The Leased Life

Why own anything?

A version of this article was originally published January 24, 2010 in The Boston Globe

In June 2008, when Punsri Abeywickrema was working on his backyard in San Mateo, Calif., he found himself in need of a wheelbarrow. He didn’t own one, but his neighbor did, and he had borrowed it the previous weekend; due to space constraints, he preferred not to buy one himself. Yet he hesitated to impose on the neighbor again.

He ended up renting a wheelbarrow from a store. But then he wondered, what if he had instead offered to pay his neighbor a small fee to borrow the wheelbarrow? Abeywickrema would have fulfilled his need without acquiring a cumbersome object or feeling like a freeloader. The neighbor, meanwhile, could have reaped a modest windfall. This thought led to an inspiration – wouldn’t it be great if a whole network of residents in his area could conduct similar transactions, with locals they didn’t even know yet?

Thus was born Like so many other websites, it connects mutual beneficiaries – in this case, people who own things they don’t use much with people who want to use things without owning them. Members can post either belongings they have to offer or goods they are hoping to find. Items recently listed include a body fat scale ($5 a week), a bread maker ($1.75 a day), and a cupcake transporter ($3 a week). The site was launched last October with limited membership, and opened to the public earlier this month.

Rentalic is an example of what is sometimes called (rather awkwardly) a “product service system.” The essential insight is that in many purchases, we don’t want the thing per se – we want what it can do for us. You don’t crave a lawn mower, you want shorter grass; the desire is not for a refrigerator but for cold, unspoiled milk. And according to an emerging line of thinking, there are great benefits in meeting the customer’s needs in creative ways that don’t necessarily entail ownership.

The concept has long been familiar in certain sectors – if you’ve rented a car, joined a gym, or registered at Netflix, you’ve taken part in a product service system. But now, advocates hope to expand the principle to many other contexts where owning is currently the norm. If these systems were to catch on, we would rent, borrow, or lease a variety of things, ranging from tools to textbooks to snow blowers, from individual owners or from companies with revamped business models. Other firms, while continuing to sell their products, would address customers’ underlying needs more directly – selling warmth or “comfort services,” for instance, rather than oil or gas – which would presumably lead to enhanced efficiency.

In addition to Rentalic, a flurry of similar websites has recently cropped up, facilitating lending and renting within communities. Leasing has become increasingly common from one business to another, and several local governments are exploring bike-sharing initiatives. And in academic and policy circles, some analysts are studying whether businesses can shift on a large scale to offering services instead of trying to sell as much of their products as possible.

The prospect of such a change is intriguing. Not only could it mean more savings and less accumulation of stuff for the relatively wealthy; for poorer people, especially in developing countries, it could mean access to goods that would be otherwise unattainable. The other major promise is environmental. Under the current ownership ethos, manufacturers face perverse incentives: If their wares last a long time, they undermine their future marketing opportunities. But if a company retains ownership itself, the argument goes, it will be motivated to make products that are truly durable – or easy to upgrade or recycle into new ones. And if a single product serves multiple users, fewer goods would need to be manufactured and ultimately discarded. All of this would mean diminished resource extraction from the earth and less trash dumped into landfills.

“People have this mindset that being green is expensive,” says Abeywickrema, the Rentalic founder. “Electric cars and solar panels are not accessible to the majority of people. People don’t realize that reusing and sharing can really help the environment as well as helping people. If lots of people in society adapt to this kind of thing, where we share with each other, we could make a big difference in the environment very fast.”

That said, product service systems are not necessarily greener – for instance, if they involve a lot of travel for delivery, the net impact could be environmentally negative. Likewise, renting doesn’t always make financial sense; if you rent something enough times, of course, you’ll exceed the cost of buying it. To be viable and sustainable, these systems must be carefully crafted to add value for customers and to avoid environmental pitfalls.

But the biggest challenge may be cultural. Americans are accustomed to having many possessions – it is a sign of status and identity, and we take the convenience of constant access for granted. In the United States, notes Michael Braungart, one of the concept’s pioneers, “You don’t want to use something that someone else used before.”

Proponents of this idea tap into a longer line of alternative thinking about consumption: Environmentalists have always promoted reuse and deplored waste. But in the 1990s, Braungart, a German chemist, and William McDonough, an American architect, began to write more specifically about relevant business strategies. Though we tend to use the word “consumption” to refer to all purchases, Braungart and McDonough drew a distinction between “consumables” and “products of service.” Items in the former category – tomatoes, Chapstick – are used up by their owners; they are indeed consumed. The second category, though, consists of products that endure – cars, refrigerators, vacuum cleaners – and we buy them for the results they provide (transportation, preserved food, floors free of dust bunnies).

These products of service, they argued, should be leased by the manufacturers, who would ultimately recover them, and then either reuse or recycle them. This model would give companies more incentive to make high-quality goods and to minimize undesirable elements such as chemicals. Other ecological thinkers, such as Paul Hawken and Amory Lovins, latched onto this notion and developed it.

Around the same time, a business case for services was also emerging. In the early 1990s, management literature began to urge companies to incorporate services into their business plans. In part, since goods have become so easy to produce, services constitute a means of distinguishing a firm from its competitors. What’s more, services offer a more stable cash flow, because they are less susceptible to swings in the economy, and they often have higher profit margins. They also allow companies to cultivate stronger ties with customers.

