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Ecommerce glossary > Product as a service

Product as a service

What is product as a service?

In the PaaS (product as a service) business model, the outcomes produced by a product are sold, rather than the product itself. Unlike a traditional purchase model, where ownership of the product is transferred, with the product as a service business model, companies may enter into a service contract with their customers.

Here, customers subscribe to the product and pay recurring fees for continued access to its services. Physical products might be accompanied by digital products, such as software to monitor the customer experience and enable predictive maintenance and repair services. Service providers are then responsible for maintaining the quality of the product. 

Product as a service isn’t a new business model, but takes different forms today than it has in the past. For example, in the 1960s, Rolls-Royce implemented PaaS with their “Power by the Hour” model for charging an hourly fee for power from jet engines.

How can the PaaS model strengthen customer relationships?

When offered in a subscription format, the product as a service model provides businesses with a consistent revenue stream, allowing for easier and more accurate forecasting and a steady source of recurring revenue. Due to the recurring nature of subscriptions, businesses can improve customer satisfaction with a more personalized experience, leveraging data analytics to continually hone the customer experience and fortify the big-picture customer relationship.