Conventional Revolution is only Evolutionary Over Time


Jonathan Schwartz, from Sun, examined IBM’s Departure from the PC Industry and takes current subscription trends to make the case for a zero cost PC over time.

“the devices are sold to consumers as part of subscription calling plans, whose long term value is sufficient to drive some relatively crazy discounting in the carrier’s retail outlets (go check them out, now that carrier’s kiosks are popping up everywhere). The same handset from multiple carriers can range from free to $799. And as mobile data services increase in value (even if most folks over 30 don’t even know what a ringtone or game download is), the insanity (or sanity) at the checkout counter will only quicken.

And as I was saying on Steve’s Gilmor Gang, give it a year, I’ll make a big bet, you’re going to see the same thing begin to happen in the PC industry. Will the average selling price (ASP) of a PC continue to meander south? Yes. Unrelated to component cost. Will it go to free, like handsets? Absolutely. In exchange, consumers will sign up for network plans, DSL, cable, you name it.”

Looking at current trends I would probably agree that this mini-revolution is forthcoming. Hell, didn’t Microsoft when we were going for “Software as a Service” plans? These short term zero-dollar investments make cell phones and could make PCs even more attractive to the masses but will these trends continue?  Weren’t there some short lived PC manufactures that have tried this already to a greater extent than the current discounts that lived on long after their companies didn’t?  The problem is that there are people already working to spin the pendulum back from subscription subsidized gadget model.

The reasons are similar to some of the “Vendor Lock-In backlash” that people commonly associate with Microsoft software. Over time users will realize that they would only be trading one form of lock for another that overcharges them on a monthly, rather than a one-time basis. 

Look at the explosion of people taking advantage of number portability (2.8 million to 8.5 million after a few months) as a leading indicator of people’s aversion to long term commitments to a paid service.  We’re creatures of convenience and what is convenient for the first 6 months will not be so 2 years from now when competition has created better opportunities than you signed up for.

Another leading indicator could be the growth of the Virgin Mobile (and other) pre-paid (non-committed services) business that targets tomorrow’s customers. It’s the coolness of the phone and targeted content rather than the specific carrier service that is attractive to the next generation.

Look at the backlash of tivo users who “wanted TV their way” rather than the way of the subscription content providers.  In the end there will be a backlash toward consumer choice that will ultimately restrict the growth of zero investment hardware that is currently on the rise. 

All of this is purely a good example of how most revolutions are only evolutionary once the pendulum of change adjusts itself back to a happy medium.  Enjoy your free PCs while they last if they arrive. :-)


Just in case it isn’t clear the text above is purely my opinion and not some sort of official Microsoft stance.   Oh, and I also reserve the right to have my opinions change over time.  :-)

 

Comments (13)

  1. AT says:

    I would like to post my personal opinion.

    Subscription plans is not a revolution!

    Currently this is very hard to find something that will attract clients. Offers from your competitors are very often similar to yours.

    Offering something for free ("first dose is free" 😉 can provide you some completive advantage and sales/income boost.

    But if everybody will start to do same – you will get back to old competition problem and your revenues will fade.

    There is no easy way to lock in customer to your services. You need to write somewhere in contract with little words – "You are required to use our services at minimum rate DD USD per month during NN months". Why ?

    Hardware is not a heroin. As well there are a lot of hardware, services and heroin suppliers.

    Even cellular phone are easy to unlock (and people do this!) and sign-up for your competitor services (one that will cost less – because they does not need to include costs of end-user hardware).

    Think also about this – computers can work without using any third-party services.

    Why Microsoft has to shift NT4 end of life?

    Why there are very big problem with sales of new Microsoft software?

    This is because people already happy with solutions for their business problems.

    They are happy with ROI from their one-time investment.

    Yes. I agree that subscription services are more profitable for service providers compared to one-time payment or pay-as-need based one.

    Why is this? This is simply because customers are overcharged. They are obligated to pay for something they do not use and/or unable to benefit from this.

    All thouse services trend started because this is hard to propose something that customer realy need and unable to buy from your competitor.

    If I was a customer – I prefer to take a loan from bank and buy all hardware I need. As result I will need to pay almost the same amount as an extra in "service provider" offering. While I’m not obligated to pay for / use bundled services (one that can be useless for my business).

    Dell already simplified this by offering Dell Financial services ( http://www.dellfinancialservices.com/ ) and allow customers to return back leased or unused hardware.

    You already can get hardware for "free" and pay monthly (only for hardware, not for fictional services!). No needs to wait for revolution 😉

  2. AT says:

    P.S> Additional problem with "free hardware".

    If you need Operating System, Word Processor and DSL/Fiber line – and decide to subscribe to all this from 3 different vendors – then you do not need 3 PCs (or network terminals) – you will need only one ;-))

    Some of thouse vendors will need to offer you PC-less subscription plans. So traditional sales will still live.

