Supply on demand Adapting to change in consumption and delivery models
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Supply on demand
Adapting to change
in consumption
and delivery models
Sponsored by
A report from the Economist Intelligence UnitSupply on demand Adapting to change in consumption and delivery models
Contents
About the report 2
Executive summary 3
1 Consumers want convenience and value, and they want it now 5
2 Reasons to be cheerful 7
3 What is cheap, reliable and everywhere? 11
4 Growing pains 14
5 Conclusion 16
Appendix: survey results 17
1 © The Economist Intelligence Unit Limited 2013Supply on demand Adapting to change in consumption and delivery models
About the
report
Supply on demand: Adapting to change in l Thomas Amos, co-founder, Sidekicker
consumption and delivery models is an Economist l Giles Andrews, CEO, Zopa
Intelligence Unit (EIU) report sponsored by Zuora.
l James Beshara, founder, Crowdtilt
It delves into the shifting attitudes among business
executives towards new consumption and delivery l John Compton, manager, Streetclub by B&Q
models, the drivers of change, and how companies (Kingfisher)
are adapting to accommodate the trend. l Chris Fletcher, research director, Gartner
To shed light on this topic, the EIU surveyed 293 l Saar Gillai, senior VP and general manager, HP
business executives in July-August 2013. Nearly Converged Cloud
two-fifths of the survey sample (39%) are based in l Ed Lee, mayor, San Francisco
the US, 31% in the UK and 30% in Australia. They
l Ann Mack, director of Trendspotting, JWT
hail from 18 sectors, with financial services,
Worldwide
professional services, technology, and healthcare,
pharmaceuticals and biotechnology especially l Paul Marsden, consumer psychologist
prominent in the sample. The respondents are l John Mewett, marketing director, Screwfix
relatively senior—61% hold C-suite positions—and (Kingfisher)
they work in organisations of different sizes, with
l Mark Norman, CEO, Zipcar (Avis)
54% posting annual revenue of US$500m or more.
l Aleyn Smith-Gillespie, associate director, Carbon
To complement the survey findings, the EIU also Trust Advisory Services
conducted in-depth interviews with senior
executives and industry experts. We would like to The report was written by Sarah Fister Gale and
thank all survey respondents, as well as the edited by Zoe Tabary of the Economist Intelligence
following executives (listed alphabetically) for Unit.
their time and insights:
2 © The Economist Intelligence Unit Limited 2013Supply on demand Adapting to change in consumption and delivery models
Executive
summary
Under the impact of advances in technology, opportunities for businesses to engage with
economic pressures and shifting cultural norms, customers on a more regular basis and foster
consumers are looking for cheaper goods and more stronger relationships.
convenient ways of accessing them. New models of
For consumers, reduced transaction costs and more
personal ownership are gaining attention in many
convenient use of goods and services should be the
industries based on the idea that people are
biggest benefits. But adapting to these new
increasingly interested in consuming and paying
consumption and delivery trends will not be easy,
for temporary or limited access to goods and
and they will not impact every product or business
services, rather than purchasing them outright.
in the same way. Financial constraints,
Judging by this Economist Intelligence Unit survey, technological complexity, shifting regulations and
businesses are responding by changing how they the need for new marketing strategies and
price and deliver goods and services, with extensive change management are just a few of the
subscription-based models in which companies challenges that companies must address to succeed
offer ongoing access to a product or service for a in this transition.
periodic fee; rental models that give consumers
The key findings of this research include the
temporary use of a product or service; and sharing
following:
models that allow groups of people to jointly share
ownership of a product or service among the A majority of businesses are changing the way
preferred options. they price and deliver their goods and services.
Four-fifths of respondents see changes in how their
Advances in technology are enabling this trend,
customers access goods and services. For
both by giving consumers greater insight into
individuals, subscriptions and rental options are
where and how they can access products and
the most appealing consumption models to emerge
services, and by allowing businesses to rapidly
from this trend. As a result, over one-half of
ramp up new sales models at relatively low costs.
companies (51%) are changing, or are in the
Businesses believe that these new models will process of changing, how they price and deliver
enable new revenue opportunities, better their goods and services. The biggest change is the
differentiation from competitors, and access to introduction of subscription options for goods and
new customer segments. They will also create new services (implemented by 40% of companies),
3 © The Economist Intelligence Unit Limited 2013Supply on demand Adapting to change in consumption and delivery models
followed by the enabling of sharing models (27%). and they have better control over their spend,”
points out Saar Gillai, senior VP and general
The revenue impact is still relatively small, but is
manager at HP. For businesses, the leading
expected to grow steadily. More than one-half of
benefits are access to new revenue opportunities
the companies surveyed report that these new
(37%), differentiation from competitors (27%),
delivery models represent 10% or less of their
and accessing new customer segments (27%).
annual revenue, and 12% say that they represent
more than 50% of revenue. However, 84% of Cost, technical complexity and regulation may
respondents anticipate that the share of revenue hamper the implementation of new consumption
will change “somewhat” or “significantly” over the and delivery models. Internal co-ordination
next two years. (selected by 33% of respondents), technical
complexities (30%) and compliance regarding data
Technology is proving a powerful enabler of new
privacy and protection (27%) are viewed as the key
consumption and delivery models. “Any area
difficulties in implementing these new delivery
where you’ve got fairly expensive goods that
models. Regulatory hurdles can also be a stumbling
customers don’t feel like they have to own, and
block for lean start-ups, according to experts.
