Real Estate-as-a-Service -
A Product-Service System Within the
Commercial Office Real Estate Industry?
Author: Nadine Nugter Student number: 11203544
Date: 29-06-2018 – FINAL VERSION (1.0)
Qualification: Executive Programme in Management Studies (Bedrijfskunde in Deeltijd)
Track: Strategy & Organization
Institution: University of Amsterdam- Business School Supervisor: Prof. Dr. Ed Peelen
Statement of Originality
This document is written by Student Nadine Nugter who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
“Commitment is important for marriage. Not so much for renting office space.”
PREFACE
With great pleasure I hereby present my Master Thesis about Real Estate as-a-Service. Since Real Estate-as-a-Service appeared to be a hot topic within my field of work and it got a lot of attention, it was fun to work on. I got very much inspired by the concept and I am definitely going to use the insights of my study within my future career in the real estate industry. During the research I have met a lot of people from the field and was able to talk about their business model. I am very grateful for their time and their willingness to share their insights. I am also grateful for the support of my family and friends, who sometimes got less attention than I ‘d like to, and especially my boyfriend, who sometimes had to suffer from my mood swings (sometimes writing your thesis sucks). My special thanks go to my supervisor, Prof. Dr. Ed Peelen, who got me on the right track during the whole process of writing the thesis.
This Master Thesis is the cherry on top of 2,5 years of hard work for the Executive Programme in Management Studies!
TABLE OF CONTENTS
ABSTRACT 7 1 INTRODUCTION 8 1.1 Research gap 11 1.2 Research question 13 1.3 Research objectives 13 1.4 Academic relevance 14 1.5 Thesis structure 14 2 LITERATURE REVIEW 162.1 Definition Product-Service System 16
2.1.1 Definition Real Estate-as–a–Service 17
2.2 Business model (innovation) 17
2.3 PSS Strategies 19 2.4 Drivers of PSS 20 2.5 PSS Tactics 21 2.5.1 Contracts 22 2.5.2 Marketing 24 2.5.3 Network 25
2.5.4 Product and service design 27
2.5.5 Sustainability 27 2.6 Benefits 28 2.7 Barriers 30 2.8 Research gap 31 3 THEORETICAL FRAMEWORK 32 4 RESEARCH METHODS 34 4.1 Research purpose 34 4.2 Research approach 34 4.3 Type of research 35 4.4 Research strategy 35 4.5 Research methods 36 4.6 Collecting data 36 4.7 Sample size 37 4.8 Data analysis 37 5 RESULTS 38 5.1 Concept map 38
5.2 Type of providers and drivers of the business model 40
5.2.2 Owners 44
5.3 Tactics 45
5.3.1 Contracts 46
5.3.2 Marketing 49
5.3.3 Network 51
5.3.4 Product & Service design 53
5.3.5 Sustainability 54
5.3.6 Additional tactic 57
6 Conclusion & Discussion 59
6.1 Conclusion 59
6.1.1 Contracts 61
6.1.2 Marketing 62
6.1.3 Network 62
6.1.4 Product & service design 62
6.1.5 Sustainability 63
6.2 Discussion 63
6.2.1 Theoretical implications 63
6.2.2 Managerial implications 65
6.2.3 Limitations & further research 66
7 References 68
7.1 Primary literature 68
7.2 Secondary literature 71
7.3 Websites 71
ABSTRACT
The commercial office real estate industry is being ‘servitized’ by the implementation of Real
Estate-as-a-Service (REaaS) concepts: real estate owners offer more flexible contracts
including workplaces and (facility) services and are become responsible for exploitation of the property. It is a Product-Service Systems (PSS) business model. Academic literature about PSS focuses mainly on the Busines2Consumer industries and no research to the commercial office real estate industry has been conducted yet. The purpose of the research is to gain insight into and get a fuller understanding of the REaaS concept within the commercial office real estate industry, by exploring how providers use tactics to implement the PSS business model to create value within the industry. The tactics are based on the work of Reim et al. (2015) and consist of Contracts, Marketing, Network, Product & Service design and
Sustainability. A qualitative multiple case study was conducted, by which respondents of 12 heterogenous case studies were questioned in semi-structured interviews. Results show that the tactics by Reim et al. (2015) also hold for this industry and that an additional tactic, Technology & Big data, enables all other tactics. Barriers to the further professionalization of the REaaS business model mainly lie within the high ex ante investments that need to be made for the acquisition and the exploitation of the property in relation to the unsure and infrequent cash flows because of the fluctuation in occupation (risk of vacancy). External funding is necessary but is traditionally based on long-term contracts. Further research should focus on overcoming the barriers and quantitative research to the relationships between the tactics. Insights found in this capital- and service intensive industry contribute to the servitization of other industries.
1 INTRODUCTION
A new phenomenon is being introduced within commercial office real estate industry: Real Estate-as-a-Service (REaaS), or in Dutch: ‘Vastgoed-as-a-Service’ (VaaS). Landlords
reinventing their business model and do not solely offering squire meters for rent anymore but start offering the movable goods (like furniture) and more important: (high-end) facility services as well. Contracts get more flexible: tenants only pay a fixed price per use of the workplace, including all services. Most of the time through a monthly, half yearly or yearly subscription. Also, firms often do not have their own office space / workplaces anymore but share these with other firms. This concept is already more common within the market for freelancers and startups, with workplace providers like Regus, Seats2Meet and WeWork under the name of ‘co-working spaces’. But the market seems to shift and ‘scaled-ups’, medium sized firms and corporates consider purchasing their workplaces this way as well. With the rise of REaaS concepts within the commercial office real estate industry yet another industry is being ‘servitized’.
Visnjic Kastalli & Van Looy (2013) define servitization as ‘the shift from solely offering
products to adding services to this product’. This is also known as a Product-Service System
(PSS), where there is no clear distinction between products and services anymore. The products and services become integrated bundles or systems, with services in the leading role (Vandermerwe & Rada, 1988). Customers pay for the functionality instead of the product. The aim of PSS business models is to better satisfy the customer needs.
In the business to consumer (B2C) industry, PSS business models manifest in the macro trend of the ‘sharing economy’. People do not necessarily want to own everything anymore but are also satisfied by paying for the use of it (“The battle for trust and the sharing economy”,
2018). One example is car sharing services, but there are plenty of other examples of firms offering the use of a product instead of the ownership of the product.
