Is the Future of Subscriptions Circular? A Conversation with Patrick Hypscher of Circularity.fm

Podcast, Season 7

Is the Future of Subscriptions Circular A Conversation with Patrick Hypscher of Circularity.fm

Today we’re talking about sustainability.

Where do the circular economy and the membership economy intersect, and how can both be applied to tread more lightly and produce less waste?

These questions have been at the center of the work of my guest, Patrick Hypscher. Patrick is a consultant and advisor and the host of Circularity.fm, a podcast about circular business models and Product-as-a-Service (PaaS).

With experience running PaaS businesses, both at Bosch BSH and at Bertelsmann, as well as at his own SaaS startup, Patrick has developed some really helpful models for manufacturers building subscriptions.

In our wide-ranging conversation, we talk about these models, why Europe is way ahead of the US with regard to product-as-a-service models, and the many benefits that are driving the growth of this emerging approach.

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Listen to the podcast here

 

Is the Future of Subscriptions Circular? A Conversation with Patrick Hypscher of Circularity.fm

Today we’re talking about sustainability. Where do the circular economy and the membership economy intersect, and how can both be applied to tread more lightly and produce less waste? These questions have been at the center of the work of my guest, Patrick Hypscher.

Patrick is a consultant and advisor and the host of Circularity.fm, a podcast about circular business models and Product-as-a-Service (PaaS).

With experience running PaaS businesses, both at Bosch BSH and at Bertelsmann, as well as at his own SaaS startup, Patrick has developed some really helpful models for manufacturers building subscriptions. In our wide-ranging conversation, we talk about these models, why Europe is way ahead of the US with regard to product-as-a-service models, and the many benefits that are driving the growth of this emerging approach.

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Robbie Baxter: Patrick, welcome to the show.

Patrick Hypscher: Thanks for having me, Robbie.

Robbie Baxter: Tell me a little about yourself and how you became so interested in circular products, and particularly with a product-as-a-service model.

Patrick Hypscher: Yeah, sure. So I think it went back to my degrees. I have a bachelor’s degree in business economics.

So I’m generally interested in all kinds of commercial things. And throughout this degree, I learned that the important things in life won’t be answered by economists or managers. So I decided to go on and study philosophy of the social sciences. While doing that in the UK, I also came across the early fathers of liberalism and market economics. Like Adam Smith, John Locke, and John Stuart Mill, and it was actually quite interesting to read their work as they considered themselves more like moral philosophers and started to describe the market economy. For them, it was also quite important to think about responsibility, like social responsibility for other people. So when we interact in a market that there’s also you have to leave enough and as good for all the others, and there’s some more responsibility. This was nearly 20 years ago, and I graduated and then started my career in a German corporate.

And the second step was also that I founded and owned a software-as-a-service startup. So this is where my as-a-service career started back then with software, which I guess is common these days.

About seven years ago, I joined Bosch Siemens Home Appliances as a entrepreneur, where I was supposed to build up and scale up new businesses inside the corporate on a global scale.

And back then, our Dutch colleagues already started in the first few months a product-as-a-service model, which I then took over and was in charge of that model for about five years. Scaled it in the Netherlands and scaled it in Germany. And then I had to get the answers to all the questions about product-as-a-service and fell in love with the circular economy.

Robbie Baxter: What product was it that was a product-as-a-service that you were incubating and scaling?

Patrick Hypscher: Yeah, so our focus was on home appliances, so dishwashers, fridges, coffee machines, and mostly freestanding home appliances in the kitchen or wherever your washing machine stands.

Robbie Baxter: I think my listeners are probably quite familiar with as-a-service and potentially even product-as-a-service. But you also brought up this idea of the circular economy. Where does that fit with the dishwashers and coffee makers, and washing machines?

Patrick Hypscher: Yeah, so first of all, maybe let’s start with the organizational goals we had when we started BlueMovement at Bosch Siemens Home Appliances.

