The Future of Tech: Free Hardware, Expensive Content and Software
Razor blade manufaturers and computer printer companies do quite well with a model that gives cheap hardware for expensive mantience later. But can tech companies afford to do the same? Should they subsidize hardware to maximize software sales?
Modern Tech
Today’s technology industry is very different from that of even ten years ago. The largest websites and growing operating systems rely on a steady stream of free input. Wikipedia, for example, is the 6th highest trafficked website in the world thanks to a global group of thinkers who pour hour after hour of labor for no reward. Linux, an operating system that runs nearly every single website you ever visit, was built by computer programmers donating their time to the cause. If ten years ago you told someone that you were going to take the world of tech by storm by soliciting free labor you’d probably be in a mental asylum. Not today.
The Kindle
CNBC staffer Dennis Kneale put forth an interesting post and idea on CNBC’s website and TV channel. He claimed that Amazon, which produces the Kindle e-book reader, should give the Kindle away for free in order to spur sales of its online book library. The Kindle costs just under $200 to produce, a figure Kneale believes would be overcome by the amount of additional books readers would download. The advice is interesting.
We’ve Seen This Before
Gaming companies have long subsidized the cost of their hardware in an effort to spur sales of their software. Sony, for example, famously lost hundreds of dollars per unit on the initially release of the PS3 gaming console, expecting to make it back on $60 game titles. It worked, moderately well, but they never got the chance to send their BluRay technology into the mainstream. BluRay, not the PS3, was at the center of future revenue growth for Sony, and to put it in every home they packaged a reader within the PS3 game system.
This brings about an interesting discussion. What is so different about books that a typically dangerous revenue model could work for them? What benefit does Amazon have over Sony?
Not much. Just like popular game titles are available on different platforms, books are available on virtually any electronic device. I’m not one to cave into this idea that a electronic maker should cave in and give a device away for free to purchase products offered in other formats.
The Flipside
The complete opposite of this idea is highly profitable, and no company does it better than Apple. Apple, which makes a killing from the iPhone, iPad, and iPod app store, first created a device then created a central marketplace in which unique products are to be sold. An app for the iPhone, iPad, or the iPod cannot be used on any other device. And to create an app for both the Apple trio and other competitor’s phones requires working from the ground up. So what do software markers do? They start first with the largest market, the trio of Apple devices. Brilliant!