Because the academic literature about PSS mainly focusses on manufacturers, who add services to their products, it is interesting to investigate how the PSS business model is implemented in a Business to Business (B2B) environment, specifically within the
commercial office real estate industry, which is a capital-intensive market and many parties are (financially) involved (think of institutional investors, banks, tenants etc.), but is also a quite traditional market. Furthermore, what drives these firms adopting this new business model, is it the intrinsic motivation to contribute to a more sustainable built environment or is it just a marketing trick and a way to let their properties? And lastly, what are then the
benefits and barriers to this type of business model within the commercial office real estate industry?
Goedkoop et al. (1999) define the PSS concept as ‘a system of products, services, networks of
“players” and supporting infrastructure that continuously strives to be competitive, satisfy customer needs and have a lower environmental impact’. It is a strategic design integrates a
system of products, services and communication and is based on new forms of organization, role reconfiguration, customers and other stakeholders (Manzini & Vezzoli, 2003). A PSS can be categorized into 3 levels: 1. Product-Oriented (PO), where the supply of products comes with extra services. The customer still gets the ownership of the products. 2. Use-Oriented (UO), where the use of the product is sold together with the services that add value to it and the product remains the property of the firm offering its use. Customers pay per use. And 3. Result-Oriented (RO), where a result or competency is sold to the customer, for example instead of buying a washing machine you pay for the result: ‘washed clothes’ (Beuren et al.
2013). The REaaS concept fits the definition of the Use-Oriented PSS business model best because customers pay for the use of the workplaces instead of the ownership, but not (yet) for the result. The UO PSS business model was therefore used as the frame of reference in academic literature in relation to the literature review of this study.
A few trends seem to drive the introduction of the REaaS concept within the commercial office real estate industry. First, the concept is a continuation of outsourcing facility services. Tenants are traditionally responsible for the movable goods in the office property and for arranging services like catering, cleaning and security. Facility services are often to a high degree outsourced to so-called ‘Integrated Facility Management’ (IFM) service providers. The tendency of the last decade is that not only the operation of these services is being outsourced, but also the tactic level and even the strategic level of management, which is called the
‘regiemodel’ in Dutch. The aim of these outsourcing strategies is a reduction in facility
services employees on the payroll on the one hand and better and more efficient services performed by a specialized part on the other hand. The outsourcing organization can focus on their core activities again. Second, Cushman & Wakefield (2015) state that the flexibilization of office space is driven by the changing nature of work, where integration of technology into the workspace make that people can work from everywhere. Also, the different expectations of offices and office-work by new generations, like Generation Y (where work and life are being interwoven) and lastly, the rise of the ‘sharing economy’ where ownership becomes less important. ‘We have seen this throughout the recession, as serviced offices primarily were
seen to be a solution for landlords as they struggled to let space, and now this reinvention is taking place in an environment where agility and flexibility are likely to become increasingly important drivers of corporate real estate requirements’ (Cushman & Wakefield, 2015). The
This leads to firms (partly) want to get rid of their long-term operational leasing contracts or their own real estate and look for more flexible solutions. Other reasons for the rising demand of REaaS concepts are mentioned by CBRE in their EMEA occupier research and are
summarized in figure 1. The result is a new configuration, where real estate owners (landlords) also offer complementary (facility) services and facility management and real estate become more integrated, since they are offered as one service to the customer.
Fig. 1. Reasons for using flexible space are evolving (CBRE, 2018).
1.1 RESEARCH GAP
Key in as-a-service (PSS) business models is the shifting ownership and by that resources and risks shift. Within the commercial office real estate industry business models like these are new and it is not clear yet what it drives and what the implications and barriers to the concept are. Providers still explore how to successfully implement the business model and find out which tactics are key in creating maximum value in the commercial office real estate industry. In the existing academic literature nothing is written about PSS concepts within the
(commercial office) real estate industry. This makes it relevant and interesting to explore the REaaS concept and to see how providers implement the business model and use tactics to create maximum value with it. The findings can contribute to academic literature by
addressing issues that play a major role in the servitization of many other industries. Insights and solutions found in this capital- and service intensive industry may benefit other industries as well. But above all the findings can contribute to future (quantitative) studies, studying the relationships between key variables. For practitioners the study is of relevance because the insights might help them in the further professionalization of their REaaS business model and help solve tradeoffs between several aspects of the business model and overcome the barriers.
The framework of Reim et al. (2015) (see LITERATURE REVIEW) is used to explore the implementation of PSS UO business model within the commercial office real estate industry. Reim et al. (2015) distracted 5 operational ‘tactics’ through a literature review study. Together these tactics determine the value that is created with the implementation of the PSS business model. These tactics are contracts, marketing, network, product and service design and
sustainability. The tactics are used as themes to explore how providers of Real
estate-as–a-Service have implement these tactics and to see what possible tradeoffs between tactics are in the aim to create maximum value in the commercial office real estate industry. This have been done by a qualitative research: semi-structured interviews with respondents of 12
1.2 RESEARCH QUESTION
The research question of this study is formulated as follows:
How do providers of the Real Estate-as-a-Service (REaaS) concept use tactics to implement the PSS-Use Oriented business model in their aim to create value* within the commercial
office real estate industry?
*Value = value for (potential) customers
1.3 RESEARCH OBJECTIVES
The purpose of the research is to gain insight into and get a fuller understanding of the REaaS concept within the commercial office real estate industry, since this is a new industry that is being ‘servitized’. It is interesting to see if the findings of studies in other industries also hold for this industry. The research aims to further define the concept, find out what the drivers of the business model within the commercial office real estate industry are and to describe which tactics, as proposed by Reim et al. (2015) or new tactics, are key for successful
implementation and what possible barriers and tradeoffs are. Also, to clarify what the main benefits are, and which barriers need to be overcome. The result is a theoretical framework with the key tactics for designing the PSS business model within the commercial office real estate industry. It gains insight for practitioners within in the commercial office real estate industry, especially parties (e.g. landlords) who are thinking of reinventing their business model in their aim to stay competitive in the (fast) changing business environment.
1.4 ACADEMIC RELEVANCE
The research contributes to academic literature by addressing issues that play a major role in the servitization of many industries. In the existent literature about PSS nothing addresses yet the commercial office real estate industry. Insights and solutions found in this capital- and service intensive industry may benefit other industries as well. But above all it is a
contribution to future (quantitative) studies, studying the relationships between key variables. For practitioners the study is of relevance because the insights may help them further
professionalize their REaaS business models and solve tradeoffs between several aspects of the business model and overcome barriers.
