Buy vs Rent (Will cloud based services really work?)

It never ceases to amaze me how sellers continue to make the same mistakes. I have been involved with product companies for most of my career and the most predominant thing that I have learned about customers is that they like to own things. Companies that provide a service are almost always considered to be leeches that we love to hate.

The phone company is an example of a service company that falls in that category. We will spend hundreds of dollars on a meal, but if the phone bill is up by ten dollars our heart rate increases, panic sets in and we spend hours trying to figure out how to avoid the charges in the future. I have won over customers many times by comparing a product’s CapEx (Capital Expense) vs OpEx (Operational Expense). CapEx is something that keeps on giving where OpEx is something that keeps taking away.

The phone service that I have at home right now, allows me to call anywhere in the world for two cents a minute. That means that local calls are metered as well. This was something that I avoided for years but finally accepted because I put $40 on account and it lasts for months. I used to pay double or triple that amount for local service and then extra for long distance. Paying for a service is something that North Americans have to be sold on every time and the first person to offer an alternative gets the business.

So given that your customer would rather buy, why do product companies think that cloud based services, with a reoccurring revenue stream, will work? They may work in the short term, but the first person to offer an alternative, will take those customers away and the new company will be the hero. In the 1980’s Mitel had no problem selling PBX’s to customers because the customers had suffered under the rule of Bell Canada for decades and would pay extra to stick it to Bell. Do you want your new company to be like Bell.

I can see you already starting to argue that Bell was, and is still, a very successful company. The business people in the crowd are saying “Sure I want to be like Bell”. The customers in the crowd are split because many harbor bad feelings for Bell, Rogers and all others who hold a contract over their heads.

I know that we study history to avoid making the same mistakes and as a relatively short lived species, we need to do this to remind future generations about mistakes made. In this case however, the same  mistakes are being made, multiple times, within my lifetime. We will probably see the end of the wired telephone in the next ten years and for a country that prides itself on being a world leader in communications, I don’t see us working, in a sensible way, toward the next generation technology.

If you want to have a cloud based service offering for those who can’t afford to buy, make sure that you have a product offering for those who can. People like to buy not rent and companies that only rent can expected to be hated.

Shareholders beware because customers will eventually punish you for forcing them to rent and will most likely select your competitors out of spite.

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