enabling technology that allows them to easily use
them, will be open to transitions in business Each company faces a different set of
models,” says Aleyn Smith-Gillespie, associate circumstances, but there are some common
director at Carbon Trust Advisory Services. elements all should think about, say executives
interviewed in this report. Backing new delivery
Consumers benefit from cheaper, more
models with a strong business case, developing a
convenient products, while businesses generate
seamless user experience, working with regulators
new revenue streams. “Consumers are getting
and monitoring corporate reputation are some of
accustomed to pay-as-you-go models, and they like
the specific areas which new delivery models need
that flexibility. They can instantly get all the
to encompass.
capabilities without paying up-front for the cap-ex,
4 © The Economist Intelligence Unit Limited 2013Supply on demand Adapting to change in consumption and delivery models
1 Consumers want convenience and
value, and they want it now
Consumers’ desire to own high-value goods, such and advisory company. “Consumers are demanding
as cars and apartments, is being trumped by their new types of services, and technology innovations
interest in finding cheaper, more convenient are enabling those services.”
options to use them. In an increasingly cost-
Executives today are keenly aware of this
conscious world, the benefits of temporary
transition. Fully 83% of survey respondents agree
just-in-time access to products and services—
that consumers in general are changing how they
without the cost and hassle of ownership—are
prefer to obtain access to goods and services, and
becoming more appealing.
80% are seeing these changes in their own
At the same time, the explosion of social media and customers.
mobile devices, as well as the growth of cloud
computing, are dramatically increasing the speed Subscribe, rent, share
with which information is reaching consumers and
For individuals, subscriptions and rental options
facilitating their access to goods and services.
are seen as the most appealing consumption
“It’s a chicken and egg scenario,” says Chris models to emerge from this trend. Asked about
Fletcher, the research director of enterprise their preferences as consumers, 38% of executives
applications at Gartner, a US-based IT research say they increasingly prefer to access goods and
services via subscription rather than purchase them
Chart 1
Q What do you see as the main benefits to consumers from new consumption models?
(% respondents)
Reduced transaction costs 36%
More convenient use of goods and services 34%
Easier to upgrade or downgrade products and services 33%
Reduced amount of waste from underused assets 27%
More convenient payment for goods and services 20%
Greater personalisation of products and services 16%
Ability of consumers to act as product and service providers themselves 9%
Ability to connect with a like-minded community of users 7%
Other 3%
Don’t know 1%
Note: Figures do not add to 100% as respondents were able to select more than one option. Source: Economist Intelligence Unit.
5 © The Economist Intelligence Unit Limited 2013Supply on demand Adapting to change in consumption and delivery models
outright, and 26% prefer to rent. The models they and it’s one of the most critical components for
prefer shift somewhat based on their location. US success, says Paul Marsden, a consumer
executives are the most interested in subscription psychologist. “The consumer doesn’t want to do
options (42%), compared with just 31% of their UK anything extra, so the business model has to be
counterparts; and twice as many UK as Australian effortless,” he says. “Or the value they derive has
respondents prefer to share ownership of goods to be so great that it can overcome their laziness.”
and services. Interestingly, the two benefits most often touted
by peer-to-peer sharing companies—the ability to
These changing preferences are not surprising,
connect with like-minded users and the
says Aleyn Smith-Gillespie, associate director at
opportunity for consumers to act as product and
Carbon Trust Advisory Services, a consultancy
service providers themselves—receive the lowest
offering expertise on sustainable business strategy
scores in the survey. This suggests that the
and models. “If you can add value to the customer,
business trend is about value and convenience
if you can reduce their cost and make things more
❛❛ rather than community-building or altruism. [It
If you can add convenient for them, then these models can work.”
should be noted, though, that the interviewees in
value to the He anticipates that similar trends are likely to this survey were business executives rather than
customer, if you occur with appliances, equipment and high-value broad consumers.]
can reduce their goods. “In these models, customers don’t just
Respondents’ personal preferences also bleed over
cost and make reduce their costs, they get an additional level of
into how they do business, with 37% saying that
things more expertise and access to evolving technology
their business units increasingly prefer to rent
without the capital investment,” he says. This idea
convenient for goods rather than purchase them, while 35% prefer
is reinforced by the fact that reduced transaction
them, then these to access goods via subscription and 16% prefer to
costs are viewed as the number one benefit of this
models can work. share ownership. UK businesses are more
trend for consumers.
interested in renting (42%), while US businesses
❜❜
The ease with which consumers can upgrade or lean towards subscription (44%).
Aleyn Smith-Gillespie,
associate director at Carbon downgrade services and reduce waste also ranks
Trust Advisory Services Ultimately, companies will need to adapt their
highly on the list of benefits. “We are in an
business models to account for regional differences
‘as-a-service’ economy, where customers expect
in infrastructure, cost structures and customer
options,” agrees Saar Gillai, senior vice president
behaviour, says Mr Smith-Gillespie. “For a global
and general manager at Hewlett Packard
company, this will probably be starkest between
Converged Cloud, an IT multinational company.
developed and developing economies, and can be
Having open lines of communication with
both an opportunity as well as a challenge. For
customers enables businesses to proactively
example, in some regions business models
provide those options, he says. “We can see what
requiring live tracking of vehicles and products
the customer is trying to do, and tailor a solution
may find local infrastructure and mobile services to
that’s flexible enough to meet their needs.”
be lacking—although this is improving. On the
Convenience also makes the list of top benefits— other hand, urban density and premiums on space
can be a driver of sharing models.”
