Product-as-a-Service in Air Traffic Management
The Covid-19 pandemic forces us to modify existing business models and find new ways to survive, grow, and stay competitive in the current economic situation. One of the ways is a Product-as-a-Service concept that will be presented in this article.
The pandemic has changed the situation…
The pandemic has led to numerous social and technological changes. Remote ways of work and training, e-commerce, etc. are becoming a normal practice. A current business trend followed by many companies, from start-ups to large multinational corporations, is the re-launch of existing business approaches in pursuit of corporate sustainability and customer satisfaction. In this context, the PaaS concept is receiving growing attention.
What is Product-as-a-Service?
In a nutshell, Product-as-a-Service (PaaS), also known as Product-Service Systems (PSS), is a combination of products and services. It implies that a manufacturer continues owning a product, while a customer subscribes to using the product instead of buying it.
PaaS is not a new business concept. It has been present in the market for a while and has gained traction over the past few years among companies eager to copy the Software-as-a-Service (SaaS) or Anything-as-a-Service (XaaS) model of subscription revenue. The last is a general, collective term that refers to delivering anything as a service. It recognizes the vast number of products, tools, and technologies that vendors now deliver to users as a service over a network (typically the internet) rather than provide locally or on-site within an enterprise.
Although the PaaS model is not so much present in the aviation domain, one of the best-known examples of an innovative commercial concept in the aviation environment was originally developed by Rolls Royce in 1962. Before the introduction of the new model, the production of engines for Rolls-Royce was only a product business: the engine became the property of the aircraft manufacturers for a high one-off price. In the new pay-per-use business model named “power-by-the-hour” flight hours were sold to the airline companies instead of the engines themselves.
Today, most industries work based on flat pricing and one-time transactions, when a manufacturer transfers ownership to a customer. From that moment, the customer is responsible for the product and its maintenance. Such a business model makes manufacturers focused mostly on sales but not on quality and continual improvement. This is the standard approach in the linear economy.
The transition from a product to an all-inclusive service makes a product to be combined with services. The PaaS business model allows customers to purchase the desired result rather than the equipment that delivers that result. Usually, PaaS is offered as a model based on a subscription, where the customer does not make a one-time payment for the whole product but pays a weekly, monthly, quarterly, or yearly fee. Since the ownership is not transferred, a PaaS provider is more involved in customer support and therefore is more interested in producing a better product. A product turns into an expert service.
It is always up to the customers to choose the concept that they believe to be most suitable for their needs, and therefore they need to ask themselves first: “Whether my company needs the product itself or just the benefit it brings?”.
Definitely, PaaS offers some additional benefits and, eventually, a completely different experience when the product quality, availability, and support are the key points.
PaaS and the circular economy
PaaS is a significant contributor to the circular economy.
According to the definition of the European Parliament, “The circular economy is a model of production and consumption which involves sharing, leasing, reusing, repairing, refurbishing and recycling existing materials and products as long as possible. In this way, the life cycle of products is extended.”
This economic model is completely different from the traditional linear models which are based on a “take-make-consume-throw-away” pattern. In practice, it means that if the customer does not need the product anymore, it usually ends up in the trash. But with a circular model, the product returns to the manufacturer where it can be recycled and given a new life so that waste is reduced to a minimum. Another very important thing is that by examining and studying the used product after it was returned, the manufacturer gets valuable information about it, knows how to upgrade it better, and makes it more durable and easier to maintain.
Leasing and PAAS. What’s the difference?
The Product-as-a-Service model is when the customer buys the product functionality on a temporary basis but not the product itself, and pays a portion of the product price as a subscription fee, based on the number of licenses, time of use, etc. In fact, it is very similar to renting.
Leasing works almost like PaaS but allows the customer to redeem the license after several years of monthly payments, depending on the chosen repayment plan. It’s more expensive than PaaS, yet it basically offers complete ownership as the full product price is repaid. After the term passes, the customer only pays for Support & Maintenance, having his own license.
Using the PaaS model means that you can pay for a subscription as long as you need it and terminate it without difficulties. This model also protects the customer’s investment by reducing the chance of making the wrong choice of mission-critical systems, essentially allowing the solution to be tested before investing in implementation for many years to come.
Who are the stakeholders?