First of all, we saw this shift in consumer preferences with car sharing. It all started with Napster and Netflix, and so on, and streaming. Or the overall access over ownership trend that started in software and then moved onto hardware. And so this was one thing that we saw customer demand for access over ownership models.

The second thing was also that we foresee that the way we operate right now in a linear economy will almost certainly lead to a situation where resources become more and more expensive. Back then, the assumption was mostly because of physical scarcity.

Right now, there’s also the geopolitical dimension to it. But back then, the hypothesis was that in the next 15 to 20 years, we as a global manufacturer would get in trouble in some kind of resource categories and wouldn’t it be wise to own our own asset base so that we don’t sell appliances anymore, or at least next to selling our appliances.

We also have a subscription base where we are still the owner and which we can use for harvesting, spare parts, and raw materials itself. So this was another motivation to start this model back then.

And I think on a broader scale, so coming back to your question about where’s this overlap between as-a-service and circularity? Circularity is about reducing resource consumption, especially virgin resource consumption, and avoiding waste to some degree, also facilitating a regenerative economy and the promise that is connected to product-as-a-service is that if you do that wisely, you can serve your customers in a way that they enjoy the benefits of the product without owning it. And you can keep resources longer in the loop and therefore reduce your resource footprint.

And also last year, I ran a series with 16 episodes on product-as-a-service only to explore this field a bit more. So let’s say my background and perspective on that topic is a bit wider than just the use case I’ve been in charge of for five years.

Robbie Baxter: You moved from being the leader, I think this is true of many subject matter experts and thought leaders. There’s a group that comes out of academia, right? And they choose a topic for their research to study and teach. But for a lot of us who started in the trenches working on a particular business model, maybe working at two or three different companies, looking for patterns, looking for best practices, trying to understand principles. You’ve done a lot of this in a more deliberate fashion, going straight from leading a business to studying it, having the podcast interviewing a bunch of different people coming at this from different angles.

The promise that is connected to product-as-a-service is that if you do that wisely, you can serve your customers in a way that they enjoy the benefits of the product without owning it. Share on X

I assume this allows your philosophical side to really embrace the ethical component of this. At the same time, getting a broader appreciation for what drives these different organizations as they move to product-as-a-service. I want to ask you, you don’t have to name names, but do you find that all of the product-as-a-service organizations are motivated by conserving resources, particularly virgin resources, and the ethics of treading lightly? Or are some of them coming at it from a purely financial or customer-centric angle, finding themselves accidental circularists?

Patrick Hypscher: Yeah. So I think first of all, we don’t even have to look at multiple or other organizations.

Even in a medium-sized company, you always find different people with different motivations. If you ask the CFO, you probably need to talk about recurring revenue and assets, and commercial possibilities. Whereas if you talk to the CMO, maybe sustainable ability will be more important. Nevertheless, at the end, it’s also important to talk about customer value.

Yeah. So don’t get me wrong. I love product-as-a-service in the circular one because it’s so complex in that sense. It has the dimensions you mentioned. It has the commercial dimension, the resource dimension. It does have the transformative dimension, especially if we look at an organization that’s coming from a linear economy or a traditional e-commerce sales background. So this is what I mostly like about the as a service. And the listeners know much more about the complexities of cohort analysis and so on and so forth. So this is what also drives me to look deeper into that topic. And yeah, I think motivation-wise, it’s a mixed bag. And the sustainable motivation would be the worst motivation to start that model because it has to solve a customer problem in a way that is superior to the previous one-time sale or non-subscription, or non-product-as-a-service fashion. So if you don’t secure that, on a commercial value proposition layer, anything else won’t matter anymore.

Robbie Baxter: Yeah. We’ve had several product-as-a-service guests on the podcast. We’ve talked about computers-as-a-service. We’ve talked about trucks, fleet management,and fleets-as-a-service. We’ve talked to the head of product at Whoop, which is wearables for fitness management, where you subscribe to everything, including the hardware.