6 © The Economist Intelligence Unit Limited 2013Supply on demand Adapting to change in consumption and delivery models
2 Reasons to be cheerful
The demand for temporary access to goods and delivery infrastructures which support that
services has the potential to upend long- environment.”
established business models that are built on a
❛❛ The most popular addition is the introduction of
This is a pay-as- financial foundation of receiving full payment in
subscription models (40%), followed by the
exchange for outright ownership of goods. For
you-go economy. integration of shared goods and services (27%). In
companies to alter this model requires them to
To succeed, Australia, 46% of respondents are incorporating
radically change the way in which they operate.
companies need subscription models, compared with 40% in the UK
to create payment They seem to be figuring it out, though. A majority and 34% in the US. Smaller companies are also
and delivery of companies in the survey have already changed more likely to embrace subscription options (45%),
or are in the process of changing how they price while larger companies are almost as likely to
infrastructures
and deliver their goods and services. That number enable sharing (31%) as subscription (33%).
which support jumps to 67% in Australia, compared with 42% in
that environment. the US and 48% in the UK. Adapting pricing and
In the past few years start-ups and established
❜❜ businesses alike have begun offering rental,
delivery models is a necessary part of the
Saar Gillai, senior VP and sharing and subscription options for everything
transition from one-off sales to a subscription,
general manager, HP from cars, textbooks and entertainment to
Converged Cloud rental or sharing-based offering, according to Mr
part-time workers and heavy equipment. The trend
Gillai: “This is a pay-as-you-go economy. To
even extends into the financial services industry,
succeed, companies need to create payment and
Chart 2
Q How is your company primarily changing, or how does it intend to change, the way it prices
and delivers goods and services?
(% respondents)
We are integrating subscription goods
and services to our business model 40%
We are integrating shared goods
and services to our business model 27%
We are integrating leasing/rental goods
and services to our business model 17%
We are integrating exchange (barter) of
goods and services to our business model 2%
Other 14%
Source: Economist Intelligence Unit.
7 © The Economist Intelligence Unit Limited 2013Supply on demand Adapting to change in consumption and delivery models
where companies are creating virtual environments Mr Smith-Gillespie is not surprised by their
in which consumers can source, lend and borrow optimism. “Goods and assets that have a relatively
money electronically without the time and costs high cost but low utilisation will be open to a shift
associated with traditional banks. away from ownership towards a leasing, rental, or
subscription-based business model, particularly
Mr Smith-Gillespie points to Digital Lumens, a US
when combined with a service package that
lighting company that has shifted from selling
guarantees convenience and access,” he says. He
equipment to delivering lighting-as-a-service under
also believes that these new delivery models can
a “managed asset” model: “Customers pay for the
provide greater financial stability for the vendor by
outcome, not the product.” It is still early days for
turning a single sale into a long-term revenue
many of these fledgling businesses, but there is a
stream. But that can require upfront financing by
lot of optimism about their future success.
the business to cover the initial cost to deliver the
Small revenue, big growth product or service system, as well as cash flow to
cover maintenance, insurance and any other
expectations
ancillary business costs.
More than half (53%) of respondents say these new
It won’t work for everyone, however. In sectors
delivery models represent 10% or less of their
that offer lower cost, disposable or frequently used
annual revenue, and only 12% say they represent
goods, the model won’t be cost effective, maintains
more than half of their revenue. The financial
Gartner’s Mr Fletcher: “It’s hard to argue that you
impact is somewhat higher in UK and US companies
would generate enough revenue from renting a
than in Australian companies, with respectively
ladder or a lawn mower. And if it’s not going to be
16% and 14% saying they represent more than half
profitable, it doesn’t make sense.”
of their revenue, against 6% of Australian
companies. In those cases, business owners can look for
added-value opportunities, suggests John Mewett,
But the revenue impact from these models is on an
the marketing director of the Screwfix Community
upward trend. Fully 84% of respondents anticipate
Forum, a trade forum for contractors hosted by
the share of revenue they represent to change
Kingfisher, a European home-improvement
somewhat or significantly over the next two years.
retailer. Although Kingfisher’s products do not
Smaller companies are more likely to anticipate a
lend themselves to a rental or subscription model,
significant increase (34%), compared with 21% of
the company has invested in building a sharing
larger companies.
environment.
Chart 3
Q How, if at all, do you expect the revenue your company gains from new delivery models of
goods and services to change over the next two years?
(% respondents)
Increase significantly 28%
Somewhat increase 56%
Stay the same 13%
Somewhat decrease 1%
Decrease significantly 0%
Don’t know 2%
Source: Economist Intelligence Unit.
8 © The Economist Intelligence Unit Limited 2013Supply on demand Adapting to change in consumption and delivery models
Chart 4
Q What are the key business benefits you would associate with implementing
new delivery models?
(% respondents)
Opening up new revenue opportunities 37 %
Differentiation from competitors 27%
Accessing new customer segments 27%
Increasing customer loyalty 25%
Reducing waste from underused assets 21%
Strengthening our brand 19%
Accessing new product markets 17%
Improving our environmental footprint 8%
Other 4%
Don’t know 2%
Source: Economist Intelligence Unit.
