The end of ownership is near! Are you optimally prepared?

Published: April 17, 2019

Once upon a time: “My house, my company car, my boat, ...”

But the time in which we defined ourselves and our work exclusively through material possessions seems to be over. Status symbols are becoming less and less important, especially for the younger generation of well-educated millennials. It's clear that anyone who grew up with Netflix, Amazon Prime Video and Spotify, or at least was an early adopter, can't imagine why you should buy CDs, DVDs and Blue-Rays for a lot of money, even though they are hardly used anyway.

And talk of the "end of ownership" is already doing the rounds. No wonder, experts see disruptive changes coming to almost all industries. The sharing economy, service-dominated logic or simply "using instead of owning" are the magic words. Call it what you will - the enormous growth of on-demand models shows where the journey is heading.

This is also proven by figures from the management consultancy PricewaterhouseCoopers (PwC), which has forecast further growth in the share economy market volume by 5.3 percent to EUR 24.1 billion for the past year 2018.

The trend is clearly towards the subscription model

Ever since the latest Apple keynote, it has been clear that one of the world's most valuable companies has not only recognized the sharing trend, but is also helping to fuel it. "But we have also developed world-class services - and that's what it's all about today." So said CEO Tim Cook, finally heralding the transition from "product company" to "service company".

This step is only consistent and logical. Because what consumers want today is to consume and not own.

Over the past 10 to 15 years, Apple has created a service universe in which hardware is no longer the core product, but merely a means to an end. At the same time, subscriptions to services such as the recently introduced Apple TV+, the News+ newspaper flat rate and the Apple Arcade video game service give consumers the opportunity to satisfy their needs flexibly and cost-effectively.

The success of video-on-demand platforms such as Netflix, Amazon Prime Video and Co. also proves the growth of the subscription economy. Netflix alone saw an increase in user numbers from around 25 million to a good 145 million between 2012 and the end of 2018.

Only those who rethink survive

Even automotive groups like Volkswagen, which are among the more cumbersome dinosaurs of the German economy, have recognized this. As Tienz Tzou emphasizes, Volkswagen knows full well that it will no longer be selling cars in ten years. After all, a large part of its turnover already comes from leasing contracts. Furthermore, they are already testing pay-as-you-go concepts that allow the use of VW vehicles for 3, 6 or 12 months.

That's quite an expensive pleasure when you consider that an average vehicle costs its owner 5,000 – 6,000 euros per year. A favorable car-sharing model is therefore more logical for most users who have a need for mobility.

Or another example: Do you have a garden shredder, a high-quality hammer drill or something similar? Hand on heart: Do you use these devices on a weekly basis so that the purchase price of several hundred euros is worthwhile? You can see what it boils down to ...

Digitization makes it possible to share products and thus satisfy needs cost-effectively through new service models. In addition, the younger generation practices a special form of selective minimalism based on the bestseller author Marie Kondo. Ownership is therefore limited to the things that are really important or have a high emotional value. So it's quality over quantity.

What drives change

The biggest driver behind the change is digitalization, without which subscription models would hardly be attractive to this extent. Subscription economy expert Tienz Tzou argues, among other things, in his new book “The Subscription Economy” that digitization will trigger a renaissance of the subscription age. According to Tzou, these will not be limited to easily digitized goods, but will also spread to other industries such as automotive engineering.

Consume instead of own. Many millennials in particular have exactly this need. And, thought through consequently, this minimalism, only renting or leasing things when needed instead of buying them, is also completely rational. This applies above all to expensive goods that are not used regularly to an extent that would make a purchase worthwhile. Private vehicles, for example, are left unused in the parking lot for an average of around 92 – 95 percent of the day.

However, companies not only have new market opportunities, but can also participate in the sharing economy themselves and thus benefit from cost advantages. While the leasing of company cars is already commonplace, the principle can easily be extended to other areas. For example, leasing or renting or leasing high-quality office equipment according to the asset-light principle.

Sharing economy - a concept with advantages and disadvantages

One of the major problems of companies that sell high-quality, non-consumable products is precisely their quality. This is a real paradox, which some companies suspiciously counter with planned obsolescence in order to stabilize sales. In contrast, the subscription model of the sharing economy promises more stable sales in the long term.

However, the model brings in little money, especially at the beginning. This is not appealing to investors, nor does it leave much room for larger investments from the equity generated in this way.

For consumers, on the other hand, subscription models are particularly attractive for goods that are used only a few times and have a high price compared to the benefit or duration of use.

Be it cars that are only moved for a few minutes a day on average, the Blue-Ray that is only watched once and then never again or the 300-euro hammer drill that is allowed to drill three holes a year. However, the concept makes little sense for frequently used and low-priced goods.

Here, sharing models are uneconomical from a cost perspective, restrict individual freedom and increase transaction costs. This applies both to end consumers and to companies that want to benefit from asset-light measures. The subscription or sharing economy is also problematic due to its currency: data.

This applies both to consumers, who have to release more and more data, and to companies, which have a duty to adequately protect it. Not to mention the necessity and costs of comprehensive big data analyses to predict customer wishes. On the other hand, the environment fully benefits from „selective” wealth minimalism.

Less is more

While we, as consumers and companies, create new value chains together, thereby conserving resources and avoiding emissions, we do not forfeit any prosperity, contrary to some dreamy ascetic models.

Now it's your turn! Both as a private consumer á la Marie Kondo, and in your role as a responsible manager in the office, to make your company fit for the subscription economy.

Because one thing is certain: it will happen whether you adapt or not. To freely quote Erich Honecker: "The subscription economy in its course, can neither be stopped by ox nor donkey!".

Stavros Papadopoulos

This article is written by Stavros Papadopoulos, founder and managing director of Lendis. Through his work at the Boston Consulting Group, he quickly recognized the enormous potential for optimization offered by the digitalization of workplace management. With Lendis, his goal is to radically simplify the entire lifecycle management of IT equipment. In this magazine, he shares insights on corporate finance and cash flow management.