A PaaS relationship typically involves an agreement between a customer who needs a product and a manufacturer who has this product and associated services. If we are talking about Air Traffic Management, customers are often Air Navigation Service Providers (ANSPs), Air Traffic Control (ATCO) training organizations, and Civil Aviation Authorities (CAAs), while manufacturers are companies involved in the design, development, and production of Air Traffic Management systems, simulators, Voice Communication Systems, etc.
What are the advantages of PaaS?
PaaS offers a number of advantages both for product manufacturers and customers. These advantages include, first of all, stability, flexibility, predictability, and support.
The PaaS business model allows for wide variations in the type of value being delivered to the customer. The readiness to provide PaaS demonstrates the business maturity and the ability of the manufacturer to make products available and tailorable to the specific customer needs.
The constantly changing economic situation and unstable market conditions greatly affect the sales figures and make it difficult to forecast sales and product ordering. Service-based products shorten the payback period and increase revenue stability and predictability. PaaS model helps to turn companies’ major long-term capital expenses (CAPEX) into operating expenses (OPEX). CAPEX costs are often paid upfront all at once while OPEX is short-term expenses, and they are paid weekly, monthly, or annually. The returns on CAPEX take a longer time to realize, for example, machinery for a new project, whereas the returns of OPEX are much shorter. If a company chooses to lease (or rent, or pay-per-use) a piece of equipment or program instead of purchasing it as a capital expenditure, the costs would be classified as an operating expense.
PaaS provides an effective tool to manage customer relationships, i.e. the process of building positive relationships with customers. Customer relationships become closer and straighter, thus allowing the manufacturer to get a clear understanding of customer requests and to quickly respond to them.
Key benefits of PaaS from the Customer’s perspective:
- Permanent access to the product for the customer
- Access to regular updates of always evolving product
- Maintenance-free experience of using a product
- Improved customer support and engagement
- The significantly lower initial cost to start using the product
- The transition from capital expenditures to operating expenditures
- Flexible payment scheme/schedule to suit a particular customer
- Easy subscription/termination terms
- No need to take care of hardware upgrades during the product lifecycle
- Environmentally friendly model
How PaaS works
We can talk a lot about PaaS and discuss why it is attractive for product manufacturers and customers, but after all, everyone wants to know the figures. Of course, each case is different and depends on many factors, including the initial cost of the product, the financial instruments involved, the composition of services offered by the PaaS provider, etc. Smart, flexible, and assertive companies appear to be in a better position. Along with that, such factors as the quality of the business environment in the manufacturer’s country, the stability of the financial system, and the transparency of all processes are also of great importance.
In this sense, ANSART is fortunate to be based at and supply products and services from one of the world’s most reputable countries, the Kingdom of the Netherlands. In cooperation with Dutch banks ING and ABN AMRO, we have developed a subscription package for our customers. It covers the provision of both software products and software/hardware products, with a monthly subscription price of about 1000 Euros. Our customers have access to a variety of our products such as, for example, the ATC simulator with 3D visualization (for 4-6 working positions), the basic ATC system (for 5-7 working positions), the ATIS/D-ATIS, ATS unit personnel management system, etc.
ANSART is a Dutch company created by an international team of CNS/ATM experts, software developers, and entrepreneurs, and all of us are convinced that the complementarity of knowledge and skills is the “winning equation”. Most of the team members worked for industry best in class market leaders and developed products and concepts. Gathering best-in-class knowledge, experience, and technology as well as an overall understanding of the ATM industry became our second nature. And that’s is why we are developing state-of-the-art products and services.
For the last 20 years, we have developed an array of products and solutions for the ATM industry. Our products and solutions offer the best price/quality ratio in the market whilst capitalizing on the latest state-of-the-art technology. We offer almost everything you need to equip your ATC unit. On the basis of scalable Air Traffic Management solution Ansart-ATC we can build an ATC system of any complexity starting with Air Situation Display to provide basic features of seamless air and ground traffic awareness ending with Ground/Tower/Approach/ACC Air Traffic Management system with embedded A-SMGCS functionality. Our ATC 3D simulator helps always keep ATC personnel trained. Apart from that, we are pleased to offer ATIS/D-ATIS, Recording and Playback system, and Voice Communication System.
A major part of our products is rolled out on the cloud and ready right now for a demo upon your request.
“We are here to make state-of-the-art CNS/ATM products available to any customer”