Do you want a “pay as you go” PC?
Microsoft has applied for a patent which would enable a shift to a "pay as you go" business model for personal computing. Some of the details are reported here. What does this mean from a business model perspective?
Historically, the purchase of a PC involves an up-front decision by the customer. When you buy a PC, you decide at the time of purchase what processor, RAM, and hard drive to get. You also pay for application licenses like Office. You may be able to upgrade over time, but eventually you have to get a new machine. You pay for all of this capacity whether you use it or not, and you are also limited to the capacity of the machine you choose if you need more. The PC market is thus segmented to offer different models for different types of users — from the budget home user to the high end gamer. If you enjoy an occassional game but you are not a devoted gamer, you are out of luck unless you shell out the extra cash for high end graphics processors, for example.
Under Microsoft's new vision explained in their patent filing, they would offer a "pay as you go" scheme where you are charged for the computing power you use. For example, if you play games on weekends but only do email during the week, you would have a metered rate for your computer usage.
From a manufacturing perspective, Microsoft assumes that computers would have more power and capacity built in up front, but this capacity is only accessed as needed. The presumed extra cost of building in this capacity is offset by the economies of scale of standardizing the manufacturing process, plus the additional revenue opportunities that a "pay as you go" model enables.
A few observations and questions about this approach:
Pay as you go pricing seems economically rational — you pay only for what you need. However, customers may or may not prefer this approach. The best example is cell phones, where carriers offer numerous plan options and the customer chooses. Some customers prefer a metered plan that matches their usage. Others prefer the simplicity and predictability of a flat rate plan. Utilities, like electricity, have established models for variable billing based on usage. Will customers make the same mental leap to think of their computer as a utility?
One key question is whether Microsoft can impose this model by virtue of its monopoly position or whether it will allow its ecosystem partners (manufacturers, service providers, and resellers) to innovate with different business model options for customers. If Microsoft attempts to force it on customers, expect widespread market resistance.
Microsoft's new vision also shows how technology is often an enabler for new business models. Whether customers like this business model remains to be seen, but it would not be possible without advances in technology. The same economic logic for pay as you go applied decades ago — but the technology to administer it did not. Now that the technology exists, the new business model may be viable. The technology does come with certain limitations, namely privacy and the idea of being locked in to a particular service provider. Lock-in is a big problem for cell phone customers in the US, but not in the rest of the world. Today, a customer can buy a PC and choose their service providers for pretty much everything else. Would I want to buy a PC that is locked in?
One big supposed benefit is the ability to standardize manufacturing. Yet all of the major manufacturers, led initially by Dell, have invested billions to create completely customizable manufacturing processes. Every computer they produce can be different with little added cost. Would there be cost savings from a standardized model? Perhaps, but whether it is big enough to compel customers to switch remains to be seen.
Finally, notice that business model innovation requires breaking prior business models. When you innovate, you can't expect everyone to be happy about it, so you'd better get used to the criticism along the way.