And of course, HP, which is one of the very early entries into this space, and kind of an early adopter and experimenter in this model. If somebody is listening right now and they work at a manufacturer and they’re thinking about product-as-a-service, especially, driven by, as you pointed out, the political environment.

We’re in the middle of 2025. What guidance would you have for them about where to start and what best practices to keep in mind as they begin to launch their experiments?

Patrick Hypscher: I think the most important thing is to start with the customer. For me, product-as-a-service itself doesn’t have any special value.

Yeah. It’s just some kind of sales strategy if we want to be, let’s say, humble or keep it precise.

Robbie Baxter: Packaging, right?

Patrick Hypscher: Yeah. It needs to solve a customer problem in a better way than any other problem. So this is the first thing. And there are some indicators that might be the case.

First of all, your product might be service-heavy already. You already provide service contracts, or some of your customers provide service contracts to their customers. So you might need to provide spare parts.

Another indicator is that the price of your product is rather high. And for your customers, it’s maintenance-heavy, which kind of links to the service. So there are some indicators that. Give you a bit of direction, and this is a good way to start. If you want to look into that,

Robbie Baxter: What are some of the risks? You’ve seen a lot of businesses experiment with product-as-a-service. What are the mistakes that you see these teams make early on?

Patrick Hypscher: First of all, one of the biggest mistakes is that people fall in love with product-as-a-service, as a concept, and want to make it work no matter what. So, because it’s trendy or the competition is doing it. They ignore customer signals. Probably one of the most popular mistakes.

And why is it a mistake? Because it makes you blind to alternatives. So, sometimes a service warranty might be a better proposition or a takeback scheme. Or working together with another partner who’s closer to some end customers.

If you really see these signals, but want to stick to product-as-a-service because we have to do product-as-a-service, this is like a prominent mistake. Another one is visible at the end through the narrative, where many people didn’t say, “Yeah, it’s not working because customers prefer to own the product machine, whatever it is.” However, I feel this is an excuse covering the deeper reason that the product-as-a-service proposition itself is not attractive enough to the customer. That does not necessarily mean that the team did a bad job. Let’s take a pencil, for example. Yeah. It’s a consumable. It’s a low price. And it would be pretty hard to offer a pencil-as-a-service. So it’s not the fault of the team, so to speak. But what I’m saying is in other segments, it’s about making the value proposition work. And if it doesn’t work, the reason is not because people want to own, the reason is that it’s just commercially not attractive enough. And just maybe one more example to make that clear, but I normally also start some conversations with skeptics is, “how many of us own a plane?” Almost nobody owns a plane.

Why don’t we own a plane? Because there, let’s say, a product, their product-as-a-service offered out there. I can buy a ticket. I can so to say subscribe for a limited time to the benefits of a plane, including all the services around. And it wouldn’t make any sense for me if I want to fly two to five times a year to buy a plane and do a pilot license and all..

So, as-a-service works if it’s commercially attractive. And there are cases where it’s not working, but it’s not so much the preference of the customer that says I want to own. So this is something that is not the deeper reason behind.

Robbie Baxter: You brought up a couple of really important points.

One of them is to follow the customer and what they want, but also to recognize that there are certain products and categories where the basic values of product-as-a-service just don’t make sense. You gave the example of the pencil, right? And I want to take that example a little bit further and think about, ’cause you brought up a good point, which is you start with the goals of the company, right?

Are you doing this for reasons around sustainability? Are you doing this for reasons around building a deeper, ongoing relationship with the customer? Are you doing this because you’re concerned about accessing your materials in an increasingly difficult and complex global environment?

And depending on what your goals are, you might come up with a very different model that solves the problem better. And I think that’s important because I’ve run into many entrepreneurs, many CEOs who have the tail wagging the dog. They show up and they say we need some subscription revenue because it has a higher valuation in the public markets, because it’ll allow us to get our funding round done, because our peers are doing it.

