Why IT shouldn’t buy into the ‘subscription economy’

In case you hadn’t heard, ownership is out. Instead, it’s all about the “subscription economy” — if the latest in a long line of extrapolations from a very small number of data points is to be believed.

The theory is simple. Whereas before we liked to own things, we don’t anymore. What we want instead is to pay less money right now in exchange for the right to pay again next month — or not, at which point whatever it was we used to need goes away.

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How do we know this massive change in how businesses and consumers view ownership is a megatrend? Because Salesforce.com has been a raging success, as have at least two other publicly held SaaS providers, according to the ever popular Gartner, which doesn’t identify them. At least one privately held SaaS provider of my acquaintance also supports this theory.

(Digression: When you read any article that proclaims a megatrend and supports it with just one or two examples while ignoring a vast volume of evidence pointing in the other direction, remind yourself that the plural of “anecdote” is not “data.”)

I suspect this fabulously new idea is a “bootstrap trend” — yet another attempt to turn an anecdote into a major change in how things work. It’s exemplified by something I’m sure you’ve never heard of before: leasing instead of buying.

The subscription economy in a nutshell

The subscription economy isn’t entirely new. A familiar example: Instead of buying a car, taking out a loan, and paying, say, $500 per month for three years, after which you own your car free and clear, you lease the same car, paying $300 per month for three years, after which you’ve spent $7,200 less, don’t own a car, and go through the same exercise all over again. I’m confident your local car dealerships will be happy to provide additional details, without resorting to terms like “subscription economy” to persuade you it’s a good idea.

It’s just as well because this is a terrible example and leases have early termination penalties; if you decide you don’t want a car next month, that’s just too bad. The better automotive example is renting a car. As you know, more and more Americans prefer to rent cars from Hertz, Avis, National, or Budget when they’re in the mood to drive instead of buying them.

What’s that? We don’t do this? How about the highly touted Zipcar, which lets members reserve cars when they want them and give them back when they don’t, paying either by the hour or by the day?

Zipcar might be highly touted, but touting isn’t the same as making either money or sense. Zipcar charges a bit under $60 per day, which puts it in the same price range as traditional rental car companies. One more minor issue: Zipcar has yet to turn a profit.

On such evidence are bootstrap trends built, at least if the trend is being reported by someone who has a SaaS ERP alternative to sell you, as is the case with Tien Tzuo, Salesforce.com refugee and founder and CEO of Zuora.

Please. Let’s take a deep, cleansing breath, say namaste to the people around you, and get rational about this, instead of deciding what to do based on some trend that might or might not be an actual trend, let alone one that might make actual sense.

The dirty little secret about subscriptions

If, as so many companies do, you use Salesforce to support your sales force, ask yourself why your company made this choice. Here are the most popular reasons, based on a survey I recently conducted (methodology: I asked myself, listened to my answers, and averaged the results by dividing the numbers by the sample size of one):

• We’re using Salesforce? I didn’t know — the sales manager must have signed the contract without telling me.
• The sales reps would have preferred Act, and it would have cost less. However, IT locked down their laptops, so they couldn’t install it without permission. Salesforce comes in through the browser, so we had no way to stop it.
• If we’d put in a CRM system with IT, everyone would have asked for customizations and no two sales reps would have agreed, let alone the integration with our ERP system that the marketing department would have insisted on. Due to Salesforce, we ignored IT, which gave sales management an excuse to install it plain vanilla, with no connection to any of our other systems.
• It’s what everyone else is using these days, so it was a safe choice.

Now ask yourself if, with respect to Salesforce, you’re really a member of the subscriber economy. Let’s see: All of your customer data is in Salesforce databases. All of your sales reps sell use the software, and sales management has adapted to stay on top of the sales process, more or less — probably less. If you unplug it, you can’t just do without; you’ll have to implement an in-house CRM solution. (See bullet No. 3, above.)

Subscriber? Sure you are. Subscription economy? Not hardly. Stop using Salesforce and you’ll go through an expensive conversion, just as you would with COTS (commercial off-the-shelf) software or, for that matter, with software developed internally. Maybe car leasing isn’t such a bad example after all.

Anyway, for a very long time COTS software products have looked a lot like subscription services, as anyone knows who has read any EULA (end-user license agreement) and pondered its being a license to use the product, not a transfer of ownership of the product.

Features vs. delivery model

In his Forbes article on the death of ERP, Tzien Tzuo equates the subscription economy with customer-centric business strategies, contrasting them with buy-once product strategies. But as every retailer has known since roughly the end of the last bout of the black plague, when you sell a product, you’d better be customer-centric, too.

It’s as Minneapolis grocer Sid Applebaum explained decades ago: Every time he saw a customer leave one of his stores, he figured they were carrying $50,000 in groceries with them — the average lifetime sales figure for a repeat shopper. “Of course I take back the tomatoes,” he explained.

“This time it’s different” is a thought process we all go through, until we’re disillusioned by inescapable evidence that it isn’t — at which point many of us adopt a different thought process: “Nothing ever changes.” So, in the 1960s, many of us thought we’d be able to completely change the rules of human social interaction for the better. That lasted until disco replaced acid rock as the music of choice and cocaine replaced LSD as the drug of choice.

In the 1990s we had the “new economy,” in which actual revenue didn’t matter anymore. That lasted longer than it should have, as companies with cash bought companies without income and kept it up until the cash was gone.

Is the subscription economy the real deal — a sea change in the rules of how things work? Maybe, although at the moment it looks more like a bootstrap trend than something widespread and durable.

Even if it is, it’s hardly an argument for replacing ERP systems with SaaS ERP systems. While it very well might be that traditional ERP systems do a poor job of reporting customer-value metrics, there’s a big difference between a system’s features and its delivery model. After all, building a SaaS-based ERP system that does a poor job of reporting customer-value metrics is neither easier nor harder than building a COTS solution with the same deficiency.

This story, “Why IT shouldn’t buy into the ‘subscription economy’,” was originally published at InfoWorld.com. Read more of Bob Lewis’s Advice Line blog on InfoWorld.com. For the latest business technology news, follow InfoWorld.com on Twitter.