Ethan Lou writes a regular column in The Globe and Mail’s Report on Business. His latest book is Once a Bitcoin Miner: Scandal and Turmoil in the Cryptocurrency Wild West.
In 2010, the company now known as Sphero was founded in Boulder, Colo., with the mission of making a nice robotic ball. You might have heard of it. Sphero was hired by Disney to bring to life the BB-8 droid from the Star Wars films, so that the snowman-shaped, orange-accented robot could be sold as a toy. The company’s founders were both tinkerers. They loved this ball stuff.
But the market thought differently. Sphero didn’t make as much as money as expected. The company faced a problem: After you’ve sold people a ball, and everyone who wants a ball has a ball, how do you keep the lights on and the bills paid?
In other words, how do you make people keep paying you for the one ball for which they’ve already paid?
So, at the beginning of 2018, the company laid off 45 people and pivoted hard into a different area of its business: tying a recurring educational package to its ball and selling that to schools. The company had no doubt looked around, seen what everyone else was doing, and realized the key to survival: Its ball needed to be a subscription.
Subscriptions are not new. Gym memberships are subscriptions. The product that you’re reading at this very moment is a subscription. But these days, everything else is also a subscription, whether songs, video games or Microsoft Word. In one way or another, Tesla cars and Peloton exercise bicycles do not have their full functions available unless you pay for a special membership. There are now subscriptions for razors, watches, clothing and bamboo toilet paper. There are even services that help people build and sell subscriptions, some of which charge a monthly fee – a subscription-subscription. In certain markets, BMW has made its heated car seats a subscription. Canada’s EQ Bank recently put out a note asking if customers have “hit subscription overload.”
As with Sphero, which had been nudged along by investors, a company has an obvious financial case for pursuing the subscription model. The episode description for one business-to-business influencer’s podcast reads: “If you sell an apron, a pacifier, or a pool cover, how do you create recurring revenue?” Dive deep into the minds of business folks, and you will see – from self-styled gurus to big-name tech executives, people talk up subscriptions as if they’ve just discovered the cure for cancer.
Many of these new subscriptions are unremarkable. Taco Bell’s taco subscription, for example, is really just a clever discount for tacos. But there’s also a new, different type of subscription: the type that, in order to exist, changes the very nature of what is being sold – is Sphero’s actual product the ball that you’ve bought, or is it the constantly updating software inside it that you rent?
That ball-and-education-chain is hardly the only example. In the world of technology, this increasing subscriptionization is having a particular impact on the products underneath.
As we increasingly rely on that world, it might be time to look deeper into what else changes when everything morphs into a subscription.
At the turn of the millennium, the world got to know Apple’s iPod and the iTunes music downloads that came with it. While downloading MP3s was already a thing, it was still largely an insular activity pursued by pirates. Apple made it legal and, more importantly, mainstream. Downloading songs then became a natural bridge to streaming them – from iTunes to Apple Music and Spotify, a transition of great significance.
While there have long been membership-type elements to music, such as Columbia House’s recurring CD-mailing system, they never really caught on as much. With these new streaming services, music, as a whole, became a subscription.
This evolution reflects a major shift in the nature of the underlying product: What was once an object on a physical device like a CD, a corporeal item to retain, has become something intangible and ethereal, like a thought – and an item that can only be consumed and not stored.
Of course, maybe the product is not actually the product. In the subscriptionizing of music, as with Sphero’s ball, the following question pops up: What really is the item being sold? Is it any specific piece of music, or is it really the temporary access to an intuitive music library and the endless choices it offers?
As with any philosophical riddle, there’s no right answer. Large parts of tech, and particularly the parts that drive its value, are intangible – like software, data, ideas and digital milestones. Therefore, the concept of identity – what the underlying product is, and the implications of that – can be quite subjective. Therefore, it is malleable.
And so, as music became available by subscription, it shifted from being a product to a service.
That reflects the new significance that an old industry buzz-term has gained: “software as a service” – or, what it really means, “software as a subscription.” The term was originally for business-to-business applications, but now it essentially describes the entire digital economy. As with the move away from CDs, what used to be software that people effectively bought and could use for life, such as Microsoft Word and Adobe Photoshop, is now increasingly being offered via subscription. In many cases, entire video games or apps now rest on servers, like with the Xbox Game Pass Ultimate. A server is essentially a whole other computer, and when you use software that is hosted on one, you’re streaming from that other computer – these days, many items you don’t expect to be are, at their heart, all Netflix subscriptions.
This transition is a phenomenon that extends beyond software. With the Internet of Things trend of the past years – in which all appliances and previously non-tech products are becoming “smart” – everything is tech now. Peloton’s real product, for example, isn’t its overpriced bicycle. It’s the operating system inside it that delivers recurring fitness lessons.