1.5 THESIS STRUCTURE
This thesis is structured as follows: in the next chapter (LITERATURE REVIEW) the findings of the academic literature study about PSS are presented. The literature review is followed by the THEORETICAL FRAMEWORK, which is based on the literature review and includes the sub-questions that are distracted from the academic literature. It gives an
overview of the variables that have been researched in this study. Within the chapter
RESEARCH METHODS, the used research methods are explained and justified. The chapter RESULTS provide an answer to the sub questions. The results are followed by the
CONCLUSION & DISCUSSION in which the answer to the research question is given and the results are discussed in light of the research question and the academic literature. It provides an overview of the findings of the study and to what extent these findings provide new insights about the subject REaaS and PSS in general. The chapter ends with a reflection on the limitations of the study and suggestions for further research. Under REFERENCES all literature (primary, secondary and websites) that has been referred to or has been cited within
this study, are presented. In the APPENDICES, the included case studies, the interview questions (in Dutch) and the code book can be found.
2 LITERATURE REVIEW
Within this chapter the existing literature about Product-Service Systems (PSS), in general and in relation to the REaaS phenomenon, is reviewed. The aim is to clarify the concept of PSS and to substantiate the research gap.
2.1 DEFINITION PRODUCT-SERVICE SYSTEM
Quite a few authors have tried to define the concept of PSS. Goedkoop et al. (1999) state that it is a ‘marketable set of products and services capable of jointly fulfilling a user's need’. (Manzini & Vezzoli, 2001) add to this that a PSS is a strategic design that is based on new forms organization, role reconfiguration, customers and other stakeholders. The three
keywords in all found definitions in the literature about PSS are product, service and systems. According to Goedkoop et al. (1999) ‘A product is a tangible commodity manufactured to be
sold. It is capable of falling onto your toes and fulfilling a customer’s need’ and a service is ‘an activity (work) done for others with an economic value and often done on a commercial basis’. Of course, a building cannot fall onto your toes, but the separate products that together
make the building, can. A system is defined as ‘A set of things working together as parts of a
mechanism or an interconnecting network; a complex whole’ (Oxford Dictionaries, 2018).
The common denominators in definitions in literature about PSS, are: systems, (physical) products, services, networks, infrastructure, environment, customer’s needs and
competitiveness. The definition of Goedkoop et al. (1999) covers all these aspects and is therefore been used as the working definition of this study:
‘A product service-system is a system of products, services, networks of “players” and
supporting infrastructure that continuously strives to be competitive, satisfy customer needs and have a lower environmental impact’.
The definitions make clear that the main driver to implement a PSS business model is demand-driven: customer satisfaction to stay competitive. Competitive advantage, and so customer satisfaction, is achieved by co-creation and co-production of activities among PSS providers, customers and value network partners (Jacob & Ulaga, 2008).
2.1.1 Definition Real Estate-as–a–Service
Since the REaaS concept is new, a good definition is not found yet. The concept of ‘serviced
offices’ is quite similar in the way that it is also about full-service office concepts and
contracts that are based on the service aspect. The flexible and short-term contract aspects, which are key in the REaaS concept, are however not a part of this definition. Van de Kar et al. (2017) define a ‘serviced office’ as:
‘A fully furnished office space within a building that is let, sub-let or licensed to third parties on a serviced basis. The services will tend to comprise all the building services and a menu of business support services. It is an umbrella term that includes...” hybrid forms of serviced
offices and co-working offices’.
2.2 BUSINESS MODEL (INNOVATION)
To successfully implement a PSS, the business model of a firm should be redefined, or a new business model should be created (Tan, 2010). This is endorsed by Tukker & Tischner (2006) claiming that conceptualizing the PSS in terms of the business model is facilitating the
adaption of the PSS. ‘A business model is a story that explains how a firm works’ (Margretta, 2002). Practitioners have developed multiple models to describe a firm’s business model. An example is the Canvas Business Model, developed by Osterwalder & Pigneur (2010). Chesbrough (2007) in his place developed six business model parameters, which essentially
describe the functions of the business model and which can identify chances for innovation of the business model:
1) Value Proposition, which describes the value that is created for the customer; 2) Target Market, which describes for who the offering is useful and for what purpose; 3) Value Chain, this are the internal resources, processes and activities of the supplier and complementary assets that are needed;
4) Revenue Mechanisms, the revenue generation mechanism that is based on the value proposition and the value chain;
5) Value Network, the position of the firm within the value network and other parties contributing to the creation and delivery of the offering;
6) Competitive Strategy, the distinctive position of the firm relative to its competitors.
Kindström (2010) used these 6 business model parameters to describe the transition to a service-based business model. In the light of the REaaS phenomenon, commercial office real estate owners must innovate their business model to facilitate the transition to be able to offer the real estate as-a-service. The necessary service innovation activities are summarized per parameter in figure 2.
Fig. 2. Service innovation activities in the transition to a service-based business model (based
on Kindström, 2010).
2.3 PSS STRATEGIES
The PSS business model can be categorized into 3 levels or ‘strategies’. Beuren et al. (2013) define these strategies as follows;
1) Product-Oriented (PO), the supply of products that come with extra services. The customer gets the ownership of the products.
2) Use-Oriented (UO), where the use of the product is sold together with the services that add value to it and the product remains the property of the firm offering its use. Customers pay per use.
3) Result-Oriented (RO), where a result or competency is sold to the customer.
Service OFFERING
innnovation
• Value proposition
• Designing new value propositions based on the customer's business and processes including interactive parameters focusing on e.g. coproduction
• Revenue mechanism
• Basic cost plus pricing must be developed towards value based pricing. Finding agreement with customer regarding revenue parameters
• Value chain
• Find new value parameters that enable sales personnel to better understand and promote services
• Value network
• Scanning the value network for opportunities to change or expand the value proposition
• Competitive strategy
• Designing value propositions to achieve differentiation and deep relationships
• Target market
• The offering must be designed to attract persons from different levels in the customer organization
Service PROCESS
innovation
• Value proposition
• The delivery process mustbe analysed and designedin order to take advantageof the customers inputand role
• Revenue mechanism
• Focusing service delivery on value creation and problem discovery instead of problem fixing
• Value chain
• Designing a new structured service development process and establish organisational roles dedicated to services. Realigning rewards systems to promote service sales and revenue • Value network
• Selection and inclusion of new service partners (including customers) and suppliers in order to enable service delivery
• Competitive strategy
• Using service delivery to illustrate the service and the focus on value • Target market
• Matching internal resources to the customers organisation and needs
Service POSITION
innovation
• Value proposition
• Establishing the firm as a service provider in the eyes of the customer and not just a product manufacturer • Revenue mechanism
• Find a market position that encourages partnerships and more advanced revenue schemes
• Value chain
• Finding customer facing personnel that can illustrate a new position
• Value network
• Establishing an coordinating position within the resource network • Competitive strategy
• Loading their brand with service values and pursue differentiation • Target market
• Finding new customer contact points and a new segmentation scheme based on value and needs
Tukker (2004) defined also sub-categories for each strategy. For the UO-PSS business model these sub-categories are: 1. product-lease, where the ownership and responsibility for
maintenance etc. stays with the provider and the customer has unlimited and individual access to use the product against a regular fee, 2. product renting, where the customer also does not become the owner and pays for the use of the product, but does not have unlimited and individual access to the product: the same product is sequentially used by different users, and 3. sharing and product pooling, where the difference with renting or sharing the product, lies within the fact that the product is simultaneously used by different users (Tukker, 2004).