“The whole idea is that providing a service, I will develop a relationship with you,” says Rogelio Oliva, a business professor at Texas A & M University. “If I have an ongoing relationship with you, I have a better understanding of your needs.”

In the past few years, several factors have converged to advance the idea of product service systems. Concern about the planet has risen, as the business world has continued to gravitate toward services. More recently, in the economic downturn, renting and borrowing have gained new currency.

The UN Environment Programme has begun to promote product service systems. It advocates government support, for example by using tax policy to favor services. Green blogs such as Treehugger and Worldchanging have enthusiastically embraced the concept, championing various examples of it. And some academics and designers are starting to think about ramifications for product design. A Swedish university, the Blekinge Institute of Technology, will launch a master’s program in Sustainable Product-Service System Innovation this fall.

So far, businesses have been especially receptive to leasing from other businesses, in so-called b-to-b transactions. GE leases medical equipment, Xerox leases machines, and Rolls Royce leases turbines, all to other companies. Businesses may be less attached to ownership than individuals are; indeed, lower capital investments are preferable, because they lead to higher return on assets, a metric of profitability.

Another variation of this idea does not renounce selling products, but redefines business goals so that selling more is not necessarily better. In a 2007 article in the MIT Sloan Management Review, “Sustainability through Servicizing,” Sandra Rothenberg, a business professor at the Rochester Institute of Technology, described several companies that helped their customers reduce consumption. For example, Gage, a chemical supplier, was working with Chrysler Corp. Gage assumed a role in making sure its materials were used correctly and efficiently, leading to a lower quantity of cleaning solvents sold. There are various ways to work out such arrangements. The two parties might decide on a flat fee for a given service, which gives the supplier incentive to maximize efficiency. Or they can resolve to cut consumption as much as possible, and split the savings between them.

“In my research on sustainability, I realized that there’s no way we can get there without dealing with consumption,” says Rothenberg. “Most theories don’t really adequately address this issue of consumption. They make technologies greener, but they don’t say, OK, let’s help you not buy this in the future.”

But there are limits to the approach. One of the most celebrated examples, a leasing service offered by the carpet company Interface, is, on closer inspection, in fact a cautionary tale. In the mid-1990s, the company’s CEO launched this service as part of a larger sustainability program. Recognizing his company’s large environmental footprint, he hoped to lease carpets to other companies, then reclaim the materials and turn them into new carpets. Interface framed the option as “floorcovering services,” including upkeep. But, while many customers were intrigued, they would almost always back out at the last moment, opting to buy instead. According to professor Oliva, who conducted a case study of the program for Harvard Business School, the business model simply didn’t make sense. It was cheaper for companies to buy the carpets and hire their local cleaning crews, who charged less for maintenance. And the companies were reluctant to commit to a contract that would curtail their options for the duration of the lease.

Oliva says, “The first question you have to ask when making this transition is: Is there a business model there? Can I make money?”

What about individual consumers, or “b-to-c” transactions? The Cambridge-based company Zipcar is a perfect example of a product service system that appeals to customers for economic, environmental, and lifestyle reasons. Members pay a small annual fee, guaranteeing them access to cars in their cities. They pay an additional hourly rate when using the cars. This arrangement attracts many urban, environmentally conscious residents who don’t want the hassle or carbon emissions of owning a car, but do want automobile access for an occasional day trip or shopping excursion. Other businesses have begun renting designer clothes and handbags – think of Jennifer Hudson’s character in the “Sex and the City” movie.

This idea has gained more traction in Europe than here. Braungart has worked with several companies in Europe to recast products such as windows and chairs as services. In the near future, he says, even shoes will be marketed this way. (In his version of the idea, companies would recycle their products rather than rent them out again – so from the customer’s perspective it’s not so different from owning for a defined period.) To the uninitiated, the terminology he uses can sound a little like a spoof. “You’re no longer selling the window, you’re selling the service of insulation and looking through,” he says. “You’re no longer selling a chair, you’re selling sitting insurance.” Within a couple of years, he promises, “We will have shoes on the market where you sell two years of feet transportation insurance.”

Then there’s the more DIY trend of individuals renting and lending to other individuals. Along with Rentalic, new websites devoted to this purpose include GoGoVerde, Neighborrow, Bright Neighbor, Wecommune, and NeighborGoods. Users are sharing books, DVDs, gadgets, and appliances, from mundane necessities to quirky curiosities.

Janelle Orsi, coauthor (with Emily Doskow) of the recent book “The Sharing Solution,” calls the websites “some of the best evidence that there’s a groundswell that people are interested in sharing. One of the barriers is the hassle of having to find somebody. We all love convenience. These websites are making it so easy and even giving financial incentives.”

The massive number of products made and thrown away has long posed environmental problems. But economists have warned that consumption is essential to prosperity. This new approach could offer an innovative way to resolve that conflict. Spending would still occur, but fewer physical resources would be required to meet the same needs.

Our economy has already shifted dramatically over the past few decades toward the service sector. This happened mostly thanks to forces in the global economy – specifically the availability of cheap manufacturing labor abroad. But once the change was well underway, Oliva says, business and academia began to observe the advantages of offering services. Increased “servicization” could represent the next logical step in this direction.

“If we can get people and companies more focused on usership rather than ownership, we’d be able to extend the life of a lot of products,” says Stephen W. Brown, executive director of the Center for Services Leadership at Arizona State University. “More and more consumers are going to realize that that’s what’s really important.”

Source: The Boston Globe

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