Customers want subscription not capital investment

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Category : Random

Customers want subscription not capital investmentI saw a great tweet today from @CSG_Channels that really prompted me to write about this.

The tweet:

Comment: Customers want subscription not capital investment. This requires a shift in focus for many in the channel.


This statement in my opinion is quite powerful.  People these days don’t want to be tied up with capital investment.  This is a trend that expands well beyond IT.  Take a look at this CNN article from 2010 “Rise or the Rental Class“.

Some notable quotes from the article:

“With homeowner markets stressed, it appears renting has become more appealing than owning. Between 2004 and 2009, the number of renter households rose nearly 10% or by 3.4 million, according to a 2010 studyof the Joint Center for Housing Studies of Harvard University. ”

“Owners don’t pay the landlord, but they pay taxes and maintenance costs on their house, and Gyourko says those costs can end up being roughly the same.

As far as buying a house as a smart long-term investment, Gyourko says that’s not always true. He says between 1975 and 2008, the price for houses of similar quality and size appreciated an average of about 1% per year after inflation. Investors could have earned more by buying Treasury bills.”

I rent, here is why:

 

  • I don’t have to spend one minute a month maintaining my home.  This gives me more free time to work on revenue generating activities.
  • If something breaks, I am not on the hook for it.  If my dishwasher breaks, I get a new one.  Simple as that.
  • I have a fixed monthly cost.  This is what first appealed to me when I was researching managed services so many years ago.  A fixed monthly cost is a huge benefit to a person as it is to a business.  Unexpected costs can cause cash flow crunches, and I am sure you all know how much stress and additional cost a lack of cash-flow can cause.

It doesn’t necessarily make sense to outlay a lot of capital expense into something like a home, when the cost of renting is usually less.  I know the age old argument of “If you rent, you are throwing your money away” but when you take a look at the breakdown of a homes monthly expenses, a large amount is money that will never produce a return. Insurance, property tax (less tax savings), and maintenance.
Of course this is argument is for an asset  that is supposed to appreciate.
Now if you compare this trend to investing in underutilized server, desktop or software infrastructure, who’s value is notorious for depreciating very quickly, you can see why the cloud is being talked about so much.
We are living in an era of bootstrapped businesses.  Most companies new or old do not want to lay out thousands or hundreds of thousands of dollars for infrastructure that will be out of date well before it has been paid off.

 

I know I would much rather pay a small monthly fee to a service provider than invest many months of income upfront.  This makes my business that much more flexible. If my business changes, I can change my service provider to fit my needs a lot easier than buying, configuring and managing new software.

 

The cloud allows the small business to compete with very large corporations around the world, while retaining that oh so precious capital, agility and the high performance needed.
You can see the trend happening in other markets as well.  Netflix is on its way to destroying the DVD – Blue-Ray market and Apple is rumored to release a cloud based music subscription service.
When you add in the costs of managing and maintaining on-premis systems, ask yourself – do things really add up?

 

 

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Comments (1)

Hey Brad,

I agree with you. We can also look at other business reasons to make the case. IT infrastructure has not been the goal but the “conduit” to achieve business goals, and historically the life span averaged about 4 years. It never makes sense for business to own IT infrastructure, just like it didn’t make sense 100 years ago for large businesses to own their own mini power plants (electricity infrastructure). It was a necessity if they wanted, what then was a huge advantage of power generation. It started with large corporations looking for an advantage, to where now, the average consumer enjoys more electricity access than the first large electricity pioneers. Once municipalities laid out power grids those mini power plans became backup generators.

The trend follows similar for what we are seeing with IT. I knew a gentleman who told me a story of where he worked in the 1950s. It was an accounting firm who leased the second IBM in Canada. They had to open up a wall in the building to move it in. Since the cost was astronomical, they leased it for thousands of dollars then (even more today). The “computer” was just to do simple calculation with punch cards. Leasing (renting) was usually the way it was until the innovation of the PC and then the server/client model, where “buying” became the rage for the last 15-20 years because of lower costs (maybe salesmen where too good with their message of ‘this is the last unit you will need in years!’). Let’s continue the trend, where now I carry more power on my Motorola Atrix than the IBM sixty-some years ago. Add to that cloud computing and you can only image the possibilities in the next 60 years.

For our part we will carry the banner for subscription/utility based infrastructure or IaaS. Even better we will do it in partnership with MSPs and IT professionals. We offer them the option to start with subscription based private cloud access so in turn they can build great solutions for their own business and their clients.

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