2.4 DRIVERS OF PSS
Several aspects explain the shift to PSS. First, there is the shift from a product economy to a
service economy to even a functional economy, where not the product, but the function is
satisfying customer needs (Mont, 2002). According to Mont (2002) it is the transition from standardized and mass-production towards flexibility, mass-customization and an increasing demand for quality and added value rather than costs, that drives the PSS business model. Atos Consulting (2011) add to that financial incentives also drive the shift to providing more services: because services generate more revenue streams, than new products. Other drivers for PSS are that customers of these concepts want to compete through improved
environmental performance and focus on core competencies, rather than physical assets (Mont, 2002). This focus on core competencies is illustrated by REaaS provider WeWork, who mentions as a reason why big corporates get rid of their real estate and are willing to pay per use of the workspace: ‘Firms are looking to be asset-light and commitment-free, so that
they can be nimble’ (“Shared office evangelist WeWork is now...”, 2017). This has everything
only 7.2 years nowadays (“Introducing world real estate service”, 2017). This makes that firms do not even know if they will survive a 10-years operational lease contract. Other drivers for serviced offices and the REaaS phenomenon from the customer perspective are mentioned by Reed & Stewart (2003): ‘instantaneous availability (just in time), short term
agreements, no complicated leases (user friendly contracts), flexibility to grow and contract, outsourcing to focus more on core activities, personal services, higher degree off affordability and low establishment costs and only ‘pay as you use’ services’.
The IFRS 16 legislation, that will be operative from 2019, makes that listed firms need to incorporate all their assets to the balance sheet, including their real estate operational lease obligations. The aim of this legislation is more transparency and better comparison of
(international) listed firms (“IFRS-regels huurverplichtingen kunnen vastgoedmarkt op de
kop zetten”, 2017). Especially listed firms who lease real estate (operational lease) must bear the consequences: their solvability drops and cashflow statements change (PwC, 2016). This might lead to firms reconsidering their real estate portfolio and look out for more flexible solutions. For landlords a chance to accelerate their REaaS concepts, since ‘service contracts’ are not seen as lease obligations and the legislation also not holds for contracts with terms less than 12 months (SKEPP, 2017).
2.5 PSS TACTICS
Where a business model describes how value is created, as discussed above, by defining how value is created, delivered and captured, the amount of value that is being created depends on the further detailing of the ‘tactics’ when implementing the PSS business model (Reim et al., 2015). Reim et al. (2015) distracted 5 operational tactics from the literature about PSS. The 5 tactics ensure that the business model is implemented successfully (Reim et al., 2015). The
tactics are essentially equally important, but may differ among firms, because every firm is different and operates in a different business ecosystem with different organizational conditions.
The 5 tactics that Reim et al. (2015) distracted from the literature about PSS are 1) contracts, 2) marketing, 3) network, 4) product and service design and 5) sustainability. For each type of PSS strategy, product-oriented, use-oriented and result-oriented, the tactics have several implications on a different level. Because the REaaS phenomenon is defined as a use-oriented PSS business model within this study, the tactics are only discussed in light of this type of business model.
2.5.1 Contracts
The contracts tactic is about ‘how rights and liabilities are distributed among the involved
parties’ (Reim et al., 2015). On the one hand contracts with customers change: they will be
now paying per use of the product and services, instead of paying for the ownership of the products, or, in the case of REaaS, lease them for a long period of time. On the other hand, contracts with third parties change. Especially when the provider does not provide the additional services himself but contracts a third party to offer these services. According to Richter & Steven (2008) contracts are the foundation of the PSS business model and
especially have a great impact on the value creation and generating of value in the operating stage.
A PSS contract is, according to Reim et al. (2015) ‘designed to address all aspects related to
aspects are important to consider when setting up these contracts; 1. Responsibility and terms of agreement, 2. Contract formalization and complexity and 3. Risk level.
For the UO business model it was found that the level of responsibility of the provider
increases, leading to more complex contracts. The provider has the responsibility to make sure that the products and services are available. This level of availability should be agreed upon and settled in the contract. The terms of the agreement become more important and needs more attention. Co-creation between involved parties will be at the focal point and more information exchange between all parties is necessary. Parties should agree on how information will be exchanged, processed and used to serve customers better. Before engaging in co-creation activities, all parties should therefore make sure that the conditions and agreements are settled in contracts. The provider must make sure that the agreed-upon services are clearly described and define how parties will integrate (Reim et al., 2015).
Because customers will not have the ownership of products anymore and only pay for the use of the products and services, the provider bears more risk. The provider will have high ex ante investments to make, while the benefits will only be determined in the operating stage
(Richter et al., 2010). Another risk that might come with the UO business model is adverse
customer behavior: customers who do not treat the product carefully and with dignity,
because they are not the owner. To reduce this risk, providers must make the customer’s responsibility and the way they will be charged based on the use of the product very clear.
Within provider and supplier relationships the risk-bearing party must be compensated with incentives. The main incentive for providers to choose the UO business model is that they might reduce the total cost of ownership and that they can gain additional revenue from the offered services (Richter et al., 2010).
2.5.2 Marketing
The marketing tactic is about ‘how PSS providers interact, communicate, and use customer
and market insights to implement their PSS business model’ (Reim et al., 2015). Because
potential customers of REaaS concepts do not lease office buildings for a long period of time anymore, the relationship between provider and customer will be different and become even more important because the customer can leave when they want. The marketing activities of the provider will become more important to attract and retain customers.
