The way the majority of the world’s economy works is ‘linear’. We take materials out of the earth, make them into marketable goods that we consume, and dispose of the goods when we’re done with them. It’s a system that accelerated since the onset of the Industrial Revolution, when there was an abundance of cheap and easily accessible natural resources. Mass production made a lot of sense at the time and has since arguably raised our standards of living exponentially.
Fast-forward 250 years and the earth’s resources are being depleted a lot faster than they can be replenished. We’re using 30 percent more resources than the earth can restore each year and a report from McKinsey predicts that 3 billion new consumers will enter the market from emerging economies in the next 30 years. We are coming to the end of an era of cheap oil and materials, and simply using less is no longer enough.
The idea of a performance-based circular economy is being touted as a way to rediscover progress in the 21st century whilst restoring our ecosystem. In this type of economy, a company’s growth no longer depends on the use of these natural resources. Instead, it is achieved through the use of disruptive technology and business models that are based on more efficient use of resources through longevity, renewability, capacity sharing, and dematerialisation. The circular economy represents huge opportunities for companies to innovate their business models, products and services from the bottom up to create more value.
Part of the solution may lie in us moving away from owning stuff. What if we didn’t buy the goods themselves, but rather the service? What if we chose access and performance over ownership? The thought of moving away from owning things might seem a bit weird and discomforting. Then again, so was the idea of renting out a spare room to a stranger 10 years ago. Today, this then-radical idea has been normalised through Airbnb, a now $25-billion company.
In this new paradigm, manufacturers and retailers would remain the owners of the product, with maintenance and repair becoming part of the deal. For instance, instead of buying lights for your apartment you would buy lighting as a service, enabling you to be worry-free from maintenance and keep up with the latest technology for energy efficiency. With the manufacturers being fully responsible for the upkeep of the products, their incentives are now more aligned with where they should be, creating and maintaining products for optimal performance. Premature obsolescence of products will be phased out, as opposed to purposefully designed in.
It sounds utopian, but many companies are already putting this into practice. Here are three examples from very different products that we use in our everyday lives:
- Vodafone is one of the first brands in the telecom industry to capture the benefits of the ‘access over ownership’ business model. The company rolled out its ‘Red Hot’ plan in 2013, which allows users to rent the latest available phone for a year and continually exchange it for the latest models. This enables Vodafone to retain ownership of the mobile phones in circulation, including the precious minerals that are subject to high price volatility, reusing the recollected old units as seen fit. This kind of service-based model is also highly conducive to creating deeper and longer lasting relationships with Vodafone’s customers.
- Rent the Runway is a New York-based company that has pioneered a lease model in the fashion industry. The company has created a service where its users can lease expensive designer pieces for a fraction of the exuberant retail prices. It employs a reverse logistics model to dispatch and collect the designer garments, focussing on making the user experience of leasing as easy and enjoyable as possible. The New York Times has described the brand as a ‘Netflix model for haute couture,’ which has effectively democratised an industry that was previously inaccessible for many women.
- Desso is a Dutch carpet manufacturer that has been applying the Cradle to Cradle methodology since 2008 by designing its carpets and flooring so that at the end of their useful life they can be effectively recollected, disassembled and recycled. An integral part of this model is through offering carpeting and flooring as a service instead of a good. Through this business model, the company successfully increased its market share (from 15 percent in 2007 to 23 percent) and whilst increasing its profit margin per carpet handsomely from 1 percent to 7 percent (Ellen MacArthur Foundation, 2012, p.28).
These business models are just a handful of examples of how brands are finding new ways to scale up their businesses without straining the world’s increasingly scarce resources. We’re also gradually seeing the emergence of a different type of consumer, who is interested in different ownership and business models such as the hipper disruptive innovators Airbnb, Uber and Spotify. These consumers are prioritising experience and performance over possession. We’re starting to see that services and not goods are helping to redefine the relationship between things and people.
One major challenge with this is that we have been born and raised into a world where we often perceive that what has been used is not good enough. The need for personal ownership is deeply ingrained in most of us. Changing this kind of mindset and culture is difficult and a process that might take decades. It really depends on whether as consumers we’re seeking the benefit obtained from the good as opposed to the benefit obtained from the actual ownership of the good. Shifting to access based models presents a world of opportunity to businesses and individuals, and it seems like the shift is already well underway. Perhaps it’s not a new idea, but one whose time has come.