The Screwfix Forum brings together professionals Even in sectors such as hard goods, where the
and DIY enthusiasts to exchange tips about home fundamental product is still a one-off sale,
improvement projects, socialise and even share companies are creating add-on services that are
tools or business opportunities. “These services bundled with the core product. General Motors’
aren’t monetised and don’t generate revenue subsidiary Onstar, for example, is a subscription-
directly, but they do build brand loyalty and can based roadside assistance service that car owners
indirectly generate sales in stores,” says John can pay for through a monthly fee.
Compton, the manager of Streetclub.co.uk, a
For other organisations, these new models are seen
sharing website for neighbours by Kingfisher-
as an opportunity to alleviate the impact of rising
owned B&Q, another DIY firm.
manufacturing costs. Businesses that devise ways
Unlocking business benefits for customers to reuse existing products can derive
more long-term value from the assets they pay to
According to the survey, the leading business create, while simultaneously allowing customers to
benefit of these new delivery models is access to reduce their own cost of ownership and
new revenue opportunities (37%). Differentiation environmental footprint. “Resource efficiency is a
from competitors (27%), accessing new customer core part of the proposition,” says Mr Smith-
segments (27%) and increasing customer loyalty Gillespie. “It is a real value add that a provider can
(25%) also figure prominently. give to a customer, and that customers are
seeking.”
These new models also allow businesses to form
closer relationships with the customers they serve, To fully benefit from new delivery models,
Mr Smith-Gillespie points out. As the owner of the organisations need to work proactively with
goods, be they cars, equipment or virtual servers, manufacturers, vendors and material suppliers to
the vendor takes on the role of a trusted and expert design products that best accommodate
supplier, providing maintenance and services to consumers’ demands. If companies can deliver
support the product and the customer. “This value reliability as part of the value proposition, they can
proposition opens up opportunities for long-term secure customer loyalty while lowering their own
customer relationships with multiple touch-points, maintenance and support costs.
thus enabling providers to broaden and deepen
their revenue streams,” he says.
9 © The Economist Intelligence Unit Limited 2013Supply on demand Adapting to change in consumption and delivery models
Harnessing small players This approach has been practiced for years in the
software-as-a-service sector, where global
In the meantime, the market to accommodate enterprise software firms, including Oracle, IBM
consumers’ demand for subscription, rental and and SAP, have acquired dozens of cloud-driven
sharing options is still fairly wide open. Thanks to start-ups to round out their service offerings.
the proliferation of cheap, reliable, virtual
technology, anyone with some spare cash and an It is also moving into the car rental business, where
idea can start a company, which means that lean in the past year Avis Budget Group has purchased
❛❛ start-ups have a chance to step into well- Zipcar, a US membership-based car-sharing
It is logical that established marketplaces and lure dissatisfied company, and Enterprise Holdings has acquired
these acquisitions customers with more agile delivery models. Zimride, a ride-sharing and car-pooling company.
will continue in “These acquisitions have enabled the acquired
Smaller firms tend to be more alert to shifting
other sectors as small firms to rapidly expand their reach. In the
market trends and are more able to adapt than
companies their larger counterparts. The survey highlights case of Zipcar, it means continuing its quest to
demonstrate that this idea, with more than one-half of executives at build a global fleet”, says Mark Norman, the
they can produce large firms saying their company underestimates company’s CEO, albeit under the aegis of a larger
sustainable the impact of changes in the way consumers want owner. “It is logical that these acquisitions will
continue in other sectors as companies
business models to access goods and services, compared with just
one-third of executives at small companies. demonstrate that they can produce sustainable
with proven business models with proven profitability”,
profitability. However, big companies have the advantage of according to the mayor of San Francisco, Ed Lee,
❜❜ deep pockets. While it may take them longer to who is credited with coining the term “sharing
Ed Lee, adapt their culture and processes to the new trends, economy” to identify entrepreneurs using the
mayor, San Francisco
they have the option to acquire smaller companies Internet to connect services and products with
that have demonstrated success as a way to gain buyers. “It makes sense that [these companies]
immediately access and expertise in this area, says will become attractive for purchase or imitation by
Ann Mack, the director of Trendspotting at JWT already established businesses in the
Worldwide, a marketing communications firm. marketplace,” he says.
“Instead of fighting the encroaching competition,
partner with them,” she advises.
10 © The Economist Intelligence Unit Limited 2013Supply on demand Adapting to change in consumption and delivery models
3 What is cheap, reliable and
everywhere?
The Internet, mobile technology, secure online perceived drivers of change in this area. Economic
transactions, social media and the ubiquity of factors and demand for greater convenience—both
cloud computing are among the many issues that can be addressed thanks to
❛❛ technological advances that are making it possible technological advances—complete the list of the
You can connect
for companies to provide these kinds of delivery top three drivers.
with people in a models for any number of products and services,
way you couldn’t remotely and electronically, to a broader
Not surprisingly, technology-driven products and
previously, and services that can be accessed and purchased
community of customers.
electronically—including software, news media,
it’s changing the
“You can connect with people in a way you couldn’t consumer electronics, and music and
mindset of previously, and it’s changing the mindset of entertainment—are expected to see the biggest
businesses and businesses and consumers,” says Thomas Amos, shifts in consumption and delivery patterns over the
consumers. the co-founder of Sidekicker, an Australian firm next three years. More durable items, including
❜❜ that links companies with people seeking cars, homes, appliances and fashion, are seen as
Thomas Amos, temporary work assignments. least likely to experience big shifts in the near term.
co-founder of Sidekicker
The survey shows that advances in technology, Location, for example, can be a challenge in
including cloud computing, are top of the list of providing durable goods, particularly for small
Chart 5
Q Of the following, which would you say is the single most important driver of changes in the
way consumers obtain access to goods and services?