To retain customers, it is important to have a deeper insight in what the customer’s activities are. For the REaaS phenomenon it might, for example, good to know what the core business of the customer is and what services support this. The provider can use these insights for developing new PSS offers (Reim et al., 2015). Aspects that need to be considered when implementing marketing activities, are: 1. Communication of value, 2. Extent of customer interaction and 3. Customer and market insights.
Value-driven communication should be the focus in attracting new customer segments. For example, communicating the benefits for the environment and society might attract certain customers who find this important (Mont, 2002). But also, communicating the financial benefits for customers who like to be asset-light and get rid of their own real estate properties. Or the flexibility in contracts that comes with the REaaS concept.
The extent of customer interaction will increase with an UO business model because the provider is responsible for the product and services being available and that these meet the customer’s expectation. Also, to get a deeper understanding of the customer’s activities this
interaction is very valuable. More customers with an unpredictable presence are involved, which has influence on the stock of assets and the flow of services (and contracts with third-party service suppliers).
Because of the increased customer interaction more data about customer’s habits is collected (Reim et al., 2015). The data helps to design new service offerings that fit the customer needs and thereby increases customer satisfaction. Opresnik & Taisch (2015) argue that Big Data can generate new revenue streams and gain a competitive advantage as well. Big Data can be used to design the PSS, but the data can also be exploited to new service offerings, or the data can be sold to third-party (service) suppliers. Smart building technologies might bring the data collection (Big Data) about customer’s behavior to an even higher level of detail.
2.5.3 Network
The network tactic is about ‘how providers use their network relationships with external
partners to ensure the PSS business model is implemented successfully’ (Reim et al., 2015).
External partners are partners within the ecosystem, who are necessary to be able to create value for the customers. Van den Ouden (2012) defines this type of ecosystems as an
ecosystem where ‘from the perspective of one organization and its strategic intent, a network
of organizations is built around it to enable it to reach its long-term goals in a collaborative effort’. According to Van den Ouden (2012) ecosystems are a specific form of network where
organizations move from firm-centered-networks to more solution driven networks. Krucken & Meroni (2006) call these solution-oriented partnerships: ‘strategic partnerships sharing a
common vision about how to deliver a conceived solution idea’. When setting up the right
network for the UO business models it is important to consider which type of partners are needed because additional offered services are mostly performed by third-party service suppliers. The fact that financial benefits do not come at the point of sale but are divided over
the contracting period makes this relationship complicated. It might therefore be necessary to involve a financier to make high ex ante investments possible. The type of relationships with partners also change. They become more tight and interdependent because partners need to work closely together to achieve the common goal of customer satisfaction (Reim et al., 2015). This makes the relationships also more complex and more sensitive because sharing information is necessary. Tools to facilitate the sharing of information can be web-based collaboration platforms, although these are not substitutes for personal contact with either the customer or the network partners (Reim et al., 2015).
Maxwell et al. (2006) state that incorporating network partners early in the process will ensure a better organized PSS network. Van den Ouden (2012) proposes the use of the value flow
model as a tool to clarify and visualize the interactions with customers and the flow of value
(goods & services, money & credits, information or intangible value) between actors in the ecosystem. A distinction between the core proposition, the complementary offerings and supplying and enabling network can be made. This is in line with the proposed
communication process within the configuration of network actors by Krucken & Meroni (2006) that also consists of 3 levels. See figure 3.
2.5.4 Product and service design
The product and service design tactic refer to ‘how PSS providers design product and services
to meet the diverse needs of customers and successfully implement PSS business models’
(Reim et al., 2015). To increase the value for the customers and reduce costs for their selves, providers need to consider both functionality and customization. Physical products and
services need to be aligned with each other. When thinking of the functionality of the product, aspects like the ability to be maintained, upgrade and easily reuse need to be considered (Reim et al., 2015). Products that are used often favor a durable design (Evans et al. 2007). Another aspect is that the availability of products because customers rely on it.
The customization aspect is about to what extent the product and services are adapted and customized to specific customer’s needs. Because the number of different customers is quite high in UO business models, customization can be difficult. Providers can therefore consider customizing for big customers only (Reim et al., 2015).
2.5.5 Sustainability
The last tactic that is discussed by Reim et al. (2015) is sustainability. This tactic is driven by legal and market conditions, customer’s sustainability ambitions, and the fact that
sustainability invites to explore new technologies and developing new solutions. The aim of the sustainability tactic is to ensure that the sustainability gains both economic and
environmental benefits (Reim et al., 2015). Value creation and generating revenue are influenced by 2 sustainability factors; 1. improved resource utilization and 2. the extent of innovation. Resources might be better utilized by extending the product’s lifetime and intensifying the use of the product by allowing sharing and pooling (Reim et al., 2015).
According to Bocken et al. (2014) business model innovation can play a crucial role in
achieving sustainability. Providers should seek, for example, for innovative solutions to make maintenance easier and improve the lifecycle of products. By continuously innovating the business model, a higher level of sustainability can be achieved. For example, by aiming to move from the UO business model to a RO business model and deliver results and
functionality only.
Traditionally, the ownership of (office) property is separated from the use of it. This makes that the owner should pay for the interventions for a (more) sustainable building, while the financial benefits of these interventions, such as a lower energy bill, come at the account of the user (tenant). This dilemma is called the ‘split incentive dilemma’(“Wat is het split
incentive dilemma?”, 2018). For the commercial office real estate industry specific legislation for the sustainability of office property holds. By 2023 all office buildings (>100 m²) need to be certified with at least Energylabel C for sustainability and in 2030 a certification for Energylabel A is obligated (“Energielabel utiliteitsgebouwen”, 2018).
2.6 BENEFITS
The benefits of a PSS can be categorized into benefits for the provider, the customer, the environment and society (Beuren et al. 2013). For the customer the PSS brings more flexible and personalized services (Aurich et al., 2010). The quality of the product and the comfort of the services continuously improve (Sundin et al., 2009), because of the collected data that gives the provider insight in customer behavior, which makes that he can customize his offerings (Goedkoop et al., 1999). For providers a PSS is an opportunity to innovate and create new functions and decrease the load of an investment by sharing, leasing and hiring
(Goedkoop et al., 1999). For the REaaS model a distinction between building owners and operators who lease the building should be made. When the owner of the building also exploits the building and offers the additional services, he can gain a higher overall return from the fixed asset, while also offering better and more customized services to the tenants. When an operator leases the building, the benefits (from the ownership) logically will be limited (Reed & Steward, 2003). New (office) buildings are stuffed with technology and sensors, leading to data about the technical state of the building to data about people’s behavior and preferences. Big Data can be a source of new business models too (Opresnik & Taisch, 2015).
