Product as a Service: Sell Access, Not Ownership

‍Karri: Welcome to the Recommerce Podcast, the podcast where we talk all things Recommerce and circular business. Today I’m joined by Tuomo Laine, co-founder and CEO of TwiceCommerce. Welcome.

Tuomo: Thank you, thank you.

Karri: Quick recap about the podcast so far. In the first episode we talked about Recommerce in general and what it is and we kind of jumped into the different business models. In the previous episode we talked all about resales and this time we’re jumping into the product servitization or product as a service model. So yeah, Tuomo, maybe you can start by defining what is product as a service or servitizing products.

Tuomo: Sure, I think product as a service, again a lot of concepts that are related to it but maybe the most simple way to define it is that when you access the product you don’t buy the ownership of it as part of the accessing of the product. So if you instead of buying a car you rent the car. So you rent the concept of the car or you can rent even the concept of a Mercedes or whatever. Similar models leasing or similar where the main gist being that you don’t get the ownership of the car you just get access to it. That’s how to define the idea of servitizing a product. That being said, usually I think there’s things that are connected to it so not only getting access to the product but there might be some additional servitization connected to it. So for example promise of free or cheap repairs or maintenance and these other quality of life services that are attached to the idea.

Karri: So instead of buying a bike, buying the experience or buying access to a bike and potentially other add-on services. So I guess the product as a service can actually be multiple different types of business models or different lengths of purchasing the access.

Tuomo: Yeah definitely, I think there’s different parts that we can go into. There’s variations on the length of the access, for example whether it’s a fixed term access, fixed term rentals—short, long term—or whether it’s a continuation subscription for example. And then there are things like does it include add-ons, does it include for example X amount of maintenance, repair, does it exclude some other additional services that might be digital in nature. So all of these things come into play and from the seller perspective usually they end up making a bit more cash for example on the add-on services that might be non-physical in nature—so digital services with better cross margins. So it’s the quality of life issues that people tend to pay more for.

Karri: Are businesses able to provide these different types or different lengths of service or are they usually focusing on for example short-term rentals or how flexible are these different models or lengths?

Tuomo: I think it’s connected to the kind of root product that you have. If you have an extremely durable good then it can withstand many cycles, many different users. So car rental, bike rental, sports equipment tend to be such that it can go from one user to another. There’s probably no hygienic issues in most of those or at least it’s easy to refurbish the item to be ready for the next user. If you’re renting extremely high-end garments it starts to be a question of the garment quality, how many usages you can actually get out of it. Or if it would be like—someone might have socks as a service. I don’t think that they’re going to wash the socks and then give it to the next person. There it’s likely a subscription, an ongoing subscription that you’re delivered a fresh pair of socks every month and maybe part of the service is that you return the old ones so that you don’t have to do laundry. But then how they use the old socks—I would imagine they recycle the materials or something like that.

Karri: So part of the product as a service can be that it’s kind of selling the ownership or it’s only one user per product but then the company actually takes care of the rest of the life cycle and that can also be for the end consumer kind of purchasing the ability to use socks all the time rather than these exact pairs.

Tuomo: That’s kind of the idea. I think we can go—there’s so many different categories of products that we could go through but that’s the main gist: you’re buying the idea, buying the access, buying the experience of something and then there’s X amount of servitization that is either happening for the storage, on the ownership side, on the other servitization side of things if it’s about consumables. For example, one could say shampoo is a product but then you end up consuming the contents. But maybe the next delivery of the shampoo—you get for example just a refill pack or similar. So there’s—you still have the outer bottle that you keep or something like that.

Karri: Maybe continuing on that—I can come up with some issues already in my head—but what are the main challenges that companies are facing who are offering products as a service?

Tuomo: Yeah, I think I’m not able to provide an all-encompassing list but there’s always the aspect of reverse logistics also included there. If there’s anything that returns to you, you have to figure out how to handle that inflow of goods and/or material. The other one is really establishing some kind of a payment cycle. If it’s a short-term rental, you have to figure out things like risk mitigation. Someone might pay for just a month and never return the item. You can do things with payment processing—tokenizing cards, authorized deposits, after-charges, customer identification, credit scoring—all of these fintech-related tools.

Karri: And how can small businesses tackle this? It sounds like there are a lot of agreements, waivers, technology hurdles.

Tuomo: You’re selling a service—you might have service liabilities. So you need facilitative services. There are software like ours and others that help with the process or specific parts. For example, Twice Payments handles things like deposits out of the box. There are companies that specialize in waivers, others in KYC, etc. You have to take a deep look into your use case and decide what you actually need.

Karri: Is it more expensive to start this type of business than traditional resale?

Tuomo: Not necessarily more expensive, but it might require different financing. For example, if you buy a bike for $3,000 and rent it for $100 per rental, you need 30 rentals to break even. Whereas in sales, you sell it once and profit from the markup. But after break-even, everything is profit in rentals.

Karri: Maybe let’s jump into the opportunities. What are the benefits of this model compared to traditional sales?

Tuomo: The biggest opportunity is meeting actual customer needs. People don’t need a drill, they need a hole in the wall. So if you serve that need directly, the market may be bigger than the product sales market. There’s also better cross margins in services—services help pay your operation.

Karri: It also sounds like a nice opportunity for new entrepreneurs to start with one product and scale as they earn.

Tuomo: Definitely. The average household has thousands of dollars’ worth of unused goods. Monetizing even one of those through rentals could be a great side hustle. The big question becomes: do you use a marketplace or build your own channel?

Karri: If I’m a new entrepreneur, how do I get started? I might have a product niche and know how to service it.

Tuomo: Start with something you know. Know how to fix the item. Acquire inventory. But rule zero: validate demand before building the business. Set up a simple page, take orders, and only then fulfill them.

Karri: What about if I’m an existing retailer wanting to run a pilot program for circular models?

Tuomo: Same thing—you need refurbishing capabilities in-house or via partners. Start small. Pick 1-5 durable products. Try short-term rentals. Trailers are great. You can quickly inspect them. They’re durable. Great gateway product.

Karri: And they’re visible. Branding opportunity.

Tuomo: Yes. If you’re a big box store, leave trailers in your parking lot overnight and you’re advertising while customers are paying for it.

Karri: Final question—if you started a business today, what would your product category be?

Tuomo: AC units. Every summer people are suffering. But they don’t want to own and store them. Rent it out for three months. Store it or repurpose for the rest. You could even sell with a buyback guarantee at the end of the summer.

Karri: Why do it as a service instead of selling them?

Tuomo: Because some people want the relief but don’t want the ownership. Small apartment, no storage. Willing to pay for convenience. That’s the sweet spot.

Karri: Thank you for sparring.

Tuomo: No problem.

Karri: This was super valuable for new entrepreneurs and existing retailers.

Tuomo: Thanks.