TECHNOLOGY SPECTATOR: The internet's new rivers of gold

The subscription model is increasingly dominating the digital age, offering everything from music and movies to business software. But it isn't always win-win.

Technology Spectator

With the push towards subscribing to every-bloody-thing-as-a-service, it seems no one wants to be left as the low-margin box shifter of the digital age.
The concept of 'buying' stuff is becoming as antiquated as the idea of owning a cow for the milk. For just a few bucks a month Spotify and others will quench your thirst for music. Even YouTube supposedly has plans for a subscription music service. Meanwhile Australia's Quickflix offers all-you-can-eat movies, although Netflix's easing of restrictions on foreign credit cards is making it easier to tap into the supposedly US-only service – if you can bypass geo-blocking and trick it into thinking you're a local.

Of course it's not just the entertainment industry which has developed a taste for the subscription model. Before your business lays down a wad of cash for Microsoft Office or Adobe Creative Suite, ask yourself whether it's smarter to simply pay by the month and free up your funds for other things. Thinking about investing in a new ERP, CRM or accounting system? The combination of software-as-a-service and subscription billing puts enterprise-grade services within reach of small businesses so they can punch above their weight.

For many providers the subscription model has become the holy grail of the internet age, whether you're trading in boxes or bits. Margins are razor-thin and products become commoditised so quickly that many manufacturers, channel partners and retailers are making the transition to becoming managed service providers. Subscription billing services such as Zuora have sprung up to feed the growing appetite for subscription models.

Widget-makers need not feel left out in the cold, as the ongoing need for consumables and content also lets them tap into subscription-style rivers of gold. King Gillette's vision for the disposable razor is alive and well, with today's inkjet printers practically given away because vendors know they make their real money on the ink cartridges. Gadgets such as tablets, e-Book readers and games consoles are also subsidised by the steady revenue stream from content sales and subscriptions. Of course the key to success is to stop your customers from sourcing their content and consumables elsewhere – or at least, as with Apple's app store, ensuring you get a slice of the action if they do.

While service providers are looking for ways to smooth out revenues, customers also appreciate the consistency of monthly or annual subscription fees – letting them turn considerable capital expenditure into a more manageable ongoing operational expense. From teenage Justin Bieber fans to Fortune 500 companies, X-as-a-Service can make a lot of sense.

When it comes to movies and music, all-you-can-eat subscription services are perhaps the best weapon against piracy – making it easier to pay for content rather than steal it. The extra complication is that artists complain they're not paid enough by the likes of Spotify and Rdio. Such complaints tend to fall on deaf ears among music fans who are finally handing over some money.

Music fans are doing the right thing – how the money gets divided up is someone else's problem. Decades of globalisation, combined with rise of the internet, have created cut-throat pricing and razor-thin margins in every industry. Consumers are told not to care how much third-world labourers were paid to stitch their jeans or build their smartphones, so they're unlikely to care how much first-world rock stars are paid to pick up their instruments.

The subscription model might seem like a win-win situation, but it pays to crunch the numbers before you slap down your credit card rather than hand over the cash up front. Remember, if you stop paying your subscription you're left with nothing. An advantage of this is that it's easier to switch between services without the need to abandon a considerable upfront investment. Yet taking the sting out of your triennial upgrade bills makes it easier for you to grow complacent rather than re-evaluating the competition every few years.

Traditional vendors looking to transition customers to an out-of-mind, out-of-sight monthly subscription are going to considerable lengths to sweeten the deal. Microsoft is practically giving away Office 365 Home Premium – throwing in five licenses for the entire Office suite for only $119 per year. An equivalent single retail copy of Office 365 Professional will set you back $599, although to be honest few home users are likely to care about Microsoft Publisher and Access.

Microsoft is pushing the subscription model so hard that it's quite possible that Office 2013 will be the last version that you can actually buy outright. The software giant didn't only work hard to make the subscription model look more attractive, it also rewrote the fine print to make retail copies of Office look less attractive.

Retail copies of Office 2013 initially came with an OEM-style single-computer license which locked your copy of Office to the first computer you installed it on. If your computer died, your retail copy of Office 2013 died with it. When it came time to upgrade your PC, you were expected to buy a new copy of Office. Once attention was brought to these draconian restrictions, the consumer backlash saw Microsoft back down and reinstate the right to transfer a retail copy of Office 2013 to a new computer.

If some businesses had their way we'd never actually own anything ever again, but make sure you crunch the numbers and read the fine print before you sign your life away.

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