A PSS has potential benefits for the environment because the product’s life cycle is extended (waste is reduced) and the product is used by multiple customers (less products are needed). The provider remains the owner and is therefore responsible for the take-back, recycling and refurbishment (Baines et al. 2007). This makes that he has the incentive to extend the lifetime and the usage of his products, because it provides him more revenue when he can offer it for a longer period of time. According to Goedkoop et al. (1999) economic growth is often
accompanied with load on the environment. But it is about perceived value creation and it can be unlinked from materials and production. It is necessary to dematerialize the economy. According to Goedkoop et al. (1999) this can be done by shifting from an economy that is based on production and consumption of physical products, to an economy that is based on services. A PSS can be a way to decrease the load on the environmental by selling services and functionality instead of physical products.
2.7 BARRIERS
Barriers to successful implementation of a PSS can be categorized into external and internal barriers, according to the literature review by Mont (2002). External barriers consist of the fact that functionality is not the only thing customers want and ownership gives the customer status, image and a sense of control (Mont, 2002). Lack of knowledge by customers about life cycle costs of product ownership and lack of demand for solutions for sustainability are also barriers. Internal barriers consist of high prices for labor, especially when services are labor intensive. Or the risk of internalizing use-related costs, high ex ante investments and the uncertainty about cash flows. A paradox emerges when environmental benefits are reached by lowering the comfort/ service level for the customer. A specific barrier to ‘servitization’ within the commercial office real estate industry is mentioned by Gibson & Lizieri (1999) as the fact that landlords see property solely as an investment and do not want to carry the
burden of managing the property. Wagenaar (2017) add to this that the traditional methods for financing property are not suitable for concepts as REaaS. Financiers traditionally look at the cash flows that the landlord will generate with the property, based on (long-term) leasing contracts with tenants. While REaaS concepts are not built on a few main tenants but on multiple, diverse users. Wagenaar (2017) states that banks should analyze the capacities of the landlord as an operator (entrepreneurial skills) of the REaaS concept instead of only looking at the solvency when assessing a request for financing.
Atos Consulting (2011) also found important inhibitors of implementing a PSS business model. For example, organizational conflict, where the product-based business model is not transformed to a design enabling providing services. But also, the underestimation of selling solutions: customers must see the added value and must be willing to pay for it. Lastly,
incomplete transformation to an outside-in orientation: the firms need to get to know the customer and their core business to satisfy their needs.
2.8 RESEARCH GAP
Key in as-a-service (PSS) business models is that ownership shifts and by that resources and risks shift. Within the commercial office real estate industry business models like these are new and it is not clear yet what it drives and what the implications and barriers to the concept are. Providers still explore how to successfully implement the business model and find out which tactics are key in creating maximum value in the commercial office real estate industry. In the existing academic literature nothing is written about PSS concepts within the
(commercial office) real estate industry. This makes it relevant and interesting to explore the REaaS concept and to see how providers implement the business model and use tactics to create maximum value with it. The findings can contribute to academic literature by
addressing issues that play a major role in the servitization of many other industries. Insights and solutions found in this capital- and service intensive industry may benefit other industries as well. But above all the findings can contribute to future (quantitative) studies, studying the relationships between key variables. For practitioners the study is of relevance because the insights might help them in the further professionalization of their REaaS business model and help solve tradeoffs between several aspects of the business model and overcome the barriers
3 THEORETICAL FRAMEWORK
The theoretical framework is based on the literature review and includes the sub-questions distracted from it. The sub-questions helped to give an answer to the research question. The theoretical framework provides an overview of the variables that have been researched in this study.
Research question:
How do providers of the Real Estate-as-a-Service (REaaS) concept use tactics to implement the PSS-Use Oriented business model in their aim to create value within the commercial
office real estate industry?
The theoretical framework, on which this study is built, is visualized in figure 4. The framework is built on the literature review and mainly relies on the work by Reim et al. (2015) about PSS tactics. Based on the literature the REaaS phenomenon is conceptualized as a Product-Service System with a Use-Oriented business model. The way tactics are
implemented influences the success of the PSS – UO business model. That is how rights and liabilities are distributed among involved parties (contracts), how providers interact with customers and use market insights to implement the model (marketing), the network relationships within the ecosystems (network), the way products and services are designed (product and service design) and lastly, it’s contribution to sustainability. The aim of this study is to explore how providers of the REaaS concept have implemented these tactics to create maximum value within the commercial office real estate industry. In the next chapter the proposed research design is explained and justified.
To be able to answer the research question, sub-questions were distracted from the PSS literature and especially the tactics of Reim et al. (2015). The sub-questions are formulated as follows:
(1)What are the drivers for providers to implement the REaaS business model?
The following sub-questions refer to the tactics described by Reim et al. (2015).
(2) How are rights and liabilities distributed among the involved parties and captured in contracts?
(3) How do REaaS providers interact, communicate, and use customer and market insights to implement their business model?
(4) How do REaaS providers use their network relationships with external partners to ensure the business model is implemented successfully and who are part of the industry ecosystem? (5) How do REaaS providers design product and services to meet the diverse needs of customers to successfully implement the business model?
(6) How does the REaaS business model contribute to sustainability?
4 RESEARCH METHODS
This chapter contains a description and justification of the used research methods. The purpose of the research, the research approach and strategy are explained. Also, the way that the sample for case studies was formed and the way data was collected and processed is substantiated in this chapter.
4.1 RESEARCH PURPOSE
The main objective of this study is to gain insight in and to get a fuller understanding of the phenomenon REaaS and to assess the concept of PSS in this new light. The overall research design is therefore qualitative in nature and taken from an interpretivist standpoint of view: understanding why the phenomenon REaaS makes its entrance and how tactics are used in implementing the business model. The research question (‘how’) implies an exploratory research: exploring how the phenomenon REaaS is developing and how the (new) business model is being implemented by use of the tactics. The REaaS concept is defined by the subjective interpretations of the respondents (interpretive view). The phenomenon is first explored and described based on the findings from desk research on the academic literature about PSS. These findings are presented in the chapter LITERATURE REVIEW. The findings of the qualitative field research give insight in drivers of the business model, which and how tactics are used for successful implementation of the REaaS concept and what are barriers to it.
4.2 RESEARCH APPROACH
The research approach is inductive. All though existing literature is used to build the initial theoretical framework, allowing to operationalize this to the subject of research: REaaS. The
inductive approach is chosen, because the case studies about REaaS allow to build broader generalizations and theories about the phenomenon and PSS based on the respondent’s ideas and experiences.
