators and early adopters recognize the need for change within their space and act on it with little hesitation around new ideas. For them, trying is learning by doing, and they are willing to fail if it means learning something that could result in a dramatic, positive change. At the end of the day, new ideas are some of the greatest ideas, and they drive innovation within their industries.
As an asset finance company, DLL is seeking new ways to support our clients who prioritize the value of outcomes and flexibility. Pay-per-use is an innovative asset utilization option for businesses who are willing to venture out of the norm to optimize the way business is conducted. Pay-per-use structures allow organizations to realize the next horizon of equipment use and management while sharing the risk.
What’s Driving Usage in Your Industry?
Usage-based payment models are growing in popularity in the B2B space, especially in industries with outcome-driven assets. When you own equipment, you carry the responsibility of service, maintenance and depreciation, and this is all true even when those assets are not in use. Asset utilization models shift the burden of ownership, enabling businesses to pay as the asset performs a job and drives business outcomes. Here are some industry-specific situations:
- Transportation: Pay for vehicles based on their intended use. This could be by time or distance traveled, consumption, output, or a combination of these. If you’re a seasonal business, Pay-per-use structures can help you avoid costs when you are not using the assets or generating revenue.
- Construction: Construction requires a variety of heavy equipment to ensure the job is done correctly and on schedule. Assets on usage-based models paid per mile, hour, ton, or lift can benefit from the improved alignment of revenue generation.
- Healthcare: Certain medical devices are costly and sometimes infrequently used. Healthcare providers can benefit from matching usage costs for equipment with patient or procedure revenues and potentially share equipment with other providers, saving money while still offering the resources to patients.
The Frontier of Change
Businesses are comprised of consumers—the very same people who likely once made the decision to subscribe to Netflix and Spotify for the convenience, variety, and value Blockbuster and record stores couldn’t provide. Consumers are evolving, favoring pay-as-you-go models, and businesses are following for the same reasons.
DLL is a leading enabler of Pay-per-use solutions for businesses with outcome-driven assets. We see an innovative future for B2B assets and are driving the servitization revolution. Ready to chat about your unique business needs? Contact DLL’s Pay-per-use team. Pay-per-use is available in Canada, United Kingdom and United States as of published date.
Sources:
- Rodgers, M. (1962) DIFFUSION OF INNOVATIONS. (3) The Free Press
- Fact Check: Did Blockbuster Turn Down Chance to Buy Netflix for $50 Million (newsweek.com)