I once heard a venture capitalist firmly dismissing the idea of investing in any hardware company if the founders also do not come up with a subscription aspect. This isn’t a Sphero investor, but clearly such tech backers all think alike. One day, literally everything could become a subscription.
In many ways, all of this is wonderful. The subscription-based software on smart appliances brings many conveniences. Hewlett-Packard’s smart printers, for example, if hooked on to an Instant Ink plan, sense when your cartridges are running out and automatically tell the company to send new ones. Products becoming services also means new features are more easily delivered, without having to buy a new device. For media, you don’t need to wait for movies and songs to finish downloading and then find space to store large collections. For software, month-to-month subscriptions are a lot more bearable than buying these programs outright. And with certain subscription-based software actually running on a server, you no longer need an expensive, powerful device.
Subscriptions, by granting companies more – and more stable – revenue, also make possible products and services that might not otherwise be sustainable. Only a subscription model is what makes available to anyone an endless library of not just existing movies and television shows on Netflix but also its original content, some of which is not even bad.
But while parts of this subscription life are certainly attractive, it’s easy to forget that, if we closely examined the motivations of its peddlers, peeled back all the layers, we’d find only the yellow avarice of profit underneath. As much as all these conveniences distract from the naked greed fuelling the trend, they also hide the growing price of what we lose when everything becomes a subscription.
There is the obvious. Even if software subscriptions cost less upfront than buying outright, they end up more expensive over the long run. And streaming media entails not downloading the file once but repeatedly with every watch or listen. The resultant data flow is staggering, and so is the energy use. By the end of 2018, streaming just the song Desposito, for example, had used the equivalent of five African countries’ annual electricity consumption, according to a researcher from a European Commission project.
The greater issue, though, goes back to how subscriptions have warped the nature of the product underneath. That’s significant not just in itself but also in how it’s changed our thinking.
The British tech journalist Chris Stokel-Walker recently summed up that shift from buying CDs to music-streaming subscriptions: “Now, we’re so used to not physically owning an object. We just kind of rent them in cloud computing space.”
A purchased CD belongs to us. An album on a streaming service – we’ve come to accept that it does not. And our acceptance pushes technology further down this road. In a preview for a conference presentation last year, the then-chief commercial officer of HP, Christoph Schell, said: “Customers are not necessarily interested to own technology … and so it has a profound impact on products that we design.”
What this compounding cycle of cause and effect would lead toward is laid out pithily in part of the title of Mr. Schell’s presentation: “The End of Ownership.” In embracing subscriptions, in which products become services, we’re losing something important.
A 2016 book by two American academics, incidentally, is also called The End of Ownership, and while the book is not itself about subscriptions, it charts the effects of a similar evolution as that of the business model of music: the same shift in parts of the publishing industry.
First comes the transition from buying a physical version to downloading a virtual one.
Contrary to popular belief, an ebook is often no cheaper than a physical title. But with an ebook, not only can you not give it to a friend or sell it, Amazon can remotely delete Kindle books for its own arbitrary reasons, as it has done for some editions of George Orwell’s Nineteen Eighty-Four and one Norwegian woman’s entire library.
Then, as with music, comes the shift from downloads to subscriptions, and companies start exerting more undue power over customers. In 2014, when Scholastic made that leap for its educational titles, the publisher told users: “The switch to streaming means that ebooks you’ve previously purchased may soon no longer be accessible.”
From completely owning an object physically, to partially owning it digitally, and then to only renting it – such is the subscription transition inherent in all corners of the digital economy, whether it is a song, a book or a piece of software. And as we rent instead of own, as the authors of The End of Ownership put it, we lose our privacy and our autonomy – “the sense of self-direction, that our behaviors reflect our own preferences and choices rather than the dictates of some external authority.”
In other words, alongside laws, whose writers we can somewhat hold accountable if we live in a democracy, our lives are also increasingly governed by the tiny-print gobbledygook of end-user agreements – unequal terms by an unaccountable private company that we have been effectively forced to accept.
While such a phenomenon might be most apparent in the intangible, digital economy, it is not confined to it. As subscriptions spread into hardware along with the Internet of Things trend, so, too, will the end of ownership creep further into our lives.
Amid the war in Ukraine, people on Twitter urged Tesla chief executive Elon Musk to remotely turn off the company’s cars in Russia. Tesla’s ability to do that is not unique. Even the petrol-based cars being made now depend on the on-board computer for ignition, and many other manufacturers can remotely shut off their newer vehicles.