4.3 TYPE OF RESEARCH
Because of the exploratory nature of the research, the way to conduct the research was logically by first searching the existing PSS literature to see what have already been written and how this could be used to operationalize the phenomenon REaaS in setting up a good research design. The results of the literature review can be found in chapter LITERATURE REVIEW. The type of research is a mix of mainly exploratory research, complemented with descriptive research.
4.4 RESEARCH STRATEGY
The most suitable strategy in conducting exploratory (or explanatory) research is using case studies. By using case studies, a detailed understanding of the phenomenon REaaS in the commercial office real estate industry can be gained. A multiple case study is conducted, so patterns, consistencies or variation within the concept could be signaled and analyzed to inductively develop theory about the REaaS phenomenon. In this study the case is the
phenomenon of REaaS, where the unit of analysis are parties who are providers of the REaaS concept (to freelancers/startups or scaled-ups/corporates) or parties who are planning to bring the concept to the commercial office real estate industry. The unit of observation of which the information is gathered were employees who preferably work at strategic level since these have sufficient knowledge about the underlying business model of the REaaS concept.
4.5 RESEARCH METHODS
The case studies are conducted using semi-structured interviews. Because of the exploratory nature of the research it was unsure which answers would be given by the respondents. Also, the respondents might not understand all themes and questions immediately. Therefore, it was necessary to vary the order of questions or ask them a bit differently or sometimes asking more questions to clarify the topic. For the semi- structured interviews, the themes of the literature review were leading, especially the literature about the tactics by Reim et al. (2015) since these tactics relate to research- and sub-questions of this study.
4.6 COLLECTING DATA
The sample of the study was formed by purposive sampling, meaning that case studies were chosen based on their suitability and their ability to answer the research question. This are initially case studies that were already known from the personal network. Additionally, a call for case studies was placed on LinkedIn. Case studies were suitable and able to answer the research question when it were providers of the REaaS concept (to a certain extent) or parties who were going to and had already thought about how they are going to design the business model and tactics. Also, an expert who has experience with the phenomenon in his previous job have been interviewed. It preferably were providers focusing on scaled-ups and
corporates, instead of freelancers and start-ups or who are considering making this shift. The aim was to have a heterogenous sample, because the differences between providers are interesting to explore. It is a cross-sectional study focusing on how providers are dealing with the concept. The heterogeneity of the sample mainly lies within the type of providers. The type of providers that have been included in this study are a variety of: property owners (private and institutional), tenants, building contractors, real estate developers, service providers, operators and a consulting firm.
4.7 SAMPLE SIZE
To determine an appropriate sample size, the saturation method was used. Saturation is the point where sampling more data will not lead necessarily to more information. Since the aim of the research is to explore how the discussed tactics are implemented within the concept of REaaS and to compare the cases of REaaS providers, at least 1 case study per tactic was necessary. Having 5 tactics, this led to a minimum of 5 case studies to be conducted. The expectation was that 10-15 case studies would lead to saturation. The aim was to at least reach out for 10 case studies. Eventually 12 case studies have been conducted for this research and led to theoretical saturation, because no new information or insights came up.
4.8 DATA ANALYSIS
The data from the interviews was processed as text data. The interviews were first audio recorded and then transformed to text data in the form of transcripts. These transcripts can be found in the Appendixes. Each interview was processed the same way, using the same semi-structured interview questions, and the same methods for analyzing to make sure that the findings of the study are reliable and generalizable. The interview transcripts were first analyzed by open coding: every unit of text was coded. Then the codes were compared and being categorized into main categories based on the themes in the literature review and especially the tactics, and underlying aspects, to which the sub questions of this study refer to (thematic coding). Most codes have several properties as well. The code book can be found in the Appendixes. After the coding the results were analyzed to discover patterns in the data (axial coding), this is visualized in the concept map in the RESULTS section. The data is analyzed horizontally: what have been said per theme? And vertically: what have been said per (type) respondent?
5 RESULTS
In this chapter, the findings of this study are presented, categorized by the themes from theoretical framework. The interview questions (in Dutch) can be found in Appendix 2 and the codebook that has been used can be found in Appendix 3. Only the findings that
contribute in answering the research (sub) question(s) are included in this chapter.
5.1 CONCEPT MAP
The concept map, figure 5, on the following page summarizes the findings of this study. Relationships between concepts and contradictions with academic literature are explained in the below paragraphs by answering the sub-questions of this study.
Green lines represent concepts that strengthen each other (positive relationship). Red lines represent tension between concepts (negative relationship).
5.2 TYPE OF PROVIDERS AND DRIVERS OF THE BUSINESS MODEL
Fig. 6. Type of providers and their drivers to implement the REaaS business model.
5.2.1 Non-owners
The key aspect of PSS Use-Oriented business models, where customers only pay for the use of products, is that the ownership remains with the provider of the product. This ownership gives the owner incentives which lead to certain benefits e.g. for the environment, but also financial benefits. Remarkably, a large group of providers that call their selves REaaS
providers appear not to be the owner of the real estate property. They lease these buildings in a traditional way and function as an operator of the building where customers pay them for the use of the workplace through memberships. Because this group of providers are not the owners of the building, they lack incentives that are associated with the ownership. For example, incentives for sustainability. A lower environmental impact is one of the main potential benefits of a PSS business model. Within the commercial office real estate industry, the so-called ‘split incentive’ is a dilemma that gets a lot of attention. It makes that the owner of the building is not willing to invest in the sustainability of his building, because the
electricity bill). This split incentive could be solved with REaaS concepts, but because a large group is not the owner of the building, this does not hold.
This is the same for the group of providers that are facility service suppliers and building operators. For service suppliers the main driver is the new market opportunity for them: where they first provided their Integrated Facility Management services to tenants of the property, they now see a shift in the commissioning party, real estate owners wanting them to provide services for their tenants. This leads to a shift in roles within the value chain as well. Service suppliers fulfilling the role of building operators and becoming responsible for the total concept of the property and exploiting it to customers. It also works the other way around; building operators that also start to supply facility services (with or without contracting third-party service suppliers). Real estate and facility management integrate by this.