(% respondents)
Technology advances
(eg cloud computing) 37%
Economic factors (eg, cost pressures,
demand for greater value for money) 27%
Demand for greater convenience 25%
Policy or regulatory changes 5%
Environmental concerns 2%
Other 3%
Note: Percentages were rounded up and may not add up to 100%. Source: Economist Intelligence Unit.
11 © The Economist Intelligence Unit Limited 2013Supply on demand Adapting to change in consumption and delivery models
firms. While the Internet makes it possible to reach apps and broadband wireless continues to allow us
clients all over the world, delivery models for these to evolve the service.”
goods have to support that reach with fast,
Such models are of particular interest to younger
efficient and cost-effective options. That can be
consumers, who have grown up being able to access
tricky for smaller companies with limited budgets,
their email, do their banking and get their groceries
says Mr Amos. “You’ve got to be able to ramp up,
delivered, all from their laptops and mobile phones.
and match supply with demand.”
They also recognise the value in having access to
We’re all tech companies goods without the burden of ownership in a way
that previous generations may not have had.
Mr Norman of Zipcar credits innovative
technology—including GPS, secure ignition, the A survey released in February 2013 by Zipcar shows
mobile web and apps, RFID access and proprietary that 80% of millennials (commonly referring to
fuel access—with the success of his company. He people born between the 1980s and the 2000s)
refers to it as “a technology and service company find it much harder to own a car because of the
that happens to manage a large fleet”. high cost of petrol, maintenance and parking,
compared with 69% of those aged 49 and above.
“Ubiquitous wireless networks enabled the
existence of Zipcar in 2000,” he says. “And the They also feel more comfortable working with
preponderance of smartphones, downloadable peer-based companies, thanks to the grassroots
conversations that often support these new
Zopa revolutionises banking
Zopa is a UK-based peer-to-peer lending service capital,” says Mr Andrews, referring to the excess
launched in 2005, at a time when UK consumers capital banks are required to hold as part of
were highly indebted and bank lending had financial industry regulations.
reached historical levels. “It started because we
And he couldn’t have done it without the far
didn’t like the way banks were treating people,”
reach and easy access of the Internet. “It provides
says Zopa’s CEO, Giles Andrews. “We wanted to
enormous distribution possibilities, which allowed
create a more efficient business that created value
us to scale and provide checks and balances at all
for customers and allowed us to make a profit.”
stages of the transaction,” he says. Though he
The resulting service allows people to sidestep notes that recent advances in technology would
banks and lend directly to each other at lower rates probably have made it a lot cheaper to build.
and with a higher interest on savings. To ensure
Despite the initial costs, the business has taken
borrowers repay their debts, the company built
off, and Mr Andrews believes that Zopa will be
its own risk management engine that assesses
competitive with major global banks in a matter
borrowers’ credit history and likeliness to repay.
of years. It loaned £90m in 2012 at an average of
The company also vets all lenders to make sure the
£50,000 per lender, and £6,000 per borrower. He
money is legitimate and legal.
expects to lend £200m in 2013 and is targeting a
“It has all the administrative functions of a bank, billion in loans annually by 2015.
but it is simpler because we don’t require buffer
12 © The Economist Intelligence Unit Limited 2013Supply on demand Adapting to change in consumption and delivery models
Enabled by cloud
While cloud computing capabilities have been Saar Gillai, senior vice president and general
around for years, it only began to take off as manager at Hewlett Packard Converged Cloud, an
a business model in the early 2000s, with the IT multinational company. “Most customers see
advent of Salesforce.com, Google Apps and the improvements from weeks to hours because cloud
proliferation of virtualisation technology. Less automates so many things that were once manual.”
than a decade later 75% of companies use some
Many companies are now extending the benefits
sort of cloud platform today, according the 2013
of the cloud beyond internal efficiencies to
Future of Cloud Computing Survey of North Bridge
generate new revenue streams and even launch
Venture Partners, a US-based venture capital firm.
new companies, from banks that sell their internal
Eliminating the capital costs of hardware and credit rating tools as a cloud-based service, to
software as well as the personnel costs related to entertainment companies such as GameFly and
maintenance and upgrades is a boon for companies Netflix, which rent games and movies to members
looking to cut their IT expenses. It also allows for a monthly fee. “Consumers are getting
them to share resources in a way they can’t when accustomed to pay-as-you-go models, and they
technology falls under the control of specific like that flexibility,” according to Mr Gillai. “They
individuals or divisions in company. can instantly get all the capabilities without
paying up-front for the cap-ex, and they have
And while the cost-savings can be enticing,
better control over their spend.”
it’s the time-saving that draws people in, says
business models, says Mrs Mack: “They don’t think However, they are also quick to abandon companies
twice about doing business with peers or start-ups, that fail to deliver quality service or goods, she
particularly if the solution is less expensive than says. “Tools like user reviews and track records can
the established alternative.” allay a lot of concerns about quality.”
