We have started to see some confusion as to what makes a business model fall into the Ownership 2.0 category, so the distinction may be worth clarifying more directly. Specifically, some trade-in services for electronics like Gazelle, ReCellular and FlipSwap are being referred to in the media as Ownership 2.0 companies.

These services are quintessentially not Ownership 2.0 companies because they follow a “linear” ownership pattern rather than a “cyclical” one.

Ownership 1.0 models are parts of a disjointed linear ownership process, in which decisions are made at each of three steps:

1) Buy (Where?)

2) Own (Forever?)

3) Dispose (Throw away, sell, recycle, store, auction, or trade-in?)

Ownership 2.0 models are distinguished by providing cyclical total ownership solutions that allow a customer to decide all parts of the buy/own/dispose process at the point-of-purchase. Increasingly customers know that they don’t want to own an item forever, and Ownership 2.0 models help these customers acquire items in a manner that simultaneously helps them dispose of them later.

For instance, services like Netflix, Gamefly, or Bag Borrow or Steal proactively provide solutions for the return of the items as part of the service, which makes them very different than business models that rely on customers to reactively find them as the last step of a linear ownership process (like trade-in services).

The distinction is important because these new Ownership 2.0 models, by providing ongoing total ownership solutions, rather than a piece of a disjointed linear ownership process, are much more powerful and convenient method of ownership for customers.

When was the last time you spent too much money on something that you only used for a little while? Maybe it was a DVD that you bought and after watching it left it to gather dust, a handbag that you used once and grew tired of, or an iPod that was upstaged by a new model in a matter of weeks? Across all types of consumer products, people are realizing that long-term ownership of many of them doesn’t make sense anymore. For some, this is because they tire quickly of things, for others it can be as simple as a reaction to the clutter caused by a constant flow of purchased items.

In response to this consumer trend, new companies are springing up around new models of ownership that are built around the complete ownership cycle. Whether a subscription service like Netflix or GameFly, a temporary ownership service like TechForward or Bag Borrow or Steal, or a fractional ownership service like NetJets or Zipcar, these companies understand that subsidizing a users’ ownership costs by retaining value in the product is just as important as getting them the product in the first place. Consumers are responding by adopting these services in droves.

Let’s take a look at some Ownership 1.0 behaviors and their Ownership 2.0 counterparts:

Ownership 1.0 – Buying Commodities: Buy DVDs, Toys, Electronics and use them. Pile them in the closet when you realize you don’t really use them. Eventually throw them away during spring cleaning once they are throughly worthless.

Ownership 2.0 – Subscription Services: Subscribe to services that let you get the latest & greatest DVD’s, Toys & Electronics for as long as you want to own them while giving you an easy way to trade them in for new ones when you want. Keeps them out of the closet and quickly back into the hands of someone who will use them, and in doing so, lowers the overall cost of ownership dramatically.

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Ownership 1.0 – Selling Junk: Go into your closet and take out piles of things and try to sell them at a flea market, pawn shop, eBay, or trade-in service. Such services have existed in one form or another for a long time, and they all follow the same logic: use item for as long as you want, procrastinate about reselling them until they have little value, and then sell them for very little nothing.

Ownership 2.0 – Temporary Ownership: Buy or finance an item and get a fixed resale price – or residual value – at the same time. This allows you to sell an item back when you are ready to get a new one. Car leasing is a great example of this because it allows you to know what you are going to pay to own a car for 2 or 3 years. Of course, you have to agree to take care of it well over that time, but as long as you do, you get a portion of your money back, and you can move into something new. These models are moving down-market from things like cars and houses, to things like electronics, handbags and textbooks.

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Ownership 1.0 – Buying Expensive Items: Save up for years to buy an antique car, boat, vacation home, etc. Proceed to use it five days per year. Perform maintenance 2 weeks a year, or pay someone to do so. Eventually get frustrated at the expense-to-fun ratio and sell it. Repeat with a different item.

Ownership 2.0 – Fractional Ownership: Own a part of antique car, boat, vacation home, etc. and use it for up to as many days of the year as your ownership percentage allows. The cost of a single item can be spread out over a group of people who use the item infrequently, again dramatically lowering the cost of ownership without decreasing the utility very much, and sometimes increasing the utility because the item in managed and kept up by the service.

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Generally, the differences between Ownership 1.0 and 2.0 can be described as follows:

Ownership 1.0: Retailer sells the customer an item. Customer uses item. Customer loses interest in item, stores it. Customer eventually disposes of item or resells it.

Ownership 2.0: Retailer focuses on the needs of the customer’s ownership style for a specific type of item and offers an ownership option that goes beyond simple purchasing, but actively manages ownership and resale.

Would love to hear your comments!

Lessons can be learned from the recent rapid drop in iPhone prices. What is really going on in this debacle is that product cycles are getting shorter by the day in consumer electronics, and the industry hasn’t yet realized the massive changes that this entails for their business models, and the way they need to talk to their consumers.

The problems consumers face:

1) It no longer makes any sense to “invest” in electronics because they depreciate so quickly, so many people delay their purchase.

2) New models come out so quickly these days that the tech-savvy customer rarely wants to own a device for a long time anymore.

3) Upgrading constantly is way too expensive for most people because they don’t get any money back for their used device.

The problems retailers face:

1) Consumers delay purchasing because they are afraid to buy devices that they know are going to get cheaper.

2) Compressed margins on devices mean that accelerating velocity of sales is increasingly important.

3) Extended warranty plans make up most of their profit, but actually encourage people to own the device for longer periods, and are increasing irrelevant to consumers who want temporary ownership.

4) Few retailers understand how to own the full lifecycle of the consumer’s upgrade path. The current plan is “Sell them something and hope they come back at some point.”

Ownership 1.0 Solution: Trade-In Services

The pitch: At the end of of the useful life of a device, trade-in services can help consumers and retailers by turning the value of the device into store credit or cash that can help make upgrading more affordable, and help drive a new sale for the retailer.

Problem: Don’t connect the trade-in value at the end of ownership to the upfront sale, so they do nothing to encourage people to buy sooner.

Problem: Don’t provide any incentive for the consumer to come back to the same store to trade the device in.

Problem: People fear the uncertainty of the depreciation more than anything. The shock that consumers experienced with the drop in iPhone prices is a perfect example because what shocked them was not the depreciation itself, but how unexpected it was. If people knew upfront what to expect, they would have been able to make more informed choices about when to purchase.

Ownership 2.0 Solution: Locking in Trade-In Values At Point of Sale

The Pitch: By guaranteeing future value for the devices *at the time the consumer buys the device*, the consumer can:

Solution: Purchase with confidence during turbulent times.

Solution: Know how much they can get back for the device at any time in the future.

Solution: Plan their upgrade path better, and make upgrading more affordable at the same time.

By guaranteeing future value for the devices when the consumer buys, the retailer can:

Solution: Encourage customers to purchase during turbulent times.

Solution: Encourage the customer to come back to the same store to get their guaranteed price in store credit.

Solution: Provide certainty around the depreciation a consumer will experience over a given period of time.

Solution: Encourage consumers to upgrade faster because they can plan their upgrade paths better because they know the guaranteed value of their trade-in.

Guaranteed Buyback plans from TechForward solve many of these problems (yes, this is a shameless plug – it’s my company) .