“What are the common financial pitfalls and opportunities in combining or transitioning from hardware sales (free software) based model to a subscription based model?”
(V. Wierda, Head of Operations, Trakkies)
Trakkies is offering more than just finding something if you forget where you put it. If you think about it, this should be a must-have for the Big Four* and the law firms, because it’s not only about the value of a device and the hassle of losing it—it’s even more about the information on the device, especially if it’s about your clients. Furthermore, the Big Four could earn back their investment in Trakkies by asking their insurer a lower risk premium. Or the other way around: insurance companies should think about supplying Trakkies to their customers.
This is just the beginning, and that’s when Trakkies needs to make a decision. Will the old Trakkies be entitled to software updates? Or are these only for those Trakkies owners that have bought a subscription? Or can you only buy a subscription after you’ve used the product for some time?
Subscription, as opposed to a direct purchase, is becoming more and more usual. It makes life a lot easier for the software developers for several reasons. First, it will save them the costs of supporting the old software versions, as well as the need to allocate time to keep the old versions running. Second, it will help preventing the occurrence of illegal software copies. A subscription is also called Software as a Service (SaaS), which clearly makes it a part of a bigger scheme—the cloud computing. This way, the big advantages for clients also become apparent: not only working with the latest version but also working in the cloud with the program, support and maintenance of the software developer.
At Microsoft, you can see the difference in pricing for buying or subscribing to MS Office. Subscribing is much cheaper at first, but and in the long run it is more expensive. It also needs to be updated. Microsoft also illustrates the illogical situation of offering both the purchase version and the subscription version at the same time. Because if you offer both, you won’t have the advantage of no longer supporting the old versions. That could have been one of the reasons for Microsoft to offer the upgrade for Windows 10 for free.
But Trakkies is not merely software. Trakkies combines hardware and software, like Apple. And maybe Apple should lead the way here. Apple offers OS software updates for free, and a lot of other additional apps you can buy. Most often those are developed by the third parties. Part of Apple’s success is that many Apple users strive to have the latest Apple hardware. The free upgrades for old hardware don’t stop them from buying a newer version of hardware with better screens, faster processors and longer battery life.
This will also be the case for Trakkies. Even though the current product is based on the newest technology, in the future there will be even better, smaller, extended-range Trakkies. Meanwhile, the users will be waiting for these newer Trakkies, getting the software updates from time to time. This further ties them to the brand.
I don’t think this is a question of financing. It is rather a question of a core strategy and brand positioning—which, in the end, will pay off.
About this column: Dr. Finance is Gerard van Baar, an independent financial consultant, who’s been offering free financial advice to Dutch startups and companies on the pages of our magazine since 2011. His expertise is drawn from his involvement in the financial world.Van Baar has previously worked as the Managing Director Finance & Sustainability at the Holland Financial Center and as the Director Energy & Commodities Risk Management at Deloitte. If you’d like to get an advice from Gerard, e-mail your question to email@example.com, mentioning “Dr. Finance” in the subject line.