How the everything-as-a-service economy is changing attitudes towards assets
In May last year, Mary Meeker of Kleiner Perkins relayed at the Code conference that half the world’s population has access to the internet, doubling from just ten years previous. In addition, more smartphones are being purchased than ever before – and the time people spend on them has leapt from 20 minutes in 2008 to 3 hours 20 minutes in 2018. The average time spent using digital media across the globe is now just shy of six hours a day.
So, with 3.5 billion people part of an online community, where 2.2 billion actively use Facebook to stay connected, 170 million listen to their favourite music on Spotify and 125 million watch Netflix each month, what are the causes of mass-adoption and are there any transferable observations to finance and transportation?
One of the major factors driving uptake of subscription services is convenience. Take Spotify, or its closest competitor Apple Music, for example. The former launched in 2008 and provides access to over 40 million tracks. Compared to previously having to purchase music from a record store, whether on vinyl, cassette or CD, streaming music allows consumers to have the world’s largest record store in their pocket and available to listen unlimited for a fixed monthly price. For the price of a single album per month, actually.
In May this year, Wilkinson Sword, the FMCG brand, bought Harry’s for $1.4bn. Harry’s offer a men’s grooming subscription, delivering razors and skincare at regular intervals – and for a cheaper price than incumbent competitors. Wilkinson Sword saw that Harry’s not only supplied well-crafted razors and had a strong business model but that their marketing was resonating successfully amongst younger men. When looking for customers to consistently spend with you, or to maximise retention, having strong brand loyalty is critical.
Car leasing, in the form of personal contract hire, has had a foothold in the consumer market for the best part of three decades. What was once merely a product for large businesses with hefty fleets, car leasing now allows consumers to worry less about buying and maintaining a car and instead shift the hassle to finance companies. This level of convenience proved popular, but customers still felt they wanted more choice when it came to the end of their agreement. Personal contract purchase blended the ease of car leasing with the ‘light at the end of the tunnel’ approach of hire purchase, and now equates for over 80% of new cars sold in the UK.
But what if drivers want even more choice and more convenience than those solutions? Enter the likes of Drover or Wagonex. What these mobility providers offer are effectively short-term leases, packaged as ‘just-add-fuel’ rentals. One of the biggest stresses with car ownership isn’t the purchasing, but the maintaining. By incorporating servicing, road tax, insurance – and even discounted fuel – drivers can subscribe to the car on a rolling month contract, just like the meteoric rise of rolling SIM-only phone contracts.
Further compounding the demand for these services is the rate of innovation with alternatively-fuelled vehicles. Every year the EV market sees another spectacular development – from range, battery longevity to safety and driver convivence technology. Some consumers are hesitant to sign lengthy finance agreements knowing their vehicle will be outdated within a matter of months. Can you imagine an urban twenty-something being content with a five-year old iPhone?
Younger consumers are also far more adaptable in their working arrangements, too. The growth in the gig-economy and remote jobs mean having the freedom to hand back the keys without hassle is not just a luxury, but a prerequisite.
But it’s not just about being able to deliver a convenient service, with choice and freedom front-and-centre. Young consumers are looking for businesses who can offer this through digital-only channels. Take Tesla as an example, who provide an online sales journey, where showrooms are just galleries to view before you buy. Yolt, for instance, combines all your bank statements into a categorised dashboard to help you manage your money. Whilst the subscription services mentioned, such as Spotify, Netflix and Harry’s, are providing on-demand goods and services without the need to own a single asset.