Services Model

2009-01-18 (Sunday) by Gregory Tucker.

I saw this article on the NY Times website. It was interesting though not particularly shocking–people are cutting back on services or substituting them with DIY efforts.

Separately I am reading a book called Natural Capitalism which, among other things, advocates a utility, service-based model for a number of products which today are largely purchased.

An example I thought of recently was roofing on houses. Consumers typically purchase their roof, which can cost several thousand dollars and last for 10-20 years. Recently homeowners without sufficient cash flow would use a HELOC or 2nd mortgage to acquire the roof. Discarded roofing materials typically end up in the landfill.

In a utility model, homeowners wouldn’t purchase their roof but would lease their roof from a service provider, who would repair, service, and replace the roof on some regular basis. Ideally the service provider could control its costs by designing roofing materials that could be repaired, reused, or recycled easily. The renter would pay a fixed monthly or annual rate for the service, and wouldn’t have to worry about environmental factors such as moss or hail damaging their roof–the service provider would provide all repairs.

I see an economic benefit–namely consumers could not delay roof replacement in order to save money in the short term–what realtors call “deferred maintenance”. They must make payments in good times or bad, provding more consistent revenue flows for the service provider.

As always I see issues with this model. What happens if the renter can no longer afford to pay. Is it ethical to remove their roof, exposing the house to certain damage from the elements? Is it even legal? And if renters know this, will they be tempted to sign contracts for the purpose of breaking them almost immediately?

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