Pay-Per-Use Models: Trends and Example Case Studies

We have provided examples of pay-per-use models in the following five industries: manufacturing and/or industrial, healthcare, energy and/or utilities, technology, and automotive & transport. For each example identified, we have provided the name of the company, what they are doing, and any publicly available success metrics. The entire research has a global focus.

Manufacturing and/or Industrial

BASF

• BASF is the world’s largest producer of chemicals, with operations in Europe, Asia, Australia, the Americas, and Africa. One of the product offerings is paint for automobiles. This was traditionally sold by the gallon to car dealerships throughout the world, as well as OEMs [original equipment manufacturers].
• In order to keep costs down, many of their customers kept their paint consumption at a minimum, which simply ended up hurting the quality of the paint jobs that they did. BASF figured out a way to solve this issue by sidelining their traditional supply model and transitioning to a pay-per-use model. 
• Instead of offering a price-per-gallon, BASF pivoted to a price-per-painted offering. This enabled BASF to transition from being seen as a supplier to a real partner that assisted customers in delivering a spectacular end product. The success measures are self-evident. BASF boosted its profit margin and expanded its market share by 40% as a result of the reduction in paint usage per car.

I.Revitalise

• By linking people that need machinery to the manufacturers that actually have the machinery, but are not using it, I.Revitalise offers a pay-per-use model that is available via an online machine sharing platform.
• This is an excellent example of pay-per-use, but with a business-to-business twist. It offers companies that are just starting up a flexible and affordable way to get the machinery they need without a substantial capital upfront cost. On the other hand, it helps out those more established manufacturers with the machinery to get the most value out of what are essentially, their depreciating assets.
• There are three solutions that I.Revitalise offers: Free for Life, Silver, and Gold. It is the “Free for Life” formula that provides businesses with a pay-per-use model, plus an additional 15% fee on each transaction.

• According to I.Revitalise, by more efficiently utilizing underutilized equipment, there is reduced waste due to downtime. Sharing existing equipment is more environmentally friendly than acquiring new equipment. At a more abstract level, the same holds true for competencies. The capacity of a provider to resolve a user’s issue is more advantageous to the user than gaining such capability on one’s own. Thus, the supplier discovers a market for his offering. As a society, you generate greater money via collaboration, and everyone contributes something beneficial.

Healthcare

Agfa HealthCare

•  Agfa HealthCare describes itself as a global leader in diagnostic imaging and healthcare information technology solutions for hospitals and care facilities.
• Computed radiography is a significant driver in the digital healthcare industry, making medical imaging more affordable, particularly to smaller healthcare institutions in emerging nations. The upfront financial investment in equipment and software, on the other hand, continues to be a significant barrier for healthcare providers with a relatively low demand for medical imaging.
• Agfa HealthCare addressed this issue by developing a computed radiography system that included a complete digital imaging package, including equipment and software, without requiring an upfront expenditure. They developed a time-based licensing system that enables healthcare providers to utilize the computed radiography package on a pay-per-use basis.
• Their clients pay on a monthly basis, with a set down payment followed by equal and regular installments, which minimizes upfront capital expenditure and simplifies cost management. As a result of the adaptable business strategy, the company gained access to new markets.
• According to Louis Kuitenbrouwer, former vice president of imaging at Agfa HealthCare, the low-end market for computed radiography is rapidly expanding. Smaller hospitals, individual clinics, and cost-conscious radiology institutions are interested in making the transition from analog to digital. Agfa HealthCare’s Easy Payment Scheme, which is driven by Wibu-Systems’ flexible license lifecycle management, enables inexpensive and predictable digital imaging.

Amazon Care

•  Amazon Care, is the online retailer’s pay-per-use digital healthcare system. The service advocates for a “digital-first” strategy, encouraging users to communicate and video-chat with physicians and other professionals whenever feasible, reducing wait times and making things more comfortable for the user. 

