Sustainability: Services - not Products - Are the Key to Aligning Interests

Posted on February 14, 2008

Updated on 2/15/08

As can be seen throughout the posts on this blog I have begun to look deeper into environmental issues, sustainable businesses and business practices over the past year. While I am admittedly new to the topic and still have a lot to learn I have picked up a lot fairly quickly and have had a lot of interesting ideas pop up.

In fact, I picked up another interesting idea while hanging out with a friend of mine last weekend. The topic of sustainability came up during our conversation and we started talking about business models around sustainability.

My friend brought up a great point and that was that current product based companies interests are not aligned with those of the environment.

As seen in the Story of Stuff, product companies want to design products that won’t last forever so consumers will buy more. In fact, product companies try to figure out how short of a life span products can have where the companies brand remains in tact and consumers will go out and purchase another one of their products (disclaimer: not all product companies work this way of course).

So how do we get the interests of product companies and the environment aligned? The answer is simple:

Selling services not products.

Update: Selling services instead of products is called “servicing” in green business circles.

For example Carrier - the A/C manufacturers - could do deals where they charge monthly/yearly for air conditioning services. They install and maintain the equipment and agree to keep your air at x temperature for $x per month/year.

This creates a situation in which Carrier wants to build better products that have a very long usable life and products that are super efficient since Carrier assumes the capital costs and costs to run the machines. Pretty interesting, right?

Update: The A/C idea was originally brought up in the book Green to Gold:

By offering “a service instead of a product, a company profits by reducing its use of materials and energy, and providing that service at the lowest cost possible. Lovins argues, for instance, that air conditioner manufacturers should offer cooling as a service - not AC units as a product - so they’d have an incentive to make the systems highly energy efficient. In some green business circles, the idea of recasting a product as a service, often called “servicing,” is the holy grail of environmental innovation.”

I have heard of a company employing a similar type of service model for carpet as well. This company has a carpet system that consists of a number of squares that link together. When a high traffic area is worn out, they simply come into the building, pull up the affected squares, replace them and recycle the old squares. In this situation the company does not charge for the carpet itself, they charge for the service (floor covering services) which causes them to want to create very durable and reusable products.

Update: The company is called InterfaceFLOR and more info can be found on their site.

There are many other product businesses that could employ a similar service model rather easily (in the scheme of things) by figuring out the costs and creating a pricing situation that makes sense for them and for the consumer.

What other industries do you think could employ a “service” makeover?

Update: I have a lot to learn and a lot more to read on this subject. If you are interested in reading and learning more as well please check out the comment on this post left by Peter Christensen as he outlines the best reads for the topic of green business.

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4 Comments so far
  1. Peter Christensen February 15, 2008 7:33 am

    Natural Capitalism (by Paul Hawken) is *the Bible* for this kind of stuff. It’s probably in my top 10 favorite books of all time.

    http://www.amazon.com/o/asin/0316353000/pchristensen-20

    Actually, anything by Paul Hawken is required reading for anyone who wants to take an intelligent approach to environmental economics. Here’s a review I wrote for “Ecology of Commerce”

    http://www.pchristensen.com/blog/articles/the-ecology-of-commerce-by-paul-hawken/

    Another guy to keep an ear out for is Amory Lovins, head of the Rocky Mountain Institute. If Paul Hawken wrote the Bible, then Amory Lovins is like God for this field. He did a lecture series at Stanford that is available online:

    http://www.pchristensen.com/blog/articles/worlds-best-primer-on-energy-competitiveness/
    http://sic.conversationsnetwork.org/series/si-energy.html

    Catch up on Hawken and Lovins and your world will be transformed and you’ll know more than 99% of people in the world about environmental economics.

  2. Eric Olson February 15, 2008 9:40 am

    Thanks Peter! I will absolutely check out the work of Hawken and Lovins.

  3. John Zeratsky February 15, 2008 1:50 pm

    We have InterfaceFLOR tiles at home. But we purchased them square by square, not as a service. Even so, it’s a more sustainable approach than traditional carpeting — if one area wears out, we can pick up a couple new tiles instead of replacing the whole thing.

  4. Eric Olson February 15, 2008 2:23 pm

    @ JZ: I thought that is what you had. Apparently that company has commercial services as well where they sell the carpet as a service.