13 © The Economist Intelligence Unit Limited 2013Supply on demand Adapting to change in consumption and delivery models
4 Growing pains
The time- and cost-savings from which consumers the back end,” says James Beshara, the CEO of
can benefit through new consumption models can Crowdtilt, a crowd-funding platform where
translate into financial benefits for the companies consumers can create groups to fund anything from
❛❛ that can deliver these goods and services. a fantasy football league to a community park.
Building a However, establishing an interface and delivery
His team of 26 employees includes 22 software
seamless user system to support them is not easy.
engineers, who are focused on making the site
experience is the Survey respondents cite internal co-ordination, seamless and user-friendly. They are currently
most important technical complexities and compliance regarding putting the finishing touches on a mobile
factor—and that data privacy and protection as the key risks or environment that will allow users to launch a
takes a lot of difficulties in implementing such new delivery funding project in under eight seconds from their
effort on the back models. Cost is also a primary concern. Smaller phones.
end. companies, in particular, worry about the
Achieving this ease of use is difficult and fraught
technology and cost to get these models up and
❜❜ with security risks. It’s not just about making the
running.
James Beshara, technology work, says Mr Beshara. His team had to
CEO of Crowdtilt
“Building a seamless user experience is the most work closely with payment processors, credit
important factor—and that takes a lot of effort on companies, banks and regulators to make sure that
Chart 6
Q What are the key risks or difficulties you would associate with implementing
new delivery models?
(% respondents)
Organisational (lack of internal co-ordination) 33%
Technical (too complex to integrate) 30%
Compliance (data privacy and protection issues) 27%
Financial (deferring up-front cash and revenue) 26%
Regulatory (industry-specific regulations) 22%
Talent (skills shortage) 18%
Lack of management commitment 14%
Other 6%
Don’t know 2%
Source: Economist Intelligence Unit.
14 © The Economist Intelligence Unit Limited 2013Supply on demand Adapting to change in consumption and delivery models
Sidekicker navigates employment law
In 2012 Thomas Amos launched Sidekicker, an Australia-based does not deliver or take ownership of any work and that none of the
company that connects businesses with people looking for “sidekicks” are employed by the company or even guaranteed jobs.
temporary work assignments. Unlike traditional temp agencies,
Sidekicker also had to reassure its business customers that the
Sidekicker does not employ workers. Instead it acts as a
service complied with all of their legal and tax requirements as
matchmaker, giving employers a place to post openings and review
they managed their own employment records.
the profiles of hundreds of pre-screened workers on demand.
Even though all Sidekicker workers are independent and
The goal of the company is to streamline the hiring process
responsible for their own taxes, the company took steps to ensure
for both sides, but in providing that convenience, Sidekicker
they all met their tax obligations. “It’s one way we stay ahead
dropped itself into a regulatory black hole.
of the regulations,” says Mr Amos. “And it solves the problem of
Mr Amos had to work closely with regulators to prove the company ‘sidekicks’ avoiding paying their taxes.”
every field and interaction that customers have “The technology and the business model have
with the site guarantees their data are protected. evolved so quickly, the policy hasn’t had time to
catch up,” says Zipcar’s Mr Norman. This lack of
Giles Andrews, the CEO of Zopa, a UK based
rules is making some business owners nervous and
peer-to-peer lending service, agrees. “The winners
can delay their ability to make strategic business
are the ones who can figure out how to build a
decisions. “Our biggest ask [from regulators] is
platform that protects customers while adding
certainty in what the regulations will be so we have
value in the market.”
a solid foundation to navigate from,” says
❛❛ Regulators race to catch up Crowdtilt’s Mr Beshara.
The technology
and the business He is not alone in this concern. Compliance with
New models of delivery also have to accommodate
data privacy and protection ranks number three
model have regulatory requirements, which can be tricky in
among the key difficulties in implementing new
evolved so industries where the evolution of business models
delivery models. Larger firms rank it second on
quickly, the policy is outpacing governments’ ability to keep up.
their list.
hasn’t had time to “Entrepreneurs are coming up with new solutions
catch up. The lack of rules may seem like a boon for young
and innovations almost daily, and it’s important for
businesses eager to make their footprint in
❜❜ government to be nimble and flexible so that we
uncharted territory, but companies are just as likely
Mark Norman, can adapt to our residents’ demand for changes in
CEO, Zipcar (Avis) to benefit from regulations as suffer from them—
consumption,” says San Francisco’s mayor, Mr Lee.
depending on the decisions regulators make,
But regulators are not known for speedy decision- according to Mr Andrews. Pushing for specific
making, and they have many decisions to make. regulations can increase the validity of the industry
From defining financial oversight rules and and the chance that the right regulations will be
insurance requirements to establishing data enacted, he says. “If executives don’t participate in
security guidelines for information exchange and the process, they face a greater risk that regulators
collection, regulators are being forced to rethink will overreact and try to implement rules that get in
how these industries will be tracked. the way of their business growth.”
