Stuff as a Service

NPR has run a couple interesting stories on the current woes of the auto industry and what dealers are doing to cope. A story this morning described how a dealership did better margins on used cars than on new cars. One GM dealer was even offering cash off a new car... if your trade-in was not a GM. But it was last Friday's story that got me, as the general manager of a dealership described how he was selling new vehicles at cost or below cost, with the expectation (and hope) that he'd be able to make back that margin through the service department. In fact, this gentleman described that about 70% of his dealership's profits came from the service department, not new car sales.

It's a page out of the Gillette playbook - we'll give you the razor for free and you'll buy the blades for life - but applied to a totally different category. Of course, when Gillette sends you the razor, the only blades that work in it are Gillette blades. But with a car, you've got options: the dealer, the franchised fix-it shops, the independent neighborhood mechanic. In "Straight from the Gut" I remember reading how Jack Welch challenged the managers of his Nuclear Reactor businesses, who were suffering from years of negative growth, to rewrite their business plans based on zero sales. They were able to find success by creating a business based on the service and maintenance of existing reactors.

All this to say, software isn't the only thing becoming a service. Stuff is a service. Your TV. Your phone. Your car. Your house. Your razor. Your radio. Your water. Your music. I think we're subscribing to more things, in more ways, and transacting less, than we ever were before.

Death of the Transaction?

You can’t go far now without reading about the demise of the newspaper industry, brought about by a variety of factors but with digitization, and the reduced advertising and subscription revenues that go along with it, clearly a driving force – others can debate the rest.

Within this discussion, some have also remarked on how digitization represents a decoupling of content and container – where information becomes separated from its physical distribution device – and finds new digital modes for delivery - news no longer needs to be printed on paper and walked to my door, music no longer is encoded onto CDs, etc. And as content shirks its thingliness, it also seems to trend toward free.

Why? Well, the exchange of one physical thing for another, either in a barter or pay scenario, has always been part of the custom of the transaction. The physical referent for what’s essentially intellectual property – the paper, the CD, etc – is an integral part of both of how we conceive “property”, and thus how we conceive the laws surrounding that property, and the value that’s created through the custom of the transaction – exchanging one thing for another.

When our conception of the idea of property is called into question, value is naturally pulled along with it. One of the reasons I think people are unwilling to pay for online content, or think nothing of burning thousands of songs online (but would never take a CD from a store) is because of the absence of that physical referent – the thing - that for so long has equaled property. Until we are able to re-conceive ideas about property without referent, this instinct, which has held true for so long, could be very tough to break.

And things, and transactions along with them, may be headed out of favor.