April 01, 2003, 12:00 AM — I bought a color printer the other day. The kind that will print very
respectable photographs from digital cameras as long as you use the
right type of glossy paper and the right type of color cartridge. Both
were bundled in the box and the box looked cheap to me.
I'm such a sucker for a good deal. I think I can spot one when I see one
too. I'm an informed consumer - or so I like to think. Marketing people
love people like me - an over-confident idiot with a credit card.
One day after the purchase of my printer, I was clean out of glossy
paper and clean out of color cartridge. No problem I thought, I'll just
pick up a replacement. I picked up the catalog and looked up the price
of the "consumables". The was an instantaneous sharp, searing pain in my
wallet. These photo printers are cheap to buy but they are certainly not
cheap to run!
I hasten to add that once I calmed down and looked at the situation
afresh, I did not feel too badly. The initial cost of the printer is
simply not a reflection of the total cost of ownership. Once that sank
in, calm returned.
The experience got me thinking of all the other areas in my life where a
similar pricing structure exists. The classic example of course, is the
"give away the razor and sell the blades" example. Like many of my ilk,
I wear a beard and thus razor blades are not high on my shopping list
for consumables. I do however, use a mobile phone. Mobile phones are
also very cheap to buy - the caveat being that you must sign up to a one
year contract with a telecommunications provider to avail of the
discounted price. With the aid of the mobile phone, I consume phone
minutes. The inhabitants of my office building consume a lot of coffee.
The machine for making it came "free" with the contract to supply the
coffee and filters.
Top on my list of professional consumables (surprise, surprise) is
software. However, software is not famous for business models based on
the razors/blades pattern. Could it be? Should it be? I think these are
interesting questions.
Look at the capital cost of software in today's world. In competitive
markets, we are seeing a race to zero for commoditized applications. The
Internet is driving the costs of software access, reproduction and
distribution down ever lower. Combine this with the rise and rise of
open source - with its built-in zero price point for the software itself
and what have you got? A situation which parallels the color printer
business?
We are perhaps, headed to where printers and mobile phones have ended
up. That is to say, the initial cost of software will be either zero or
deeply discounted from fair value. The business model for applications
will be driven entirely by the lock-in that can be achieved so that
customers come back to the source (no pun intended) of the software for
all the consumables.
But what are these "consumables" in the software world? The traditional
answer lies in all the equations we see about the true cost - the total
cost of ownership - of application software.
In the software world, customers consume *integration services*. Indeed,
their appetite for integration services grows apace with the quantity,
complexity and diversity of the applications they deploy.
In order for a business model around integration costs to fly, there
needs to be some way in which the original creator of the software gets
paid - not just the system integrator working on the client premises.
This would be a problem for zero-money-down software in the world as it
is today.
One possibly interesting route there would be for software to be free
but with a run-time cost every time it *talks* to some other
application.
Of course for that to fly, we would need a well defined way of treating
applications as discrete services that "talk" to other services in a way
that can be metered. Software would become a collection of services.
Running locally or remotely, paid for on the basis of its interactions
with other services.
In such a world, open source or closed source would be an irrelevance
from a business model point of view. Every service in the architecture
would implement the ISO/ANSI service metering interface (There is no
such interface by the way, I just made that up.). Perhaps the industry
would establish fair tariffs models for different types of software
interactions? Perhaps these Standard Interaction Units (SIUs - again I
just made it up) will develop into their own e-currency and be offered
alongside frequent flier miles wherever geeks gather?
Or perhaps some fumes from the printer cartridges have caused me to just
lose it momentarily?
Perhaps.