Although this group of providers do not own the property, they do get a good income out of their business model. But a big percentage of their revenue streams goes to furnishing the building, contracts with third-party service suppliers and leasing the property of the owner. This makes that they often need external parties to finance. The greatest risk for these providers is the fact that their revenue depends on the occupation of the workplaces and is therefore unsure and infrequent in time, because of the flexible character of the contracts, while their obligations to property owners and financers remain the same. To minimalize the risk of vacancy they often offer traditional squire meters and the rental of conference rooms as well. This provides them a steadier income, that enables them to continue offering the flexible
“A real estate owner has a sort like question: how do I make sure that my tenants have an excellent experience when they are in my building….”retention is highest at short-term
contracts.”
contracts. The financial benefits that come with the ownership of the property, like a higher overall return from the fixed assets by adding services, as mentioned by Reed & Stewart (2003), do not hold for this group.
This group of providers first focused on start-ups and freelancers and now shift to more corporate firms. Respondents argue that this is mainly driven by the rising demand of this (potential) customer group that consist of: 1. Demand for more flexibility (in contract terms and locations). Firms want to be flexible and agile because crisis made them realize that the future is unsure. Long-term leasing contracts do not fit this strategy anymore. Also, the way of working has changed over time and has a much more flexible character nowadays. Employees want to be able to choose their own workplace. Providing this can function as secondary benefits and play a role in the war for talent as well.
According to the respondents this flexibility has it limits. They notice that corporate firms still value (own) real estate as a sign of power and necessary to create and sustain identity and culture. Also, security seems to be a barrier. Respondents therefore expect that these corporate firms will retain their headquarters as a sort-off flagship and build in flexibility around it with the REaaS contracts.
“The war for talent; you are offering an environment that attracts talent, because something ‘happens’ here”.
2. The demand for convenience and comfort and the fact that ownership becomes less important. Customers (firms) are willing to pay for more comfort and less hassle. On top of that customers demand more high-end services than a few years ago. It is not just about standard services anymore, but about the whole ‘experience’. Employees expect the same services at work, as they can have in their private time.
3. Demand for more interaction and co-creation with other firms. More and more firms want to break their own barriers and want to meet other firms. Interaction, sharing knowledge and co-create new business is the future.
These drivers come back in the value proposition of this group of providers. One can question if these non-owning providers are really offering REaaS in their aim for competitiveness by customization and lower the impact on the environment (like the definition of Goedkoop et al. (1999) tells) or that it is the quick money that drives them.
“Real estate needs to become more flexible because of the dynamic times in organizations. Strategic periods become shorter. You need to adapt to the market faster. So, you must have a headquarter, with a flexible shell of satellite offices, with which you built in your
flexibility.”
-Willem Hetebrij (Corporate Places)-
“It is like Netflix. Where everyone first was downloading films, because it was for free. Now everyone is fine by paying for the streaming services because it is easy and you have no hassle. But you must be able to sign up quickly and declaim directly and easily. That is
what you see in many industries and so also with real-estate with short-term lease contracts. Convenience is key”
5.2.2 Owners
The group of providers that do have the ownership are the real estate owners (private and institutional), real estate developers and building contractors. Real estate owners are mainly driven by the fact that they experience that adding services generates more revenue streams and a better yield; higher overall return on their investment, which is in line with the findings of Richter et al. (2010). Also, less, to none, incentives have to be offered to potential tenants to convince them. Where it first was a way to let outdated property, they now see it as way to de-commoditize their real estate and create a higher return on investment. For this groups still holds that high ex ante investments are necessary, and this often needs to be financed by external parties. Institutional real estate owners have an advantage because they can invest their self.
Real estate developers become more and more involved within the exploitation of the building as well. They do not only develop the building, but also develop the concept for exploitation.
Real estate developers and building contractors would traditionally not have the ownership of the property. But some of these are now experimenting with the Building-as-a-Service (BaaS) concept where elements of the building are offered as-a-service and the ownership remains with the manufacturer of that element. The concept is mainly driven by the lower impact on the environment that comes with as-a-service business models. The owners have the incentive to create the element as sustainable as possible, continuously innovate to fulfill their
“The REaaS concept was crisis-driven in the first place, as a solution to let outdated real estate. But now we experience that providing services generates more revenue than solely
offering square meters. Also, we do not have to give incentives upfront, because our buildings are being ‘filled’ much faster now.”
customers wishes, and replace and takeback the parts when necessary and re-use them again in other buildings. Because the elements need to be taken back easily, the whole building gets more flexible as well. This flexibility makes that the building can adopt more easily to future functions as well. All though these kind of BaaS concepts are not operative yet, future providers (real estate developers and building contractors) are designing the eco-system and try to find ways to organize everything around it. Because providers of a building element remain the owner during the exploitation phase as well, they also have a role in designing a concept for the end-user that eventually will pay for the use of the workplace. These concepts sort of combine the REaaS and BaaS but are essentially the same: offering the property
as-a-service to the end-user. Because a lot of parties are involved, the business model asks for new
ways of organizing an overarching management organization for exploiting the building. Because cashflows are related to the actual use of the building (because customers pay-per-use), also new ways of paying for the use of it and dividing the cashflow among all involved parties must be found.
5.3 TACTICS
The tactics refer to the proposed theoretical framework based on the work of Reim et al. (2015). The tactics tell how providers make sure that they create maximum value with the implementation of the business model. The respondents have been asked about their
“…This can be done in several ways, but in particular by shifting the ownership. When you make the one that designs and manufacturers that specific element, also the owner, than he has automatically the incentive and the motivation to design it in a sustainable
way and make sure it is reusable and does not end up in the ‘garbage ban’.”
interpretation and implementation of these tactics, and additionally were asked what are specific tactics that are a precondition for the REaaS business model.
5.3.1 Contracts
How are rights and liabilities distributed among the involved parties and captured in contracts?
Fig. 7. Related concepts to the tactic Contracts.
Another aspect that characterizes the PSS UO business model is the pay-per-use aspect, meaning that customers only pay for the product and services when they have actually used them. Within the REaaS concept this is not very common yet. Providers mostly work with memberships as their revenue mechanism, which offer more flexibility with monthly to 2 years-terms for an all-inclusive concept but are not really pay-per-use. Respondents notice that retention of customers is highest at short term contracts. This makes that providers have the incentive to continuously do their best to fulfill the needs of their clients.
But there seems to be a trade-off between the extent of flexibility of the concept (pay-per-use) and the high ex ante investments (and therefore high risk) that are needed to get the concept operative. Memberships reduce the risk of vacancy by providing a frequent income. The shift to more corporate firms might be explained by the fact that they have a bigger volume and are willing to stay longer (because a lot of people are involved) and therefore minimize the risks