15 © The Economist Intelligence Unit Limited 2013Supply on demand Adapting to change in consumption and delivery models
5 Conclusion
Shifting cultural norms, lingering economic delivering incredible economic value.”
challenges and steady advances in technology are
l Consider cash flow. In a temporary access
changing the way consumers think about how they
delivery model, companies rely on future revenue
want to access goods and services. Together, these
streams rather than lump sum payments, so they
trends have helped to make the value and
have to be certain they can bankroll the transition.
convenience of temporary access more appealing
“When you move to a leasing model from a sales
to consumers than the intrinsic satisfaction they
model,” says Carbon Trust’s Mr Smith-Gillespie,
once derived from ownership. They have grown
“you need to make sure that it’s cost-side up or it
comfortable with the idea of using rather than
won’t work.”
buying goods and services, and they expect
companies to give them these options in user- l Make sure your interface is fast and easy to
friendly and secure environments. use. Consumers will only support these businesses
if they offer quick and seamless access to goods
This convergence of trends is forcing companies to
and services. “You might think you have the best
re-evaluate their own delivery models and
solution,” warns Mr Smith-Gillespie, “but if the
overcome the technical, organisational, regulatory
customer doesn’t see it as convenient, they are not
and financial issues that stand in the way of making
going to adopt it.”
them work.
l Work with regulators to shape policy. In
This transformation has already proved to be
industries where regulations are still in flux,
successful in a number of sectors, from software to
business owners such as Mr Andrews are working
automotive and finance. But executives still need
with lawmakers. “You want enough structure to
to focus on sound business principles. “It doesn’t
keep out scammers and incompetents, without so
matter how cool the idea is or how many people
many rules that it blocks efficiency and
tweet you or like you,” Zipcar’s Mr Norman says.
profitability”, advises Mr Andrews. “Working with
“Without solid, underlying fundamentals and a
regulators can help you achieve that.”
path to sustained profitability, your idea will never
go mainstream.” l It had better be good. Social media have made
it possible for consumers across the globe to
Executives interviewed in this report offer advice
instantly share their opinions—good or bad—with
on how to succeed in building new delivery models
a huge audience. That can work in companies’
that provide value to consumers and their own
favour, or it can harm them. “Consumers today are
bottom line.
hyper-connected, and when you give them a great
l Do the math. New delivery models will only work product experience, they can’t wait to tell their
if there is a strong business case backing them up. friends,” Crowdtilt’s Mr Beshara says. “But if it’s a
“Be sure you can achieve economic efficiencies and bad experience, or even lukewarm, they will tell
are able to offer value to consumers that is better that story too, and it doesn’t take long for a few
than the alternative,” says Zopa’s Mr Andrews. “The bad reviews to ruin a business.”
success of businesses in this economy are tied to
16 © The Economist Intelligence Unit Limited 2013Supply on demand Adapting to change in consumption and delivery models
Appendix:
survey
results
Q1
Please state whether you agree or disagree with the following statements:
(% respondents)
Strongly Agree Disagree Strongly Don’t know/
agree disagree Not applicable
Our company is seeing changes in how consumers in general prefer to obtain access to goods and services
26 56 7 2 10
Our company is seeing changes in how our own customers prefer to obtain access to our goods and services
24 56 12 1 7
The impact of behavioural changes among consumers in how they obtain access to goods and services is underestimated by our company
10 34 41 7 9
Q2
Of the following which would you say is the single most important driver of changes described in Question 1?
(% respondents)
Technology advances (eg cloud computing)
37
Economic factors (eg, cost pressures, demand for greater value for money)
27
Demand for greater convenience
25
Policy or regulatory changes
5
Environmental concerns
2
Other
3
17 © The Economist Intelligence Unit Limited 2013Supply on demand Adapting to change in consumption and delivery models
Q3
How, if at all, are your personal preferences changing for how you obtain access to goods and services?
Select all that apply.
(% respondents)
I increasingly prefer to access goods and services on a subscription basis (eg software licenses, news media or music) rather than purchase
38
I increasingly prefer to rent goods and services (eg apartments or camping spaces) rather than purchase them outright
26
I increasingly prefer to share ownership of goods and services (eg car-sharing services) rather than purchase them outright
13
I increasingly prefer to access goods and services through exchange (barter) arrangements (eg clothes) rather than purchase for money
9
Other
6
My personal preferences are not changing
34
Don’t know
2
Q4
How, if at all, are your business unit’s preferences changing for how it obtains access to goods and services?
Select all that apply.
(% respondents)
My business unit increasingly prefers to rent goods and services rather than purchase them outright
37
My business unit increasingly prefers to access goods and services on a subscription basis rather than purchase
35
My business unit increasingly prefers to share ownership of goods and services rather than purchase them outright
16
My business unit increasingly prefers to access goods and services through exchange (barter) arrangements rather than purchase for money
5
Other
3
My business unit’s preferences are not changing
31
Don’t know
3
Q5
What do you see as the main benefits to consumers from the types of shifts described in Questions 1 and 3?
Select up to two.
(% respondents)
Reduced transaction costs
36
More convenient use of goods and services
34
Easier to upgrade or downgrade products and services
33
Reduced amount of waste from underused assets
27
More convenient payment for goods and services
20
Greater personalisation of products and services
16
Ability of consumers to act as product and service providers themselves
9
Ability to connect with a like-minded community of users
7
Other
3
Don’t know
1
18 © The Economist Intelligence Unit Limited 2013Supply on demand Adapting to change in consumption and delivery models
Q6
What categories of goods and services do you think will see the biggest shifts in the aforementioned models of
consumption and delivery of goods and services in the next three years?
