Stuff as a Service

NPR has run a couple interesting stories on the current woes of the auto industry and what dealers are doing to cope. A story this morning described how a dealership did better margins on used cars than on new cars. One GM dealer was even offering cash off a new car... if your trade-in was not a GM. But it was last Friday's story that got me, as the general manager of a dealership described how he was selling new vehicles at cost or below cost, with the expectation (and hope) that he'd be able to make back that margin through the service department. In fact, this gentleman described that about 70% of his dealership's profits came from the service department, not new car sales.

It's a page out of the Gillette playbook - we'll give you the razor for free and you'll buy the blades for life - but applied to a totally different category. Of course, when Gillette sends you the razor, the only blades that work in it are Gillette blades. But with a car, you've got options: the dealer, the franchised fix-it shops, the independent neighborhood mechanic. In "Straight from the Gut" I remember reading how Jack Welch challenged the managers of his Nuclear Reactor businesses, who were suffering from years of negative growth, to rewrite their business plans based on zero sales. They were able to find success by creating a business based on the service and maintenance of existing reactors.

All this to say, software isn't the only thing becoming a service. Stuff is a service. Your TV. Your phone. Your car. Your house. Your razor. Your radio. Your water. Your music. I think we're subscribing to more things, in more ways, and transacting less, than we ever were before.