Goodbye services, goodbye goods: welcome to the solutions economy

Michèle DEBONNEUIL / Senior Economist, Caisse des dépôts et consignations / 2014-10-11

Enterprises are now able to collect all kind of real-time information about the needs of each consumer. They can provide innovative products that are neither goods nor services but something else, in between, that could be called solutions. Around these solutions we are witnessing the emergence of original business models, and more generally, of a new economy.

What is a solution? Let’s attempt a definition: a solution consists in providing on-site goods or persons to the consumer, tailored to the consumer’s specific needs, based on live information concerning him/her or his/her environment.

Solutions can also be remote-controlled actions in fairly simple situations where these actions can replace that of a person: activating a firewall in case of a fire alert, starting the heating system, etc.

Solutions also include situations where the consumer reacts to information concerning him/herself, for example by adapting his/her physical activity according to the information given by a bracelet with a sensor, or by responding to a failure, leakage or intrusion at home while his/her absence…

Solutions are beyond the obsolete distinction between secondary and tertiary sectors of the economy (manufacturing and services). Hence the more appropriate designation as “quaternary.” Solutions do not ignore industrial products, but they use them in a different way: production of goods, in the traditional sense, is simply about manufacturing and selling. In the best case, it also provides after-sales service. Solutions are focused on downstream use, by consumers themselves. They are basically focused on real persons (i.e. human-centric).

In what form will solutions be offered? The most likely scenario is that they will be marketed as packages that respond to an entire category of needs, rather than to an isolated need. The distributor’s role consists in tailoring a solution package for each customer and in verifying the effectiveness of the series of actions included within the package. For example, there will be solution packages for thermal renovation of homes, others for persons who are losing autonomy. Packages will integrate a control procedure that will assess effectiveness of what is expected.

This evolution will bring a number of adjustments in regulations. A solution is neither entirely a product nor a service. However, national regulation (taxation in particular) as well as international regulation (WTO) is often different between products and services.

Without completely eliminating traditional sectors, the implementation of solutions will revolutionize our economy to the same degree as when the industry revolutionized craft economy during the first and second industrial revolutions. Production methods and lifestyles will change drastically.

From purchased goods to available goods: towards circular and functional economy

Solutions will allow consumers access, from their living place, to goods that they used to buy through different forms. Creating value will no longer rely on production and sale only; it will move downstream, by assisting consumers in their use of a product during its complete life cycle.

For vehicles, solutions have taken the form of car sharing or car-pooling. In car sharing, companies will offer consumers with mobile access to information that will allow them to find the nearest vehicle from their location. Employees will be charge of maintaining vehicles in good conditions and moving them to locations where consumers wish to find them. Sophisticated processing of the data provided by routes used in the past will enable companies to optimize their management. For consumers’ convenience, these solutions should be articulated with public transport so as to know which steps to follow, by providing information on the starting point and ending point. Through various actions, consumers will be able to reserve seats in different means of transport when travelling from one location to another.

Similarly, appliances will no longer be purchased as such. Solutions will make them available to consumers where they live. Companies will need to know about the appliances needed by each consumer, organize the delivery and installation of devices, help consumers use them, provide maintenance and eventually remove them for recycling. To simplify consumers’ lives, these solutions will be offered in integrated packages consisting, for example, of all home electronics and appliances, calibrated according to the needs and wishes of each target consumer. The advantage of these integrated packages is not necessarily cost-wise – i.e. the sum of the purchase price of each unit plus the price of various after-sales services – but provide a better satisfaction of needs and put manufacturers in a position where they can handle the goods they produce throughout their complete life cycle, in order to minimize their impact on the biosphere. If manufacturers keep the ownership of their products, it is in their interest to optimize life cycles and take in charge, for example, the complete recycling of their products.

Quaternary solutions should therefore achieve the ultimate goal of green economies: functionality and circularity. Changes in behavior will not be imposed on consumers and companies for the sake of the planet. They will be endogenous to this economic model. Companies who provide available goods will want to do it with maximum efficiency and profitably; they will be encouraged to recycle goods because they are owners of their products and they will recover them at the end of their life cycle; furthermore, they will provide their products with the best possible care because they will be responsible for their replacement in case of malfunction; finally, they will produce them in a way that they will last longer. Companies will also reduce their diversity to match the capabilities of consumers because they will be called to assist them in case of problems. They will be pushed to operate in a new field of value downstream of the production chain, instead of striving to create ever more diversified products.

From services to a limited number of individuals to packages of solutions for all

In terms of household support, solutions could drastically change daily life. This need has always existed but the products were always underdeveloped because mechanization technologies were not appropriate to do so efficiently. They remained minimal and confined to specific populations within the context of household-employers or social services for people with loss of autonomy.

