Why Software Is Not A Service

Many people (myself included) have highly visceral reactions to the proposition that a software company like Microsoft might start charging us subscription fees for software instead of a one-time purchase price for a given version. But this is nothing new. John Walker's "Programs are Programs" paper, written more than a decade ago, does a great job of explaining why a software company would be very strongly inclined to do this if they could, and even back then people were up in arms about the idea. But the paper also makes a prediction that, in hindsight, has not even come close to coming true: that software users would, en masse, buy into the idea of treating, say, Microsoft like their cable company, to which they are used to paying monthly subscription fees. At the time of this writing (February 2006), almost the opposite has happened: an entire PC operating system, Linux, along with all the software necessary for just about anything you could ever want to do on a PC, is available for free. So what in the heck is going on?

I don't want to get into here all the reasons why companies like Red Hat, SuSE, and so forth are able to provide free, professional Linux distributions to individual users without going out of business (though the business models that allow them to do this are highly instructive and worth scrutiny). Nor do I want to get into here all the reasons why users like myself have such highly visceral reactions to Microsoft and the subscription model for software that it was looking at back when Walker wrote his paper, let alone the much more vehement reactions of those in the Free Software movement. What I want to look at is the converse question raised by Walker's paper: why *don't* these very same people, the ones who are up in arms about having to pay more than zero dollars for a basic PC operating system and a suite of productivity tools, have highly visceral reactions to their cable companies charging them monthly subscriptions?

It could be simply that the service the cable companies provide is obviously provided on a continuing basis--cable signals come into my house 24/7, and my high-speed Internet connection is always on--whereas when I buy a piece of software it's a one-time transaction. What, exactly, would I be paying Microsoft a monthly fee for? Of course if Microsoft had its way I would *have* to pay that fee or my software would stop working, but what visible, tangible benefit would I see corresponding to the visible, tangible benefit (let's call it that for the sake of argument to avoid getting into the actual value or lack thereof of what's on TV) of having all these cable channels with constantly changing content at my beck and call? Well, maybe the software's features would be constantly improving. Maybe every day or two I'd see a new menu item, or slicker graphics, or more page formatting options, or something. Hmm...doesn't exactly seem comparable to 100 plus cable channels. So maybe this is part of the answer to my question.

But of course the money I would be paying Microsoft wouldn't just go to improving existing products, the ones currently on my desktop. It would also go into R&D, finding new products to put on my desktop that have never been there before, contributing to the rosy future in which everything, from cars to toasters to perhaps even people's brain-enhancing neural implants, runs Windows. Control for a moment the urge to scream in terror at the thought: after all, I could always pay some other company to do the same things if I liked their software better. (Try to suspend your disbelief--let's pretend there actually *is* another company waiting in the wings.) But according to the subscription model, I'd be paying for those future products in advance, and whether or not they actually ever materialize. That's not the way R&D is usually funded; unless and until a product is actually in service and of use to customers, they don't pony up the money. So maybe this is another part of the answer.

I don't think either of the above can be quite the whole story, though, because both arguments could also be used against the cable companies. After all, it isn't actually very much *work* to keep cable signals flowing into my house once the infrastructure is set up, and most people's simple theory about how a service subscription works is that you're compensating the provider for the work involved in providing the continuing service. (True, cable companies, like telephone companies, have always been eager to make the argument that they need to keep rates high to amortize their huge investment in infrastructure--but those arguments aren't made to customers, they're made to government regulators. Wherever a market segment is free from regulation--for example, VoIP--lower subscription costs quickly lead to expanded market share, and those costs are clearly understood to be a compensation for service, since there's little or no infrastructure to amortize.) And cable companies could do R&D using the steady revenue stream from all those monthly subscription fees just as easily as Microsoft can. (They usually don't, but they *could*.)

I think the real answer is that, as Walker himself has pointed out in other writings, software on PC's really is a product, not a service: more specifically, it's a tool (or a set of tools). Cable TV is just entertainment that's passive to the receiver (and that's still true regardless of how much blather I hear about "interactive" TV, as if being able to choose from a preset menu of options provided by some dumbjohn in a TV studio is somehow different when it happens inside a single program as opposed to switching channels). Using a PC is active--you have to *do* something with it, even if it's only surfing the web or sending and receiving e-mail. We buy software to have the proper tools to *do* things with a PC, and tools are products, not services. I don't pay a subscription to Sears so that I can have working screwdrivers, wrenches, and hammers in my house, and that's true regardless of how much marketing they press on me to keep "upgrading" to their great new improved screwdrivers, wrenches, and hammers. Software is the same way: I buy a set of tools, and I upgrade them when I decide I need to, and each such occasion is a separate, individual transaction with some provider. I certainly am not going to pay Sears to come into my house and install screws, nails, and nuts and bolts that only work with Sears tools, and then continue to fork over monthly subscription fees because it's too much of a pain to change everything.

I said I didn't want to go into the business models of Red Hat, SuSE, and so forth, but I find I have to briefly to give another illustration of what I mean. These companies do, in fact, sell what might be called "software services"--but they sell them to large companies, and the services they sell are not generic operating systems and programs, but specific systems tailored to the needs of each customer. This makes sense for large companies, but not for individuals; why should I have to pay money to someone else to tailor my one personal machine at home, when I'm already going to do that myself anyway? And what kind of tailoring, exactly, would I need? Companies with thousands of employees need to have some kind of standardization, and there are plenty of opportunities for on-the-fly coding of applications just for that company (by some estimates the vast majority of all programmer hours in the world are spent in this way), but my home computer can be as idiosyncratic as I like.

The Linux vendors realize all this and don't even bother trying to charge individuals for generic operating systems and programs. (Yes, I know you can go into a store and pay money for a Linux distribution, but what you're paying for then is the convenience of having everything on a nice DVD instead of having to download it over the net. Once you have that DVD, though, you can install it on one, ten, a hundred, or a thousand machines, and you can download upgrades over the net forever, and never pay another penny.) Essentially, what they're saying is: customers with lots of money who need specially tailored tools can pay us for them; but individual users who are fine with the basic generic set of tools can have them for free, because the marginal cost of those tools, given that the customers with lots of money are there, is essentially zero. So the customers who are paying are paying for a genuine service: getting custom-tailored tools. All this makes obvious sense, and I think it's what's in the back of the minds of people when they instinctively react with distaste to the idea of paying subscription fees for software.


Free Hardware: A Trojan Horse?: An article by Eric Raymond about attempts by Sun and Microsoft in 2004 to push a business model where hardware is "free" and the revenue stream is from software subscriptions. The title should tell you where Raymond stands.