Goods as a Service, that déjà vu feeling

Dec 6, 2013

I had one of those milestone birthdays this year and inevitably this leads you to try and focus on the advantages of having been around for a while. Whilst it may be somewhat disconcerting to see items from your childhood in the Science Museum (e.g. Stylophones, Sinclair Computers, etc) there are advantages such as the frequency of that déjà vu experience, whether it’s seeing retro bags (satchels) on the high street, or the renewed interest of teenagers in vinyl (records, that is).

In our sector, of course, there is the full cycle from mainframe, to PC-based software, and back to mainframe (sorry Cloud).

A trend which appears to be (re)gaining traction, albeit embryonically is that of “Goods as a Service” – not software but those tangible goods. Initially this has been for low ticket consumables such as razors, foods, vitamins, etc., and I’ll revisit these habitual purchases in a later posting. However, it is becoming clear that marketers are rethinking the traditional cash or credit based model as a means of distributing other hard goods. And for those of us with greying hair, this is nothing new.

I grew up in a house where the idea of owning a TV was a somewhat silly notion. This was a luxury item. A Sony 19 inch set cost approximately £172.00 in 1970. That was roughly 9.5% of the average wage of £1,801. Therefore you would rent your TV from Radio Rentals or Rumbelows, and in fact I recall my parents going into the shop with the green rent book.

Of course the other huge advantage of this model was that when there was an innovative leap in technology (Stereo J) you could swap out your TV for the latest and greatest – check out this 1980s advert for “FST” from Radio Rentals featuring Max Headroom.

Similarly, you could add other items such as a VCR (that’s a TiVo box to you younger folk) to your monthly rent book. When these came out in 1972 they were £600 – an even higher percentage of average earnings. No wonder adoption at first was very slow.

It is my belief that these barriers to purchase are now re-emerging. I recently looked at one of the latest HD, LED, TVs with mandatory sub-woofers etc., and the headline ticket price was £2,500 which is coincidentally 9.4% of average UK earnings in 2012, more or less the same as in 1970.

Of course the initial answer to this has been a very loose consumer credit environment, but this not only excludes a proportion of the market but creates a further barrier given the rapid acceleration of product cycles. How many of us have bought what we thought was the latest and greatest product at the point of purchase, only to find it being classified as legacy less than 18 months later? All the more painful if you haven’t finished paying for it yet.

Moreover household consumer debt is stalling at a very high level as average earnings fail to keep up with inflation. Therefore the barrier to large ticket purchases needs to be brought down. This is the norm in automotive, but I believe can become the norm across many other larger ticket goods too.

Of course mobile communications providers have been at the forefront of this model. You have to wonder whether the proliferation of iPhones at £600 a pop would have been possible without the MNO’s willingness to bundle hardware with service. Perhaps it’s now time that this model was proliferated beyond what’s in our inside pocket?

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