• Initially conceived and created just for Amazon employees, Amazon just signed on Precor, the Peloton-owned manufacturer of exercise equipment. Precor is the first outside client this pay-per-use service has landed and will offer 385 of Precor’s 800 employees the service. 
• The business model is straightforward and revolutionary. Amazon Care charges third-party businesses depending on how frequently their employees access the app, rather than the per-member, per-month fee offered by traditional health insurance. The pay-per-use concept grew rapidly, starting in January 2020 as a pilot program exclusively for Amazon’s Washington State employees to a company-wide program this past March.
• Obviously the pandemic was an accelerator with the normalization of tele-health, but Amazon is capitalizing on this trend and announced it was offering the service to outside companies. Amazon has reportedly approached a number of progressive firms, including real estate titan Zillow, but Precor is the first to join.
• Known for being notoriously tight-lipped, Amazon claims it is in talks with a number of employers regarding Amazon Care, but is not disclosing any details. According to Michael Abrams, managing partner of Numerof & Associates, Amazon is expected to target smaller firms looking to save money, as well as mid-sized or big businesses with concentrated workforces, as a starting point for Amazon Care sales efforts.

Energy and/or Utilities

Signify

•  Signify offers lighting products, systems, and services that are not only top of the line, but extremely energy-efficient. Their pay-per-use offering is called Signify Circular Lighting where a customer only pays for the light they need. This minimizes waste and provides significant savings on energy bills.

• Signify Circular lighting is an intelligent lighting system that is customized to fit the requirements of a customers space and exact needs, at a price that is manageable.
•  Signify will provide the design, equipment, installation, maintenance and upgrades, and then moving forward, the customer only pays for the light they actually use. 
•  Signify Circular Lighting can adapt to any kind of customer requirement change, so if they need more light, they can come in and add more.
• According to Signify, the model’s central premise is that lighting installations no longer require upfront expenditures and that users pay only for the illumination they consume rather than the equipment itself. This model benefits from higher savings as a result of the lack of investment, hassle-free operations and maintenance as a result of the absence of ownership, and financing.
• When Signify installed 3,700 LED lights at the Netherlands’ Schiphol Airport, it resulted in a 50% decrease in power usage, no upfront investment, and fixtures optimized for the circular economy, performance, and recycling.

Kaer

•  Kaer, an air-conditioning supplier to commercial and industrial real estate, has moved away from the legacy model of distributing products and equipment to providing a pay-per-use solution called air conditioning as a service.
• When looking at new buildings, Kaer takes care of everything from design, procurement and installation. The complete air conditioning system is owned by Kaer, and the company is responsible for paying for the electricity and water it uses. The building owner just purchases air conditioning for a fixed cost or on a pay-as-you-go basis, as desired.
• The real opportunity comes from overhauling existing buildings. Kaer obtains the assets from the building owner and then fully redesigns the current equipment to make it more compact and efficient.

• According to Dave Mackerness, Senior Manager, Customer Success at Kaer, if they can manufacture the same quantity of air conditioning with less water, electricity, and personnel, they can enhance their profits. As a result, they may spend significant sums in software and technology that enables them to deliver higher levels of service at a reduced cost. The business model virtually compels you to consider sustainability because it affects your bottom line, which he believes is quite strong.
• We found a YouTube video the company produced that explains their business model and it can be viewed here.

Technology

Amazon Web Services

•  Offering cloud-based products like storage, databases, analytics, tools for developers and managers, Internet of Things security, and applications for enterprises, Amazon Web Services [AWS] turned startup costs for internet business upside down by offering an affordable pay-per-use plan. 
• AWS does this by offering pay-per-use access to server infrastructure. So, in a nutshell, Amazon Web Services turned what could be an exorbitant amount of money that would be required for upfront capital, and provided a way for companies to turn that into an ongoing operating expense. 
• Amazon Web Services offers pay-as-you-go for over 160 of its cloud services, which means that customers are not drawn into long term contracts, do not have to contend with termination fees, and do not even have to consider complicated licensing agreements. They just pay for the services that they utilize. As of February 2021, AWS has a 31% market share, with Azure following behind at 20%, and Google Cloud at 7%.

