Big tech buys vs. leasing4/29/2015
One of the scariest things about being an adult is making large purchases. With every high-ticket item — be it houses, cars, refrigerators, washers or dryers — every buy reminds you that as an adult you need to be a responsible decision maker. Still, for those who can’t commit to mortgages or car loans, there is an alternative: renting. You can rent a house, lease a car, rent-to-own appliances and, with the rise of the subscription model, you can now rent software and gadgets.
Over the last half-decade, a glacial shift in revenue generation has been occurring in the tech industry. Instead of purchasing technology outright, companies such as Adobe and Sprint have shifted to continuous revenue generation through subscription-only models. Just like it sounds, subscription customers pay a monthly fee to use a company’s service or device. With Sprint’s new model, customers no longer buy a phone straight away with a one-time $50 or $200 bill; instead they sign a contract to pay between $5 and $20 for two years. For Sprint the shift to monthly payments means a constant revenue stream but also the ability to kill device subsidies that keep them tethered to smartphone and tablet manufacturers. Basically Sprint customers are covering costs which were previously covered by manufacturers.
Adobe’s subscription model has the option to be contract free but at a higher cost. Software plans between $10 and $75 a month give creatives access to the company’s popular software collection, but since there’s no contract they can drop the service at any time. Adobe’s move to the subscription model represents a more common problem with modern technology. All too often, tech products become so good there’s truly no tangible reason to upgrade to the latest model. Adobe’s last outright purchase software collection – Creative Suite 6 – was amazing. Even though CS6 was released three years ago, designers, photographers and video professionals could easily get by with it for the next five or six years. Reaching near perfection actually hurt Adobe’s bottom line, and pivoting to the subscription revenue model is the only way to keep it healthy.
While tech giants Apple and Google are starting to embrace the monthly payment model, subscription tech accounts have been around for decades. For more than 30 years, Xerox has been allowing customers to lease its copy machines so companies can easily switch out aging machines. Before the online news revolution of the mid-2000s, many newspapers required readers to pay for access to online content. After Napster destroyed the music industry, services such as eMusic, Rhapsody and now Apple’s Beats gave users unlimited music downloads through a rolling monthly fee.
Maybe the most popular subscription technology firm is Netflix. On a month-by-month basis, Netflix users can stream unlimited content and, at any moment, drop the service. The model was so popular it has slowly wrought the downfall of the brick and mortar video rental business like Blockbuster and Hollywood video.
In the end, the subscription wave is possible almost entirely due to the Internet. Pervasive high-speed Internet affords services like Netflix or Beats the opportunity to deliver content immediately and continually. Startup firms are taking this same advantage and coming at major technology providers at all times, so the only means for giant companies to stay relevant is to lower the cost to access.
In the end, the only question you should ask yourself is if your budget can handle a dozen monthly recurring $15 bills. Between a leased phone, leased software, leased entertainment, and all the other bills you’re hit with at the end of the month, big one-time payments may still be the smart move.CV
Patrick Boberg is a central Iowa creative media specialist. Follow him on Twitter @PatBoBomb.