James Governor's Monkchips

People Don’t Buy Things, They Subscribe To Services 2

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Some time ago I captured some of my thoughts about the economics of subscriptions and services in a blog entitled Enterprise and Consumers Don’t Buy Things They Subscribe To Services.

Wireless comms is an exemplar:

The mobile phone industry relies on subscription based models. You pay a monthly fee for your services and in many cases the provider gives you free hardware to access that service, subsidizing or even eliminating the upfront cost of the handset.

When I read Why Microsoft Can’t Best Google from Tim O’Reilly it struck me that he was articulating a very similar concept in this post:

Software isn’t an artifact that someone buys, it’s a relationship between a customer and the provider of a service.”

Absolutely right on.

One thing that perhaps isn’t explicit in all this thinking, which Tim just helped me grok, is the “historical inevitably” involved here. That is, the conditions in which open service models thrive were created by traditional software players, rather than by new entrants. These companies are bringing it upon themselves.

After all – you can’t buy software. No vendor sells software. They only license it to you.

Go read your EULA. Ed Foster does a brillient job of tracking the fatuous EULA industry.

Not only can you not buy this software, but you can’t sell it on either.

The music industry tries to play same game- in RIAA’s eyes you can’t resell music because you never owned it in the first place. Just a license to use it, under terms set by the copyright holder. The mechanisms for preventing the customer from owning the content they pay for are called copy protection or digital rights management.

Is it any wonder web savvy end users are rebelling and voting with their feet and instead adopting services they consider more open, more easy to use, something you can dip in and out of. Note going with services, not products. Of course the terms and conditions of web service players can be just as absurd, and annoying, as anything in the “packaged software” realm but of course it is perception that matters in adoption and customer choice.

[One question to music and software players is: What about my copy rights? That is, my fundamental right to copy something I have paid for and use it in a different context.]

Tim closes, with what he calls a digression, pointing to how many US government agencies effectively subsidise Microsoft by driving citizens to IE.

There are instructive parallels in the way that the auto is “baked in” to our economy by government sanction in ways that railroads are not. Gasoline taxes “fund” highway maintenance and development while any investment in railroads is a “subsidy.” I don’t know the history, but it’s clear that the auto industry managed to finagle a situation where the government collects taxes to fund its infrastructure requirements.

For those that are interested I plan a couple of related posts about  the new economics of service and outcome pricing. If you have any related insights please let me know.

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