Digital disruption is often illustrated to us through the dramatic stories of startups taking on the giants. But a quieter but more profound change is happening: the shift from owning products to subscribing to services. This change, driven by digital platforms, is redefining business models by applying the economics of digital goods to physical products.
Platforms are driving this change by exploiting the characteristics of information goods which have high upfront costs but low reproduction costs. As researchers highlight, digitalization allows manufacturers to switch from selling products to offer data-driven services (Kowalkowski et al., 2022). We can see this in the automotive industry where companies such as BMW are now offering monthly subscriptions to unlock features like heated seats and automatic high-beam headlights (Levin, 2023). In doing so, the car becomes a platform that generates revenue beyond the initial sale and not just a product.
This shows a powerful form of digital disruption that changes how value is created and delivered. The move to service-based models allows companies to build continuous relationships with their customers, creating stable revenue streams through what is essentially a rental economy (Kindström & Kowalkowski, 2015). This goes beyond cars to everyday items. For example, Signify (formerly Philips Lighting) offers a Light-as-a-Service (LaaS) model where businesses pay for high-quality illumination and lighting services rather than the products themselves. This service includes design, installation, maintenance, upgrades and even replacement of lighting systems, with Signify owning and responsible for the equipment’s lifecycle (Signify, n.d.).
In my opinion, this subscription model has both advantages and drawbacks. While it offers lower upfront costs and continuous updates for consumers, it raises important questions about long-term expenses, repair rights, and consumer autonomy. Are we creating a future where we truly own nothing? The sustainability of this model will depend on whether companies prioritize transparent pricing and fair consumer practices over locking users into perpetual payments.
What has been your experience with subscription services for physical products? Have you found the convenience worth the potential trade-offs?
References:
Kindström, D., & Kowalkowski, C. (2015). Service-driven business model innovation: Organizing the shift from a product-based to a service-centric business model. In N. Foss & T. Saebi (Eds.), Business model innovation: The organizational dimension. Oxford University Press.
Kowalkowski, C., Tronvoll, B., Sörhammar, D., & Sklyar, A. (2022). Digital servitization: How data-driven services drive transformation.
Levin, T. (2023, October 20). Car companies want to make billions by charging monthly fees for features like heated seats, but buyers won’t pay up. Business Insider. https://www.businessinsider.com/car-feature-subscriptions-add-ons-bmw-ford-toyota-gm-2022-2
Signify. (n.d.). Light as a service. Signify. https://www.signify.com/global/signify-services/managed-services/light-as-a-service
Really good read, that made me think some more about consumer autonomy.
I also recognize this shift happening in my day-to-day life. I think the subscription model can make sense in some cases, for example when there are continuous updates for consumers, like Netflix, Disney+, and Spotify keeping their catalogues updated with the newest movies, shows, and songs.
But in my opinion, the majority of these subscription models aren’t driven by necessity. Instead, they are often used by corporations to squeeze as much money as possible out of consumers. What worries me even more is the loss of consumer autonomy. This shift to subscription models in combination with the digitalization of goods is a threat to ownership.
I see this too in my personal life, most of the games that I buy are no longer physical but digital, where my access to the game can be revoked at any time, I have no ownership over these games that I buy through Steam, I’m essentially just licensing it.