Wednesday, June 27, 2007

Last Computer financial model - look to the cell phone

    In recent blog entries I’ve been describing how software will be implemented on The Last Computer. I'll get back to that later. But first, some thoughts on how individuals and organizations will pay for their Last Computers.
Convergence of mobile phones with computers

I bought a new cell phone last week. In most respects my new cell phone really is a computer that just so happens to be capable of fitting in my pocket and making phone calls. Over time we can expect what we call a "mobile phone" and what we call a "computer" to merge.

Perhaps this future merged device will take the form of a powerful mobile phone that docks into a keyboard / mouse / monitor when we're at our desks; or perhaps it will look like today's mobile phone but when placed on any flat surface it will project a keyboard and mouse pad onto that surface while projecting a high-density widescreen image against any available wall.

I don't feel safe in predicting the physical model of this converged Last Computer (whether it will be more like today's cell phone, more like today's second-to-last computer, or something completely new), but I can predict its financial model. The Last Computer and its related software and services will most likely be sold in a way very similar to today's cell phones.

I purchase my new cell phone (purchase? my?)

Here's how I bought my cell phone this week. I dropped into a local T-Mobile store. Tried out a few devices. Found one I liked. Played with it. A nice salesman answered some questions. He described a variety of service and payment options. While selling me the phone he cleverly up-sold me on various additional services (text-, time-, data-, and warranty-plans), which I mostly accepted because it was so easy to accept and because each item would appear as only a small increment on my monthly bill (for greater payment simplicity I could have those monthly payments automatically put on my credit card). I paid a few hundred for my phone, and within a few minutes it was mine and it was working and I was happy. The whole thing was so easy and painless.

Contrast this with any time I've bought a personal computer, or been supplied one at work, or upgraded from an old one (see previous blog). For simple ease of process, the cell phone purchasing model is vastly superior to today's computer purchasing model.

Consider another aspect of my recent phone purchase. In the above description I referred twice to that cell phone as if it belonged to me ("my cell phone", "it was mine") but in truth it does not belong to me, it belongs to T-Mobile. I don't own the phone; I am only leasing or renting it. The mobile companies are too clever to say that they'll lease or rent you a phone, instead they make it sound like they'll sell or even give it to you, along with an X-year plan. (We can all truly purchase an unlocked phone, and own that unlocked phone. But that costs a lot more up-front money than a plan. I'm perfectly fine with a plan and the other simple benefits it entails, and most other people are too.)

The Last Computer leasing model

The Last Computer will generally be leased. The terms lease or rent will probably be avoided when communicating with the individual consumer (although may be necessary in corporate situations), and, as with the cell phone, the user will feel as if they own the computer. But it will be some form of leasing and that's how I'll refer to the transaction here.

I don't know what the leasing price will be. In a small sampling of people I've queried, they generally seem satisfied with the idea of paying some small initial amount (let's say $200) to buy a computer and $30 per month for all the benefits described previously in my initial ACME Last Computer post. Over the course of three years (a typical obsolescence period for mid-capability computers) that is $1280, which is typically hundreds more than someone would currently pay for such a computer. If, as I have proposed, the consumer automatically gets upgraded every three years, they will continue to pay $360/year (or $1080 over three years) for the privilege of owning their always-up-to-date computer. (Note that peripherals, such as monitors, may not need upgrading as frequently as central units, resulting in greater savings for the vendors.)

This is a good financial deal for the individual consumer (or corporate user, with some modifications) since it is an easier and less-risky option than paying a large amount up-front for what is a risky purchase. For the computer vendor it is more money collected over the lifetime of that computer—on the face of it, it’s not clear if this $30/month arrangement is a financial win over a direct sale, but (as described in the next section) it does open the door for much more income over the lifetime of the lease (which, hopefully, is the long lifetime of the consumer).