Select up to two.
(% respondents)
Software
29
News media
25
Consumer electronics and devices
23
Music and entertainment
23
Education
22
Healthcare services
17
Finance and peer-to-peer lending
15
Automotive
12
Accommodation
10
Household appliances and durable goods
8
Fashion
5
Other
3
Don’t know
1
Q7A
Is your company changing how it prices and delivers goods and services?
(% respondents)
Yes, we have changed how we price and deliver goods and services
20
We are in the process of changing how we price and deliver goods and services
31
No, we don’t intend to change how we price and deliver goods and services
45
Don’t know
4
Q7B
How is your company primarily changing, or how does it intend to change, the way it prices and delivers goods and services?
(% respondents)
We are integrating subscription goods and services to our business model
40
We are integrating shared goods and services to our business model
27
We are integrating leasing/rental goods and services to our business model
17
We are integrating exchange (barter) of goods and services to our business model
2
Other
14
19 © The Economist Intelligence Unit Limited 2013Supply on demand Adapting to change in consumption and delivery models
Q8A
What approximate share of your company’s revenue does the delivery model of goods and services you selected in Q7b
represent today?
(% respondents)
Less than 5%
25
5-10%
28
11-25%
21
26-50%
5
More than 50%
12
Don’t know
9
Q8B
How, if at all, do you expect that share to change over the next two years?
(% respondents)
Increase significantly
28
Somewhat increase
56
Stay the same
13
Somewhat decrease
1
Decrease significantly
0
Don’t know
2
Q9
What are the key business benefits you would associate with implementing new delivery models?
Select up to two.
(% respondents)
Opening up new revenue opportunities
37
Differentiation from competitors
27
Accessing new customer segments
27
Increasing customer loyalty
25
Reducing waste from underused assets
21
Strengthening our brand
19
Accessing new product markets
17
Improving our environmental footprint
8
Other
4
Don’t know
2
20 © The Economist Intelligence Unit Limited 2013Supply on demand Adapting to change in consumption and delivery models
Q10
What are the key risks or difficulties you would associate with implementing new delivery models?
Select up to two.
(% respondents)
Organisational (lack of internal co-ordination)
33
Technical (too complex to integrate)
30
Compliance (data privacy and protection issues)
27
Financial (deferring up-front cash and revenue)
26
Regulatory (industry-specific regulations)
22
Talent (skills shortage)
18
Lack of management commitment
14
Other
6
Don’t know
2
In which country are you personally based? What is your primary industry?
(% respondents) (% respondents)
United States Financial services
39 19
United Kingdom Professional services
31 16
Australia IT and technology
30 11
Healthcare, pharmaceuticals and biotechnology
7
Education
Whom does your organisation sell to? 6
(% respondents) Manufacturing
6
Businesses
Energy and natural resources
48
5
Consumers
Entertainment, media and publishing
11
5
Both
Transportation, travel and tourism
41
5
Construction and real estate
4
Consumer goods
What are your organisation’s global annual revenues 3
in US dollars? Chemicals
(% respondents) 3
Less than $50m Government/Public sector
28 3
$50 to $100m Logistics and distribution
4 2
$100m to $500m Retailing
14 2
$500m to $1bn Telecoms
8 1
$1bn to $5bn Agriculture and agribusiness
23 1
$5bn to $10bn Automotive
6 1
$10bn or more
17
21 © The Economist Intelligence Unit Limited 2013Supply on demand Adapting to change in consumption and delivery models
Which of the following best describes your title? What are your main functional roles?
(% respondents) Select all that apply.
(% respondents)
Board member
3 General management
46
CEO/President/Managing director
41 Strategy and business development
35
CFO/Treasurer/Comptroller
8 Finance
23
CIO/Technology director
4 Marketing and sales
23
Other C-level executive
4 Operations and production
18
SVP/VP/Director
16 Customer service
13
Head of business unit
4 IT
11
Head of department
4 Risk
11
Manager
15 Information and research
9
R&D
8
Legal
5
Human resources
4
Procurement
4
Supply-chain management
4
Other
2
22 © The Economist Intelligence Unit Limited 2013Supply on demand Adapting to change in consumption and delivery models
Whilst every effort has been taken to verify the accuracy of this
information, neither The Economist Intelligence Unit Ltd. nor the
sponsor of this report can accept any responsibility or liability for
reliance by any person on this report or any of the information,
opinions or conclusions set out in the report.
23 © The Economist Intelligence Unit Limited 2013London New York Hong Kong Geneva 20 Cabot Square 750 Third Avenue 6001, Central Plaza Boulevard des London 5th Floor 18 Harbour Road Tranchées 16 E14 4QW New York, NY 10017 Wanchai 1206 Geneva United Kingdom United States Hong Kong Switzerland Tel: (44.20) 7576 8000 Tel: (1.212) 554 0600 Tel: (852) 2585 3888 Tel: (41) 22 566 2470 Fax: (44.20) 7576 8476 Fax: (1.212) 586 0248 Fax: (852) 2802 7638 Fax: (41) 22 346 93 47 E-mail: london@eiu.com E-mail: newyork@eiu.com E-mail: hongkong@eiu.com E-mail: geneva@eiu.com
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