These packages will vary according to a person’s age. Some are suitable for children, others for middle-aged people or for older people. Other packages can provide solutions based on professional activity, tastes, health… Let’s mention some of the solutions that these packages could offer: fire detection at home, information on all kinds of parameters relating to the environment in order to optimize the use of heating or pause all appliances that consume energy when the door is closed, supervision of children on school trips, exchanges between parents and teachers, exchange of information between seniors and their families sent by health professionals who take care of them at home…

But the best way to understand what these packages are is to look at packages designed for persons in loss of autonomy. Indeed, one can easily understand the interest of staying at home rather than moving to a retirement institution: living at home, in a completely different way to live longer in good health. These packages are adapted to people who are still relatively independent. They should be able to extend this period through adapted prevention exercises.

The elderly access these packages through a user-friendly tablet which offers the following applications: personal (tweet, photo album, messaging, shared calendar…), culture and entertainment (stimulation games, virtual museum tours, kitchen recipes, access to Wikipedia…), news (local press, national  and local radio, television programs, Internet or video…), home automation (alerts on parameters such as temperature, humidity, carbon monoxide, pollution with interventions triggered by user-defined thresholds…), home care and health (health journal, consultation of medical tests by authorized third parties, access to the shared medical records, slide show for prevention according to pathology, information on vaccines, physical action and sports from the pedometer and performance graphs over time…). Tweet exchanges are provided among all interested users. Exchanges between professionals in charge of “solutions” (extranet operator, health professionals, stakeholders, caregivers, family…) and users are also possible. For example, persons with loss of autonomy can be asked to choose the meals provided every day, to provide information about their health…

Boosting the manufacturing industry

When goods are made available, they are no longer purchased but integrated in solutions bought by consumers. But this doesn’t relegate the industry to a secondary place, quite the contrary. Do we think for one moment that wheels or engines of a car are less important than cars because consumers don’t purchase separate wheels or engines, but the whole vehicle? Today, manufacturers position themselves as solutions providers, by focusing on the value of the downstream chain: from servicing and maintenance to more sophisticated services. A company such as Bolloré, through its Autolib service, belongs to this niche: emphasis is less on the product (the Bluecar) than on providing an integrated service that offers availability, mobility, insurance and maintenance.

The interest in the product changes in nature. For cars, for example, we are far from the differentiation and multiple-option strategies of the recent decades. All Bluecar are identical. Similarly, solutions will be competitive only if integrated goods are manufactured in the most efficient possible way, by using productivity gains allowed by digital technologies, wherever innovations are possible. Another prerequisite is that market must be large enough to make profits. Solutions are technically validated, but too expensive to implement if they are not widely shared.

Overall, solutions will encompass the industry and occupy the heart of quaternary economy. The arrival of these new end products shows that the debate between industry and services is over. The choice is no longer between goods and services, but about developing new solutions that integrate goods and are based on a strong and renewed industry.

The new positioning of goods in the value chain will even allow to boost the industry. Goods that are made available will be different from those we know today. This is still difficult to show because goods integrated in existing “solutions” look like those we buy. For example, Velib bikes are weighted to avoid being stolen. They should look like “neo-bikes” that include technological innovations, chain-free, ultra-light weight, scratch-proof, accessible and payable with a chip embedded in the smartphone, with an alarm that is set off when the geographic boundaries of their use are exceeded, with a push-in system to move them from one place to another… and the system for bicycles should be the same as for cars. We still have a long way to go!

The development of the vast sector of “quaternary solutions” should allow developed countries to regain a comparative advantage in relation to emerging countries. Based on the evidence that emerging countries will quickly have the same knowledge and expertise as developed countries, a comparative advantage in developed countries can only be achieved through their ability to use their knowledge and expertise to offer products capable of satisfying consumers who have been able to equip themselves since two centuries. The solutions economy meets the aspirations of demanding consumers who not only want to have more, but live better. Solutions are products of this specialization. Solutions can transform our cost disadvantage, resulting from our early presence in technological development, into a comparative advantage by producing products adapted to our higher life standards.

The growth of “quaternary solutions” greatly expands the range of possibilities in this direction. But as it relies on an increasingly precise and effective knowledge of individual consumer data, the development of this industry can reach frightening levels. Let us never forget that the protection of personal data is an essential part of our democracies.

Markets will do their work according to needs. This draft vision of a promising economic, social and environmental sector can trigger a public debate about how to grasp the best opportunities and manage risks effectively. It is in any way to impose a concept from above. This wouldn’t make any sense: quaternary economy cannot be decreed. It is being built as we speak. The cycle which began with the industrial revolution is at an end while this still marginal phenomenon will possibly be at the heart of the economy of the future.