In the end of 2016, Ida Auken Member of Parliament (Parliament of Denmark) published a very interesting article suggesting that in 2030 the sense of ownership might have changed drastically.
People would have considerably less tangible products and, partially due to it, would be much happier. Consumption of “products as services” will be the focus.
We are heading towards a world where “Life as a service” might be the new paradigm.
And what does Taylor Swift have to do with it?
Well, 2015 she (already one of the biggest pop stars worldwide) had a public battle against Apple for their online music streaming service. And she won. But what was the main reason for the dispute?
The development of streaming technology and streaming companies such as Apple Music, Spotify have changed the consumption of music. Music is now also a service. Ownership of albums is rapidly disappearing. The financial return from streaming services is amazingly low. And so are revenues from sales of records.
Understanding Life as a Service
The concept of “life as a service” is certainly not new, but it represents a paradigm shift, in which individuals shift their focus from the desire to “own” a product to enjoying the “core value” of a product through a service.
Example: Do you, or anyone in your family, own a drill?
Follow this logic: The price of a drill can vary from €59,00 up to more than €200. In case you are not a professional and purchase it only for small home tasks, how often would you use in one year? Maybe 4 times? And how long does it take to drill a hole on a wall? 5 seconds?
It means you could be paying €150 for a product you will use for 20 seconds in one year.
So why purchase the product when you can benefit from its core value (drilling a hole on the wall) by simply renting it?
If you apply this same logic to other products, ownership can easily become an obsolete idea. And music products are also included, especially albums.
Examples of Factors Influencing The Paradigm Shift
- Value for Money
- The price of renting or benefiting from the core value of a product through rental is clearly lower than through ownership. Simply said, a “Premium” account on Netflix costs €11,99 per month. This can represent the price of ONE (1!) new album release on iTunes. And with this amount, one can watch an incredible amount of film content in as many as 4 different devices.
- Plus, life as a service simply removes additional costs involved with ownership. These may include repairing, insurances or simply getting rid of the product.
- With globalization, technological development in communication and transportation, global mobility in 2016 has reached a historical high. Moving cities and countries has become increasingly common. Especially among millennials. Life as a service facilitates the process of moving from a destination and certainly also eases the settling process in a new city.
- Technology Innovation
- The digitization of tangible products (e.g. books, records, magazines, newspapers, and much more) and the development of mobile innovative products with incredible storage capacity (e.g. tablets and smartphones) have facilitated the consumption of digital services.
- Generational Shift
- Share/Collaborative Economy
- The popularization of the new business model in which individuals can rent products from others and where everyone can also become a service provider (and the high acceptance of new businesses such as Airbnb and Uber), has deeply impacted consumers’ perception towards ownership.
The Case of The Music Industry
Music streaming is the strongest example of the paradigm shift within the music industry. Facing this behavioral change from consumers, record stores have closed, merchandise sales have decreased and the industry faced immense challenge to generate new revenue streams.
And the most promising new possibilities of revenue streams for musicians, such as virtual reality experience or online broadcasting of music events (Instead of purchasing DVDs, for example), only reinforce the new path that the industry will face. There are already a number of companies specializing in such services:
Live Concerts: One great example is Live List, where one can watch performances live worldwide. Although still not extremely popular and certainly not a replacement of the live experience, live streaming of concerts have grown immensely in the last five years and are expected to keep its steady development pattern. Consequently, the DVD market has died.
Implications of Life as a Service
As always when discussing ownership, the implications are two-fold: the consumer side and the industry side.
Consumer: The positives certainly surpasses the negative aspects. Price advantage, cost reduction, much greater offer and product differentiation are simply some examples of the benefits that life as a service brings. And all of these apply to the music industry.
Industry: It is also two-fold: every revolution creates opportunities. New companies of online services have emerged and quickly have become strong global players. On the other hand, is has also reduced drastically sales of tangible products, weakening established industry players (Does anyone even remember Blockbuster, the famous movie rental chain?).
And there is very little sign that this paradigm shift will change. Yes, revenues from vinyls, for example, have increased but it only addresses a specific niche of consumers. A completely new streaming sector has been created and has shaken various industries (including, of course, the music sector), as discussed below by the Financial Times:
The “Life as a Service” paradigm will certainly impact many other industries very soon. Self-driving cars will change the way we perceive ownership of cars, the housing market is already being challenged, share economies are affecting hotels and many more changes will happen.
Markets are dynamic and in constant modification. As the “Theory of Evolution” from Darwin praises, only the ones with the greatest capacity to adapt to an environment in constant change are able to survive.
The key points, in my view, that will dictate the power battle are:
- The capacity to foresee and react to industry changes, and;
- The agility to benefit from the opportunities that will arise.
Otherwise companies will be caught by surprise, just like Taylor Swift and the music industry was.