I love subscriptions, and sometimes I think it doesn’t make sense because it’s not an ongoing problem. Or because the variability of what people need is at such a high level and has such high variable costs that you don’t want to charge two people the same amount when one person’s going to have much higher needs, and so on.

So I appreciate that, and are there certain businesses or certain attributes, like I always say, if you don’t expect to see that customer ever again, and you’re only going to sell to them once, you don’t need a subscription. Also, if you have some kind of legal or regulatory protection, you have a patent, and there’s a regulation that’s in your favor. Maybe you don’t need to invest in a subscription because you’re the only game in town. Those wedding dress subscriptions, probably never going to be popular. If you’re the last gas station before you get on the super highway, who cares if your bathrooms are dirty and you don’t have a subscription? You may never see that person again.

So what are some of those examples that we might not think of, where you’d say, “I don’t know if I’d go into product-as-a-service even to achieve a goal around a more sustainable product strategy.”

Patrick Hypscher: So I think first of all, it’s about the durability of the product. So if you want to run product-as-a-service in a profitable way, you need durable products that ideally see multiple customers. And yeah, you need to make sure that this is the case in terms of product design. And you also need to make sure that you have use cases on the customer side that allow that.

So, to give you an example, one of the successful models is a bike club from the UK that is also active in multiple other countries. And they rent out kids’ bicycles where it’s obvious that if you provide a bicycle to a 5-year-old girl, she won’t use it for five years. And at the same time, this bicycle itself will probably be used by other girls or boys. It needs to be durable, and ideally, it serves multiple customers.

Another aspect is the price point. So if it’s just too cheap, people will just buy it. That kind of relates back to the example of the plane. Typically, a plane is not cheap. If it were cheap, probably more people would own a plane. And stating the obvious, but it’s easy to forget, the maintenance level. Like this directly relates to the service aspect. If your product doesn’t require any service. It’s hard to offer it as-a-service.

Let me take an example from BlueMovement here. If you compare a coffee machine with a fridge. What’s the fridge doing? You can easily tell from the outside. It just needs to be plugged into a socket, and it needs electricity. Whereas if you have a fully automated coffee machine, it needs electricity, water, milk, and coffee, and many things can go wrong. It’s one of the most complex products we have manufactured, and it’s maintenance-heavy. You have preferences about milk and coffee and taste and so forth, and people go crazy about certain aspects there.

And although it’s the same industry, it might even be the same customers for some of the fridges. People say I just bought this fridge, so why should I use it as a service? And even if I just need it for two or three years, maybe as an expert, it might be easier just to buy it and then sell it secondhand.

Whereas for a coffee machine, things can go wrong. You need to repair, you need certain supplements to clean it, descale it, and so on and so forth. So the level of maintenance is important. These are the main criteria to look at.

I did a product-as-a-service wheel with 14 criteria. Happy to link it from the show notes.

Another aspect is logistics. So, especially if you’re running a model where you need to send products back and forth quite frequently, it does make a difference if you just have normal parcel shipments or if you need a truck to deliver something.

Logistics can make or break a subscription model.

Image by macrovecto:
In subscription models, logistics aren’t one-size-fits-all. A fridge might cost €150 to ship, vs. €10 for a phone, making frequent deliveries a major cost driver.

Again, let’s take the fridge subscription and compare it with a smartphone subscription. Both might come at 1000 euros or dollars retail price. But the logistics costs to ship it across the country differ tremendously. For the smartphone, it might be 5 to 10 dollars, whereas for a fridge it’s between 100 and 200 euros, at least here in continental Europe. And if you then put that into relation to the retail or production price, logistics can eat up a high share of your cost basis. And then if you’re running into a model where you need frequent logistics so this is another aspect.

Robbie Baxter: A small item is easier than a large item.

I mean, there’s so much detail and nuance to figuring this out. It’s really not easy. So Europe is way ahead of the United States, and I’m guessing maybe the rest of the world with regard to products as a service. Do you agree with that?

And if so, what’s going on that’s different?

