With the announcement of Nest’s acquisition by Google for $3.2 billion last week, the entire technology industry was thrown into hypergear deliberating why there was such a high price placed on something that appeared to be so simple.
It’s only a thermostat after all, right? Wrong.
Nest helps consumers control the most energy-guzzling aspects of your home – heating and air conditioning – which accounts for 56 percent of the average home’s energy consumption. What made the Nest acquisition so appealing was its ties to this mandatory service. It provides a product that is so closely embedded into the consumer’s life that it was an appealing acquisition for any mega corporation that wants to take advantage of the thing that powers everything – electricity.
Now add $1.99 per month subscription to connect Nest to Google services, and you’ve opened a lot more consumers to replacing their “ugly” thermostat, rather than paying the upfront $249 Nest one-off purchase cost. Which could allow Nest to work its way into millions of homes; this means that 56% of all electricity used, the monthly service that we all are forced to pay, will largely be monitored and controlled by one of the most powerful companies in the world: Google.
Google has done extensively well to take expensive products and turning them into a service, often for free. For example, Google’s acquisition of analytics company Urchin Software Corporation in 2005 turned a very high-dollar offering to a free service for website owners. Google is transforming an industry formerly dominated by Microsoft with the launch of Google Drive, free for most and offered at a low monthly fee for businesses, replaces the need for Word, Excel and the rest of the antiquated one-off software offerings.
This is indicative of a shift from one-off product sales to services that will become essential to our everyday lives, things that we will pay for over and over again. In an age when consumers would balk at being forced to pay $120 for a year’s worth of music streaming, they are happy to have their money taken away dollar-by-dollar at a $10 a month clip. Whether it’s more than $1,200 a year on an iPhone plan or a monthly subscription for home delivered products and services, it’s time for Silicon Valley to realize we have reached the age of leasing, not buying things.
Welcome to the age of services. With every new app and product that debuts, entrepreneurs now more than ever need to take into consideration the value proposition of getting consumers quickly on the “titty” (as a great quote from the TV series “House of Cards” so bluntly put it).
This means instead of selling a one-off item a monthly or yearly subscription model needs to be baked into even the simplest of concepts. Subscription-based services have taken over, letting consumers subscribe to everything from kids’ craft supplies for around $20 a month to licenses for software priograms, which can run around $75 per month. From digital children’s books, to even gadget-driven offerings, the world has shifted to deferred payments for ultimate consumer satisfaction. Big-ticket items are going to the way-side in lieu of purchases.
Much of this shift has to do with up-and-coming generations that have a bent for instant gratification at a bargain price (or even free). They want the $1.99 a month subscription for music, with on-demand video for $9.99. The Internet has made it possible to lease rather than buy, which large companies have done for decades to better balance their books. Depreciation on large equipment (cars, planes, buildings, etc.) is better if you can match it with consumption. Now technology has made it feasible for the average Joe to do the same.
This generation may never really own a thing in their life. Long gone are days of saving up to buy something when you have credit cards and layaway plans await. Instant consumerism is the driving force, and subscription services lead the way.