Up-selling to the consumer

Now that the consumer is in the system, and is making easy monthly payments for a computer largely controlled by the seller, there is big potential for selling more goods and services to that consumer, and in ways that are actually good for that consumer:

  • Bundled internet services: A computer is not much good these days without a connection to the internet. What could be more convenient than combining the payment for internet service with the payment for leasing the computer? So it is a natural for the internet service provider (cable, dsl, wimax, etc) to partner (i.e. bundle) with the Last Computer provider. (Does this mean, for example, that Dell should start selling cable services, or Comcast should start selling computers, or that they should partner?) As the market is currently seeing combined providers for internet, phone, music, and movie-delivery, it is expected that these mega-providers should also offer computers as part of the one-price mix.

  • Bundled software and software services: Some predict the day when we will stop paying for software directly and instead all software will be a service (often ad-supported but sometimes as a leased service). I hope they are wrong. The ability to easily purchase and use software via your Last Computer provider can revitalize the ability to sell software (more on this below), with the Last Computer corporation as the retailer earning their cut of the sale.

  • Personalized marketing opportunities: With the Last Computer model, and all of the costumer's data available to the Last Computer provider (whether because of caching, backup, system-query, or because it goes through their pipes) their is opportunity to deliver relevant marketing that suits the needs of the user: be this advertising, coupons, or up-selling of relevant services and software.

  • Perpetual retention (customer lock-in): Because of the ease of remaining in the system, and because there is no longer a need to choose a new computer every few years (since automatic upgrades are part of Last Computer contracts), the consumer is unlikely to leave their Last Computer vendor for another.
The cell-phone leasing model leads to the miracle of small- (if not micro-) payments

It is amazing that on my cell phone I can purchase, download, and install software or other content for as little as 49 cents. 49 cents! (It's so painless and per-purchase cheap that countless kids out there are constantly buying total crap for their phones without a second thought.) When done right, all I need to do is click on "I agree" and the software is downloaded and installed, the small price is added to my monthly phone bill, and the phone company and content authors get paid. It's an amazing accomplishment that should be incorporated into The Last Computer for the benefit of creators and consumers.

I know of no other situation where it makes economic sense to sell anything so cheaply. In the traditional software model, the overhead in billing alone is much more than that 49 cents. Add to that the required packaging, middleman markup, marketing, and so on, and the end-user price on that 49-cent piece of software could easily jump to 49 dollars (which is then high enough that sales are lost due to sticker shock and piracy and open-source free alternatives, which together push the price up even higher or drive the creators out of business). Even a simple on-line purchasing system requires me to fill out credit information (again!), which adds to my reluctance to pay that high price.

Alternatively, there is free, ad-supported software. I believe that the recent trend toward making all computing services free and ad-supported can only go so far (and leads to lesser quality over time), and in many cases is just a stop-gap while some micro-payment model is created. Ideally micro-payments would come down to something like this: "Yes, I implicitly agree to pay the New York Times 1/100 of a penny every time I read one of their well-researched and articulate articles." The cell-phone / Last Computer billing model is not quite there, but it is close. I could easily agree to allow New York Times to add some small fee (25 cents?) to my phone bill during each month that I read some of their articles. And I could easily agree to pay a few cents to dollars, now and then, when I find software I like and its purchase and installation is as simple as "I agree".

The traditional software companies can also win from this Last Computer small-easy-payment purchasing model. A Last Computer owner may be happy to allow Microsoft, for example, to add a couple of dollars to their bill on months when that persons uses Microsoft Office. That person is still free to use Open Office for free if they think it's good enough, or to use Microsoft Office for $2/month (and get the additional Last Computer software installation and support). Again, this is good for the consumer, it's good for the software developer, and of course it's good for any ACME Last Computer corporation who gets a cut of this "sale".

Corporate financing models

Most of what has been said about individual consumers applies to corporate users of Last Computers, but with the corporate IT buffering the technicalities and pricing managed in bundles (and so corporations are more likely to shop around for Last Computer providers every few years). Once again the current cell-phone market is the one to follow, but as it applies to corporate purchasing.