Dell

• Dell announced in May 2021 the introduction of a new managed storage, server, and hyperconverged infrastructure solution that businesses may install in-house, at edge sites, or through colocation facilities. Regardless, in each situation the company only pays for capacity as needed, or in other words, they are paying by the use. 
• Dell Apex is the name given to this solution, which includes storage, cloud services, and a management dashboard.
• This will allow Dell Apex to roll out cloud-like pricing structures as well as flexible capacity using a pay-per-use hardware model. While this pay-per-use idea is not a novel one, the idea of this is heating up, driven by the fact that large companies are seeking alternatives to buying equipment outright for workloads that aren’t a fit for public cloud environments.
• There are real benefits to a pay-per-use which include the opportunity for enterprises to better line up the cost of infrastructure with actual usage.Additionally, it can help businesses save the time and effort associated with identifying, monitoring, and servicing physical IT equipment. With Apex, Dell manages the infrastructure, but it is located at the client’s discretion. 

• According to Akanksha Mehrotra, vice president, Apex, at Dell, they will pay a flat cost for the resources they consume, with no spike pricing or overage fees. It’s a genuinely outcome-driven method of procuring technology for their data center, just as simply as providing resources in a public cloud.

Automotive and/or Transport

Metromile

•  Many car drivers would probably be very happy to reduce the cost of their car insurance, which can be one of the most expensive bills people have, by paying only for what they use. Metromile is doing exactly that with pay-per-mile auto insurance. 

•  Metromile is car insurance that has a premium based solely on the amount the user drives, essentially allowing them to pay for insurance only when they drive their car.
• If a potential customer is debating whether pay-per-mile is a good car insurance option, Metromile has that covered and can help a customer decide before committing to a policy. Metromile created an app called RideAlong which calculates how many miles a person drives for 17 days. At the end of that time period, the app then calculates what the customer’s rates and monthly bill would be so that way the user can compare what they are paying with traditional insurance and how that compares to a pay-per-use model. It is important to remember that this kind of pay-per-use insurance model does not calculate how long a person is in a car. According to Chen, it is not the amount of time spent in your automobile that matters. It is the distance traveled. For the majority of individuals, they simply do not drive at all.
• According to Rick Chen, Metromile’s Director of Communications, there is a strong correlation between driving kilometers and the chance of being involved in an accident. Metromile claims that its members save an average of $741 each year. According to Chen, Metromile has some clients who pay less than that. According to Chen, the typical per-mile fee is between 5 and 7 cents. 

• Metromile is currently only accessible in the following states: Arizona, California, Illinois, New Jersey, Oregon, Pennsylvania, Virginia, and Washington.
• In February 2021, Metromile became a public company. Metromile merged with INSU Acquisition Corp. II which allowed them to bypass an initial public offering and be listed immediately on the NASDAQ. Metromile expects to receive about $294 million in cash from this transaction, which it will utilize to decrease existing debt and accelerate development, which will include expanding into new areas, expanding partnerships, and introducing new products and services.
• According to this April 2021 source, Metromile is disrupting the $280 billion auto insurance industry within the United States market. A big part of Metromile’s success came about because of the pandemic. As people were forced to stay at home and quarantine, as well as many employers telling employees to work from home, people were driving much less, and in some cases, not at all. Clearly people started to look at ways of reducing the cost of their auto insurance. This resulted in users switching carriers, which boosted Metromile’s revenue.

ShareNow

• Once known as Car2go, ShareNow has been paying attention to the age cohort known as Millennials, specifically focused on those that inhabit urban spaces. This age and location demographic increasingly is deciding that owning a car is not for them and are instead opting for a pay-per-use approach to getting access to a vehicle. 
•  ShareNow is a car-sharing service that allows a user to drive where they need to go without having to buy or lease a car. All the customer does is pay solely for car usage for any trip they need to take.
• The company makes it easy to use their pay-per-use model by providing the customer with an easy to use app where they input the details of what they require. There are no added costs like gas, parking, or insurance as they are quoted one price that covers everything.
• A user can pay hourly or even “by the minute”. The cars are not all stored together in one location, the way you would see a traditional car rental agency do. The automobiles are parked all over a city where ShareNow operates, and the customer can easily find one using the ShareNow app. This offers the user convenience and time savings as rental offices or return stations are never needed.
• According to Andrea Leverano, SHARE NOW’s Regional Operations Director for the South West Region, the company increased the duration of rentals in Italy by 86 percent in the previous year, increasing the number of rental days offered via the long-term option. These achievements are bolstered by the recent launch of SHARE NOW Rewards, the industry’s first loyalty program that enables users to collect points and redeem unique incentives.