    I do not believe that Sun will be able to provide all of this alone 😉

    But I’m willing them to try.

  3. AndrewSeven says:

    He has some funny ideas…

    Many years from now, the desktop and the laptop will disapear, we will have really small multipurpose device that does everything, will they give it away for the cost of a cell-phone?

    I guess if the network is the computer, then you can give the computer away for free and charge for the network.

    I think that those of us that are "on the web" forget that access to the web is a small part of why most people have a computer.

    If people don’t begin to realize that free with service is expensive path, they will run out of funds.

    Note that I don’t have cell phone 😉

  4. Norman Diamond says:

    > "In exchange, consumers will sign up for

    > network plans, DSL, cable, you name it."

    Not quite free yet, but there are rather large discounts for customers who contract to buy ADSL from Japan’s largest spam sponsor at the same time as buying a PC. In some cases I’m sure the resulting price of the PC is lower than the maker even had to pay for the parts.

    If you already have ADSL from a different provider (maybe from one that is less supportive of spams) then you can lower your standards to switch and get that discount when buying a new PC. If you already have ADSL from that provider though, I don’t know what the rules are.

    Anyway I sure don’t have 8 ADSL lines at home, so sometimes I probably didn’t get a discount. (Actually 8 times I didn’t.)

    > Another leading indicator could be the

    > growth of the Virgin Mobile (and other)

    > pre-paid (non-committed services)

    Actually I thought those had stopped growing, though they remain moderately popular as long as they survive. The government has threatened to outlaw them because criminals use them. (One can only wonder why the government didn’t outlaw use of subways after the way Aum Shinrikyou used subways.)

  5. Stephane Rodriguez says:

    Subscription-based hardware and software are different beasts.

    From a consumer perspective, they are both good and evil.

    From a producer perspective, they are both good and evil. For instance, from a software developer perspective, subscription-based software promotes only the fittest, which means the death of all small, often innovative, vendors who have no money to spend in that game.

  6. grumpy says:

    I agree with much of your argument. There will be a balance between Service Provider’s offerings and Consumer prefernce.

    However I think that Hardware costs to the end user should only be zero if the Service/Retailer can guarantee they will set aside money to effectively retrieve and recycle the hardware once it is spent. In the future, Consumers may prefer to purchase ‘retrieval-prepaid’ hardware than face the true costs of recycling themselves.

    I don’t know about the US, but these types of issues are becoming more important in the EU marketplace (due to legislation).

  7. josh ledgard says:

    AT: I think we agree.

    Andrew: There is also good data to back up his theory that the biggest reason people buy a computer is to access the web and internet browsers are the most launched application on most machines. But yes, I think you could take that too far.

    Norman: The government wants to outlaw the pre-paid phones from the stores that don’t require any credit or personal information to sign up for. Virgin, on the other hand, still requires a credit card and does (through fine text) have a small monthly fee.

    Stephane: Not sure how subscription services favor the fittest only developers. If it was more common it would be easy to set up subscription pay services for any software and easy for any developer to use.

    Grumpy: I haven’t heard much about PC recycling legislation over here, but the US is slow about these sorts of things.

  8. lschofield says:

    "backlash toward consumer choice"???!?

    I can’t imagine a scenario where consumers will revolt against choice.

    I wouldn’t be so quick to dismiss the concept of a zero-cost computer. For many consumers, its possible to run all your apps on the web now. I find myself switching to web based Email, news services, browsing (of course). The convenience of accessing personal information from any machine outweighs any user interface issue, and the web increasingly provides an acceptable user interface. Tired of the free Verizon computer you got with your DSL subscription? Throw it out for the free Sprint computer you got with your wireless Internet service and the same data and apps are available.

    There is no reason a utility, personal device like a computer would not go the same direction as a cell phone, DSL modem, cable box — it’s increasinly useless without the service of connectiity, which means the same pricing models will eventually apply.

  9. josh ledgard says:

    The context of that quote is meant to imply that customers will move back towards choice and revolt against being locked in for several years to a service contract to a single provider.

  10. Norman Diamond says:

    In Japan consumers almost always have to buy "retrieval-prepaid" computers. I vaguely recall an option on Dell’s web site to avoid the recycling sticker but there was no discount for doing so. When disposing of a computers that were retailed before that law, a fee is supposed to be paid, but some retailers accept trade-ins without charging the fee.

    I thought the same law applied to some other kinds of appliances, but thinking about it now I guess not. Our new vacuum cleaner and nearly new TV don’t have recycling stickers.

    External peripherals don’t need recycling stickers, except that I think monitors do even though TVs maybe don’t.

  11. Stephane Rodriguez says:

    "Not sure how subscription services favor the fittest only developers"

    Because everyone favors the brand over the unknown. That’s already the case with retail buys, but that’s IMHO obviously reinforced when you subscribe for a given period of time.