Summary of Last Computer financial model: It's like a cell phone

Buying a Last Computer of tomorrow (with its services, software, features, bundles, and upgrades) will be much like buying a cell phone of today. The consumer will benefit from simplicity and lower buy-in prices. The Last Computer manufacturer will benefit from higher and steadier overall income, improved customer retention, and partnering opportunities. And third parties will benefit from selling to customers, through a Last Computer distribution chain, into a revitalized software and services industry. It will be a win win win.

Sunday, June 3, 2007

Upgrading to my second-to-last computer. A case study.

This weekend I switched my home personal computer from one that was 7 years old, to one that is only 3 or 4 years old (inherited, sort of). It was enough to about double the clock speed, and finally have a video card capable of viewing YouTube videos at more than a couple of frames per second.

This is the last time I ever expect to have to go through the process of manually moving over to a new personal computer. I put off doing so for the longest time because I expected the process to be painful. The next time I get a new "personal computer" I fully expect it to follow a Last Computer model much like the one I described in the open letter to the ACME Computer Corporation.

I've recorded notes about this computer transfer, both to document the painful process that Last Computer hopes to avoid, and for historical purposes (since in the Last Computer future people will not longer follow a migration process to new computers). If you get as bored and frustrated reading these notes as I was writing them, jump ahead to the end.

Notes taken while moving from old computer to new computer:

  • Preparation This Week: I'm lucky enough to live near a Frys Electronics where they still sell software in boxes. I select "PCmover" which claims to move all my programs, files, and settings to a new computer. For just $30.

  • Friday: I drive to work so I can carry home a monitor. I figure that doing this transfer will be a whole lot easier if each computer has it's own monitor.

  • Saturday 12:20: Lug second monitor upstairs. Not enough space on desk, and not enough outlets, so find clear spot on floor to set up new computer, with monitors and keyboards and such.

  • 12:30: begin removing old programs and accounts from new computer

  • 1:30: still running windows updates on the new computer, since no one has used it in a year or more

  • 1:46: install PCmover on old computer

  • 2:00: click through all PCmover messages saying, basically "I agree that this may not work"

  • 2:04: install PCmover on new computer; new computer is ready to receive; old computer is ready to send; press "go"

  • 2:08: oh-oh, old computer has 2 drives, new computer only one; PCmover is not sure how to make this migration happen -- based on help screen I will choose NOT to transfer the second drive (D:), and instead will manually move the disk drive from one machine to the other after transferring drive C:-- hope this is not a mistake

  • 2:13: all dialogs have been set. decisions made; with fingers crossed I press "Next" and it begins.

  • 2:16: PCmover has finished analyzing systems, gives me last chance to run it saying it may take several minutes to several hours. I press "Next" and let it begin.

  • 2:24: 8 minutes into comes the fist "time remaining" estimate. 5 hr, 24 minutes. Ugh. Maybe it's time to go catch up on the Heroes marathon Tivo recorded last weekend.

  • 5:10: Almost three hours into moving the one drive (Now I sure am glad I didn't choose to transfer the seconds drive, drive D, which is much larger than C) and PCmover tells me there's another hour to go. (Time enough to watch another episode of Heroes)

  • 6:08: PCmover says it finished. "Done. Filling the moving van is complete." (whatever that means)

  • 6:14: I've turned off and rebooted my new computer. On startup it looks like my old system (same user accounts, backgrounds, desktop setup). Before going further I'll now transfer the old D: drive from my old computer to the new one because I'm sure items on C: are referring to drive D: and I want to have D: available before that happens.

  • 9:15: got so frustrated back then when manually moving the D: drives that I yelled and swore like a sailor (hard to know which is C: and which is D: on old computer, and guessed wrong the first time, then had helluva time squeezing the hard disk into slot on new computer among the tangle of cables). Was frustrated second time that none of the memory from old computer works in the new computer. Huffing and puffing, I went to have dinner and watch more episodes of heroes. Now the new computer boots and I'll try to turn on all the old software and see what works(PCmover disables startups the first time through because, as I agreed in the earlier dialogue, there's no guarantee they'll actually work).