Patrick Hypscher: Yeah, it’s a bit hard to say, to be honest, because with my background in philosophy, I sometimes try to only make the statements I can back up. And I didn’t do a full analysis of the product-as-aservice in the world. However, to keep it practical, I do think there are two reasons that work in favor of product-as-a-service.

So the first one is, I guess, a bit of a strong industrial base. We didn’t really talk about product-as-a-service in the B2B environment, but this is something where it makes sense. I mean, we know these cases about Rolls-Royce

Robbie Baxter: Rolls-Royce’s “Power by the Hour” (PBH).

Patrick Hypscher: We have some more examples here, Lighting-as-a-service (LaaS). There’s actually cooling-as-a-service, as another B2B example from Asia Pacific. Europe does have, in many areas, a strong industrial base.

 

If you can save resources, you can also save money. Share on X

It doesn’t stop with providing the product itself and the machine, you need to have a service contract, you need to repair that, you need to provide uptime, and so on. This is something that works in favor.

And another one is, probably that in Europe there might be more people who also want to start it for environmental reasons, or let’s say for reasons of resource consumption, and really try to make it work. And the cool and obvious thing is that if you can save resources, you can also save money. So this is just for a short or small degree.It is an environmental case. If you save resources, if you can use a product longer and can provide it to multiple customers this can turn into a pretty attractive model as subscriptions in general.

Robbie Baxter: I tend to be quite US-centric. I live on the West Coast of the United States, and those are the businesses that I read about the most and hear about the most. Your point is also about philosophy and attitudes toward sustainability and toward what’s best for the community versus what’s best for the individual. It does feel that different countries come at this from different perspectives and different customer bases.

And while I know that, there are many groups in the United States that are very focused on the environment, on climate change, there are also groups that are focused on cost savings and variety and flexibility, and cash flow management. There are a lot of different reasons that someone shows up for product-as-a-service.

Patrick Hypscher: Yeah, if I may just add and connect it to the previous question, which was about the motivation, and because what you just said is probably just one more argument to try it out in an existing organization. And as we all know, change and innovation and existing organization is difficult. And you need a bit of an internal lobby to support new projects, especially if they go against the core business. And therefore, you need the reasons from the customer side. You need the reasons from the commercial side, and if you also have reasons from the environmental side, that might make a difference here and there to start it or try it out for longer and stick to it.

Product-as-a-Service can have a positive benefit, but also, to be clear here, there are many examples out there that are not done for the environment. There are also many examples out there that are most certainly, let’s say, harming the environment in a way that they drive additional consumption through rebound effects. Product-as-a-Service itself doesn’t care about the environment. It’s a bit the way we implement it, and maybe in certain settings it doesn’t work.

If you want to answer this question? You first need to come up with a proposition design that is superior in terms of making the customer happy, as we said at the beginning.

Robbie Baxter: And what did you say was a rebound effect? What does that mean?

Patrick Hypscher: Yeah, the rebound effect is basically this is an economic term, not limited to product-as-a-service or subscriptions. It’s basically the idea that the intention you had is not backed up by the actual result, and the consumption behavior is firing back. So the classical example is the automotive engine. 40 years ago, our engines were less efficient than they are right now. The narrative back there was also, let’s make the engines more efficient and use less fuel per 100 kilometers, so we can save fuel. The engine developed in that direction, but the cars just got bigger, and we had more mobility, and ultimately, we just used more fuel and have more cars with more resources instead of keeping the size of the cars as they were 30 or 40 years ago, and reducing the resource consumption. So this is a bit where the rebound effect is coming from. And if we transfer that to product-as-a-service, is that it could also be that a certain service makes products more accessible to consumer groups that have not been able to use these kinds of products before, and you’re carving out more sustainable ways of consumption, maybe even certain ways of some customers would never have used a certain product because it is too expensive, or it doesn’t make sense. But now, with as-a-service, they can afford it. And in total, you have a higher resource consumption because of the product-as-a-service model.

