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I’m not exactly known for dissembling.  When I have a beef I say what’s on my mind; today I have a beef with subscriptions.  Specifically, I have a beef with Microsoft’s subscription policies and how they seem to be taking over for the pseudo-ownership of perpetual licensing that Microsoft themselves introduced us to.  (Much to IBM’s dismay.)

You are nothing but a wallet

Subscriptions give Microsoft power they simply didn’t have before; turn the knobs even a small amount and they can post growth every single quarter.  Tie it all together with massive amounts of vertical integration and they have a mechanism to perpetually drive up Average Revenue Per User (ARPU).

You’ll note that ARPU is a figure often bandied about by other monopolies, duopoloies and oligopolies.  Telecommunications providers, utilities companies and so forth use this as a measure of success.  They have as much market share as they are ever going to get in their markets; spending on R&D to enter adjacent markets isn’t a Wall Street sanctioned business strategy so they work on driving up ARPU with as little investment as humanly possible.

A great example is a telco/ISP entering the IPTV market; they can buy commercial, off-the-shelf technologies that allow them to use their existing infrastructure and investments to deliver a new service they can charge extra for.  This is bad for consumers; ARPU pushes are generally tied to anti-competitive action which pushes the limits of legality in order to prevent anyone else from offering the value add service in question cheaper or more conveniently.

More to the point, perhaps, is that end users have a vested interest in driving down the ARPU; generations of individuals have been raised to believe capitalism – the very foundation of western society itself – will provide more and better goods and services for less money over time.  Technology and automation are supposed to deliver more for less; people tend to be opposed to getting less and paying more.

Turn the knobs

Cutting to the heart of the matter, Microsoft wants the nice, steady, recurring revenue stream that subscriptions can offer.  That and tying everyone’s data up in their cloud locks them in such that Microsoft can now make hostages not only of enterprises on SA agreements but SMBs and even individual users too.

Microsoft have had a stranglehold on large enterprises for ages now. Every time they make a change to the SA agreement the market howls, but ultimately they have no choice to they pay up.  The subscription model looks like a great way to get at consumers and SMBs that have thus far resisted.

Microsoft want to milk those folks for more money as they see refresh cycles lengthening; people don’t buy computers (and thus new Windows, Office, etc licenses) every three years.  They are dragging it out; 6, 8 even 10 years between refreshes.  This is a tempting revenue stream.  But let’s face the truth: these people don’t have the money to give.  If Microsoft really pursues this as aggressively as it appears they are gearing up to do then they are going to spend more on PR trying to make up for squeezing these folks than they’ll ever get in return.

Another major problem is that the concept of subscriptions is inextricably tied to the perpetual upgrade model.  Microsoft has a noted history of rolling out massive user interface changes, user-hostile licensing changes and outright stinker versions of operating systems and applications without so much as a whoopsy-daisy.  There are users and businesses out there that simply do not want to be part of the perpetual upgrade scheme.  They fear – rightly, to my mind – that well-documented tendency to screw us.

It’s a trap!

This subscription thing is folly.  Microsoft’s position isn’t nearly so secure as it likes to think.  While it has the nuts of large enterprises in a vice, the same is absolutely not true of the consumer or SMB markets.  It can lose both entire markets.  Depending on whether or not you count tablets as computers you could rationally make the argument that on the consumer side it already has.

Microsoft is replicable.  If it becomes something that consumers and SMBs start seeing as a disposable vendor of tat – or gods forbid one amongst many competing and equal service providers – then Microsoft is done for.  That would put Microsoft into a market not unlike the mobile telcos; sure, it would be part of an oligopoly, but it would be loathed and despised.  Microsoft would be talked about in the same sentence as lawyers, politicians and the scum that grows on our shower tiles.

This is fine and dandy when you’re a monopoly; horrible when you’re part of an oligopoly of functionally interchangeable vendors.  When you’re the one at that party with the bad reputation then the user churn you are going to experience is frightful.  Unlike telecommunications, however, there aren’t 100 years of laws in place to prevent new entrants to the market.

“Any kid in his garage” can no longer enter the market and take away Microsoft’s toys, but any company large enough to front a decent public cloud very much so can.  For the first time in decades Microsoft needs to care about PR.  Unfortunately, their PR and marketing bodies aren’t prepared to fight this battle.

Speak the Lingo

Microsoft is at heart an enterprise vendor.  It is used to dealing with companies where all you have to do is wine and dine the right person to win a multi-million dollar contract.  Hookers and blow will get you in that world what honour and fair pricing never could.

Sadly, that isn’t the way of the rest of the world.  Consumers – particularly younger consumers – are functionally immune to marketing.  You can’t just lie to them and expect them to buy it.  Worse, these street smart young punks – increasingly with actual technical experience – are entering the executive level and taking jobs as CIOs.  These people won’t be bought with calamari and strippers; they need TCO, reliability and – believe it or not – a sense that they are getting treated fairly by their vendors.

Will Microsoft figure the above out before or after irreparable harm has been done to their reputation and/or market position?  How many more Apples and Googles do they need to create through their own astounding lack of understanding?  Microsoft can choose to own the market tomorrow, or they can piss it all away.  The choice is theirs.

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