  • Saturday 11:46 PM: I've been updating old programs for last two hours (windows updates, virus scan, programs I use most often). I'm tired. Going to bed.

  • Sunday 8:30 AM: Boot computer to continue upgrades and getting programs to work -- it's in a weird 650x480 4-bit color mode - dangit - cannot reset that - have to download video drivers or something - the whole things running incredibly slow -- (things were going so well, it seemed, and now the video driver is not working)

  • 9:26: graphics problems resolved - should have remembered my old policy of not trying to upgrade too many components at once

  • 10:24: - man, it takes a long time for MS updates to do all their stuff on a computer that has not run updates for more than a year... this is giving me too much waiting time to wander off into YouTube videos, slashdot links... idle hands...

  • 12:43: - most of my daily programs are now working -- time for lunch

  • Sunday afternoon: Most of the programs I use each day are working on the new computer. It is noticeably faster than the old computer, but just barely (I hope to buy more memory and see if that helps). The room is a terrible mess, with computer parts, screws, memory, all over the place. I'll need to clean this up before the wife comes home. Maybe I'll put that off by blogging first. But what am I supposed to do with all these old computer parts

A few comments on the status of this transfer:

  • I'm a little surprised at how few of the program I've tried so far, are failing. Most of them are working just fine. Still a few problems

    • Copernic has no indexed data, but the settings are OK
    • iTunes takes forever to start up, ending with a message that it must be reinstalled if it's to burn CD's correctly, but I don't burn CDs so not going to reinstall and lose all my setting
    • every once in a while about 60 blank IE windows will open up in quick succession--but after a few hours that stopped happening)
    • had to re-install virus-protection software (by the time this is installed the computer doesn't run as fast as it first did)
    • had to remove windows indexing settings that slow computer down
    • Mozy backup software did not transfer

  • The process that transferred drive C: took longer than I expected; almost four hours (I'm really glad now that I did not transfer the larger drive D: in this process, but just physically moved the drive--although that's the same thing I did years ago when moving this drive to my previous computer--this drive must be getting really really long in the tooth)--I'm going to have to revise my story that a new LastComputer can auto-configure itself over the internet while it's owner is making dinner.

  • Given all the work it took to make this move, and how minor is the improvement with the new computer compared to the old one, and how cheap fast computers are these days, I wish I'd forked out a few bucks to by a completely new computer and done the transfer to that.

Lessons learned from moving to my second-to-last computer:

Even though it was more successful than I expected (I haven't yet had to dig around for any old CDs to reinstall their old software of copy old license ID's) This process sucked! It took up most of my weekend, was at-times incredibly frustrating, and was at all other times tedious. I cannot believe that average people (who are not computer people, making their living with these things like me) would be expected to get through this process. I cannot believe that computer and software manufacturers expect to make their customers happy with this process.

I can believe that a lot of computer upgrades are not being sold because potential customers fear this upgrade process. I'm convinced that those customers would be happy to pay hundreds of dollars every few years for faster equipment if moving to that new equipment was painless. I'm sure that the industry is leaving a lot of customer money on the table.

    Imagine if it were this difficult to transfer to a new automobile. If instead of signing some papers and moving some crap out of the back seat of one car into the back of another, automobile owners had to reinstall all their settings, and spark plugs, and belts, and radios, and so on, and then, after all that was done, had to figure out how to dispose of the old car. Who would buy a new car then? The first auto-manufacturer to make auto-ownership quickly upgradable/transferable would own the market.

When the computer industry (hardware and software) moves to the Last Computer model we'll open paths to a huge revenue stream from screaming mobs of continuously-contented, continuously-returning customers at home and in the workplace.