Robbie Baxter: I’m sure there are businesses that came to as-a-service, particularly to solve a customer problem or for a recurring revenue-related internal goal, where the outcome is still a more sustainable solution. And then there are also cases where you’re trying to make it more sustainable, and you find that you’re actually going in the other direction. It takes a lot of focus on what the primary goal is. I can’t tell you how often I have clients who say, If I say to them, ‘Are you doing this to reach more customers? Are you doing this to acquire new segments? Are you doing this to have a deeper relationship that drives higher lifetime value? Are you doing this for environmental reasons?’

It’s very hard to optimize for multiple variables.

If you save resources, if you can use a product longer and can provide it to multiple customers this can turn into a pretty attractive model as subscriptions in general. Share on X

Patrick Hypscher: Yeah, definitely. And let’s not forget that product-as-a-service is a sales model, but the implications and the requirements to run it successfully keep a complete organization busy. And it’s pretty easy to get distracted. You need different ways of accounting. You most likely need new IT tools. You will need to handle various logistics. You need to adapt your marketing and storytelling, and so on and so forth. And you need to make sure that the senior management understands it.

And if it gets bigger and you grow your CapEx on your balance sheet, you need to have your investors on board as well, or you need to find solutions to get that off your balance sheet. It’s a complex, beautiful opportunity, and it’s easy to get lost.

Robbie Baxter: So I’m loving this conversation. I have lots more questions, but I know we’re coming to the end of our time, at least for this conversation. I’m wondering, do you have a minute for a speed round?

Patrick Hypscher: Sure. Okay.

Robbie Baxter: The first subscription you ever had?

Patrick Hypscher: Almost certainly a newspaper subscription.

Robbie Baxter: Your favorite subscription right now?

Patrick Hypscher: The On running shoes.

Robbie Baxter: And what’s the subscription for?

Patrick Hypscher: These are running shoes. I do not own, but I use them as-a-service. They’re made of bio-based material. Once I feel I can’t use them anymore. I sent them back. They get recycled, and there will be new shoes made of these shoes specifically, and I get a new pair. I pay a monthly subscription fee.

Robbie Baxter: Perfect. We actually had a guest early on the podcast who talked about the Nike Adventure Club, which was a very similar model, but for children’s shoes.

The philosopher who’s been most influential in your professional work?

Patrick Hypscher: Adam Smith

Robbie Baxter: The most relevant episode of the Circularity.fm podcast that you host for subscription professionals?

Patrick Hypscher: The conversation with Mailin Jappé, formerly from Acer, who also showed up in your show. And in this conversation, I wrap up the 15th conversation before about product-as-a-service.

Robbie Baxter: Awesome. Patrick Hypscher, thank you so much for being a guest on Subscription Stories.

Patrick Hypscher: Thanks for having me, Robbie.

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That was Patrick Hypscher, Circular Business Strategist, Product-as-a-Service Expert and Podcast host of Circularity.fm. For more about Patrick, go to Hypscher.com. And for more about subscription stories as well as a transcript of my conversation with Patrick, go to RobbieKellmanBaxter.com/podcast.

Also, I have a favor to ask, if you like what you heard, please take a minute to go over to Apple Podcasts or Apple iTunes and leave a review. Mention Patrick in this episode if you especially enjoyed it. Reviews are how listeners find our podcast, and we appreciate each one.

Thanks for your support, and thanks for listening to Subscription Stories.

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About Patrick Hypscher

Patrick Hypscher

Patrick Hypscher works as a consultant, advisor, and runs Circularity.fm, the podcast about understanding, building, and managing circular business models. He studied Business Economics and Philosophy of the Social Sciences before starting his career with Arvato Bertelsmann. Patrick ran his Software-as-a-Service startup, provided management trainin,g and led the circular business model BlueMovement – a Product-as-a-Service business by BSH Group, one of the world’s leading companies in the home appliance sector and the largest home appliance manufacturer in Europe.

 

 

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