Of course, Mr. Musk didn’t end up doing it. What a silly notion! But consider the fact that people on Twitter even asked. That is a reflection of how we are, perhaps, already approaching a day when that idea is no longer so fanciful, when, like software and media, we enjoy our hardware only by the good grace of the company that provides it.
Many cars already come with subscriber-only features, from remote locking to navigation assistance. Now, some automakers, Tesla most prominent among them, are trying to push so-called “self-driving” subscriptions.
Bit by bit, cars are becoming a little less metal machine and a little more software – a subscription for which the car is just a conduit.
We are not there yet, to be sure. And Tesla, to its credit, does offer a buy-for-life version of its assisted-driving subscription, currently priced at US$10,000. But Tesla has already once revoked the Autopilot feature from a car that was purchased second-hand, saying that those functions, paid for by the previous owner, are not transferrable.
That is essentially the situation with downloaded ebooks, which are not the customer’s to sell or pass on. And these depreciated property rights of digital ownership, let’s not forget, are the midway point between the complete ownership of physical media and the complete rental of subscriptions.
When this transition is compressed, it becomes apparent that it is almost straight-up robbery. Think of what BMW’s seat-warmer or heated-steering-wheel subscription entails: It’s for a feature already installed in the car, but the manufacturer wants to lock it through software and then make you pay a monthly fee to unlock it.
As we surrender more of ourselves to this expanding subscription life, each new development might by itself seem incremental and insignificant. But they compound. One day, in a world that we rent, we might look back at all that we used to own and realize that we’ve gone to sleep one night and then woken up in the future.
Just as the pandemic, and now the Ukraine war, disrupted supply chains and brought to fore the idea that we have become too dependent on international business relationships, it is now time to realize that we have become too dependent on this subscription-based life.
The solution to the supply chain problem is not to stop manufacturing products altogether, and this here is not an argument to reject all subscriptions. After all, just as Netflix might not be sustainable without a subscription model, maybe to recoup the research costs of its fancy artificial-intelligence software, Tesla does indeed need the extra money a subscription will bring.
Rather, the solution is the same as with the issue of supply chains: to build more resilient systems and to not let our dependency go too far.
Like the “right to repair” laws that stipulate companies must not go out of their way to make products difficult to repair by the end consumer, we should have “right to own” laws. For hardware such as cars, companies should be legally barred from having a mechanism that can turn them off remotely, and from using software to hold hostage already installed features, as with BMW’s seat warmers. Whatever subscription packages that companies offer with their hardware, they should also be mandated to offer a basic level of functionality that is independent of that.
For every software subscription a company sells, it should also offer an own-for-life alternative. Many companies do make available some of that, such as Tesla, Microsoft and even BMW. But we should enshrine such alternatives in law before they start doing away with them, as Adobe has done with Photoshop and nearly every other product.
In terms of values-based investing, investors should keep in mind ownership rights as one of the environmental, social and governance (ESG) factors. Subscriptionizing everything might be the path to profit, but the rise of the ESG movement in the past few years has shown that profit is not everything.
Customers should keep ownership rights in mind as well with respect to the businesses they support. After all, it is not just companies that have pushed this trend of subscriptions along, but also our normalization of it that pushed the companies.
Otherwise, more and more, we will lose ourselves to the cloud.
Consider another example about cars. Italian media reported in May that Ferrari had banned the singer Justin Bieber from buying any more vehicles, after he had painted his speedster neon blue and resold it without authorization.
Mr. Bieber had bought the car, and it was his property. But Ferrari, to maintain the brand’s prestige, has a litany of rules for owners that really drives home the message that they don’t actually own what they’ve bought. It’s a bit like the analog version of a downloaded ebook.
You can probably see where this is going. Ferrari actively opposes its customers’ property rights. And the trend in the auto world is toward fancy software and subscriptionizing everything. It might not be long before those like Mr. Bieber, who foolishly think they can paint their own cars, face a more serious punishment, like having important features taken away. Or other carmakers, who have subscriptionized everything, might start imposing Ferrari-like rules because they have easy and effective means to enforce them.
A subscription is inherently an unequal relationship. As more items get swallowed by that business model, more of our lives end up ruled by what is in the best-case scenario a benevolent dictator. Absent any recognition of that, this tyranny of subscriptions points toward a future in which we lose all concept of ownership and property rights and become, effectively, digital serfs.
Subscriptions and their discontents: More from The Globe
Why are streaming services and subscription-based businesses losing so many customers at this stage of the pandemic, after gaining so many in its early days? Mahdis Habibinia investigated for Report on Business and spoke with The Decibel about what she found. Subscribe for more episodes.
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