Thursday, January 19, 2012

Subscribe To Own As New Lease To Own

The Beatles are timeless and so is music and enterprise software.

There's been an ongoing innovation in the music services. iTunes with iPods disrupted the traditional CD business model and in the ever connected cloud world Pandora, Spotify and countless others are challenging the very concept of "owning" music. Spotify gives you access to a wide range of music on all their clients as long as you're a paid subscriber. This is like Netlfix model for music except that there's no ad-supported free Netflix (Spotify is rumored to cap the free version after six months of usage). Pandora also has a similar model but it's a "radio" service. You can't tell Pandora what exactly to play but give preferences and it will find, play, and tune music based on your preference.

Pandora is serendipitous and Spotify is spontaneous.

One of the challenges with these services is that you only have access to music as long as you pay for it. When you stop using it you don't own anything (from them). iTunes and Amazon, on the other hand, are a music "marketplace". You buy songs and keep them. But these services are not designed for you to explore and experiment endlessly.

I wonder whether there's a middle ground.

What if there's a subscribe to own business model? The services would stream all the music that you want for a fixed price (like Spotify) and users will get a choice of receiving certain number of DRM-free songs — like options being vested, at the end of the subscription plan — say annually. The studios may never agree to this, but it's a great value proposition. What if a service is designed to actually sell MP3s and the streaming is just a draw to get people discover new music? Also, imagine if Netflix were to give out credit to their streaming customers to own a set of movies on DVDs. "Lease to own" is a very popular way of buying a car (at least in the United States). Why not apply that to music?

It is very difficult to change human behavior. The studios are powerful, want full control, and see technology innovation as a threat as opposed to an opportunity. On the other side, consumers are willing to pay and experiment but they do want to own music so that they can play on any device any which way they want without getting locked into a specific service and its supported clients.

What about SaaS subscription models for enterprise software? Are there any issues when customers don't "own" the software that they are using?

I have blogged about SaaS escrow and inverted OEM channels before. We haven't yet seen any spectacular failures of large SaaS companies. Today, even if you're a large unprofitable SaaS vendor with a decent customer base, you will be acquired before you shut your doors for good. But once SaaS becomes the de facto mode of delivering software, the "hotness" will fade away and you are as likely to go out of business as any other ISV. What happens then? The customers have their business continuity plans and a SaaS vendor going out of business could become a serious concern.

As far as music goes, there's a clear separation between content and process. We listen to music which is content and everything else — streaming, matching, discovering, and recommending — is a process to get to the content. This clear separation is not that clear in enterprise software. SaaS escrow could guarantee the content (of course if vendor supports it) but not the process and without process there's not much of business continuity. You could take your music and go some place else but I doubt you can do much with your enterprise data without any process around it. Is there an analogous flavor of lease to own in enterprise SaaS business? I guess, it's too early to say.

Going back to music, I think, we're ready for a radical shift and disruption in existing business models. Lease to own your music may not be a bad idea after all.

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