These days, all of these products are being sold as services. With Amazon Web Services we’re buying IT infrastructure and computing as a service. With Apple Music, we’re no longer buying music but streaming it over the internet for a monthly fee. We don’t even store our own pictures anymore, they stored in the cloud rather than on our own computers. With “Subscribe and Save” from Amazon, we can even get toilet paper as a service.
I first learned about selling products as services in 2004. I was on a business school trip to United Technologies, one of the biggest manufacturers of helicopters. They were telling us about a pricing change in helicoptors. They’d sell you a helicopter for a low price, then, for each hour that you flew your helicopter, you’d pay United Technologies an hourly fee. I thought this was a great model because it aligned United Technologies’ costs and revenue with the customer benefits.
It’s a bit scary that everything is becoming a service. All of my digital books and music are not my physical property anymore. When I bought a physical book, it was mine. I owned it so I was able to loan the book to you, sell the book, burn the book, or do whatever I wanted with it. When I buy a book today on my Kindle, I don’t own it. I buy a license to Amazon’s Kindle service for this book. I’m totally dependent on Amazon to provide me this book. If something happens to Amazon or it changes its policies, that book could disappear.
So why are things moving to this services model? Why would I want to get something as a service rather than buying it outright? Buying a service aligns incentives between a consumer and the company. By buying something as a service you can get much closer to the actual consumer benefit. My favorite example of this is printer ink.
I’ve had HP Inkjet printers for over 20 years. While they do a good job printing, I was constantly fighting with HP over ink cartriges. HP had a “razors and razor blades” strategy for pricing. They would sell the printer for cheap (like a razor) and make the money on the ink (like the razor blades). I would spend $50 for a printer thinking I got a great deal. Then, once my sample ink ran out, I’d have to pay another $50 for my black and color cartridges.
My printer would waste ink on maintenance activities like calibration and cleaning tests. I would fight back by buying third-party cartridges on Amazon for a fraction of the price. Then HP decided to update my firmware to prevent the third-party cartidges from working anymore. When I bought a new printer, I wanted to reuse my old HP ink because I had a signficant inventory of HP 61 ink. So I made sure to buy a printer that used these cartriges. However, when I opened it up the new printer I was shocked to find that my old cartridges didn’t fit. HP had created “HP 61 New” cartridges that were incompatible with what I had.
I was about to give up, thinking that I might just get rid of my printer and do all my printing at Kinkos. Then I decided to try HP’s Instant Ink service. I now pay three dollars a month for printing or $36 a year.(1)This gives me 50 pages a month and I can roll over up to 150 pages. That’s about as much as I would pay for one HP Inkjet cartridge. I don’t have to worry about it running out and buying a replacement. HP bills me once a month and will send me a new Inkjet cartridge when mine runs out. It’s a little creepy that HP’s watching my ink over the internet but it’s far less creepy than having my Amazon Echo listen to me. $36 a year is a fair price to pay for printing at my house when I don’t have to worry about fighting with HP.(2)This is the same decision that Delores Williams made. Delores sued HP so she could use third party ink on her HP printer but ended up subscribing to Instant Ink because it’s easier.
This is the real benefit of buying things as a service. I’m not worried about my ink anymore. I don’t need to wait until I use up all of my ink cartritriges before buying a new printer. With Instant Ink, I’m paying HP for my ability to print at home by the page. This aligns my goals with HP’s and makes our relationship work a whole lot better.
|↑1||This gives me 50 pages a month and I can roll over up to 150 pages.|
|↑2||This is the same decision that Delores Williams made. Delores sued HP so she could use third party ink on her HP printer but ended up subscribing to Instant Ink because it’s easier.|