Caveat Renter

Renter beware. I've heard a number of technology companies lately extol the great virtues of renting—both hardware and software. They sell the concept to their investors and shareholders and talk about the wonderful revenue stream they will build. And I'm afraid that is all that they see. As such, they are doomed to failure. There will be a backlash, mark my words. The thing is, as pointed out in Infoworld,

But we don't see any vendor propaganda promising that we'll save money by renting.

In fact, companies moving to rental are missing a fundamental rule of business—the customer is king. The whole point of capitalism is that the absence of compulsion means that you have to win customer dollars by providing something people want. And the bottom line here is that nobody wants to rent. At the very most fundamental, nobody wants to rent unless doing so is significantly cheaper than buying. Not just a little cheaper, significantly cheaper. Renting means that someone else has control over your destiny. It means you do not own the tools that make your business run. In something like IT spending for businesses in particular, where change represents significant cost, you do not want to be dependent on another company for the continuing good function of your computer systems. It is suicide. And Ed Foster at the same magazine says similar things about "maintenance" contracts which is rent on the back side.

Companies aren't going to agree to draconian rental policies just because tech companies want them to. Even when they want them to really badly and they prattle on about bug fixes and free upgrades.

  • Fact, free upgrades won't happen—companies will invent new names and split upgrade paths to, well, generate more revenues.
  • Fact, bug fixes aren't going to happen any faster with rental agreements—you can guarantee that companies won't bump spending on support and programming just because they have more revenues coming in.
  • Fact, new revenues will go to new programs, new initiatives, and new products to generate new revenues.

Consumers are not stupid. Companies who see their customers as walking revenue streams have lost the focus that made them successful in the first place. You build revenues by accurately identifying the wants and needs of your customers—not by accurately identifying their budgets. My advice? Avoid tech companies with great plans for rental revenues like the plague—not only their products, but I'd stay away from their stock, too. The resentment of their customers will rebound and they will end up the worse for it.

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13. June 2002 10:34 by Jacob | Comments (0) | Permalink

Capitalist Greed

"Capitalism: The system of modern countries in which the ownership of land and natural wealth, the production, distribution, and exchange of goods, and the operation of the system itself, are effected by private enterprise and control under competitive conditions." --Webster's Collegiate Dictionary, 1945

There has been a lot of criticism of capitalism lately. The most common charge is that capitalism promotes greed. In fact, in many circles including popular media and entertainment, capitalism tends to be synonymous with greed. A popular movie in the last decade starred Michael Douglas (I think) in a role where he played a CEO who lived by the motto "Greed is Good".

I'll go on record as someone who believes that greed is *not* good and can in fact lead to great evil. But the problem is, greed is impossible to quantify. Greed is the motive of actions, not the action themselves. How can you tell if someone is successful because they are greedy or because they sought to serve their customers well with products they want? In fact, how can you tell that someone who is successful is greedy at all? Or that a poor person isn't greedy (I mean, they might be very greedy, just bad at satisfying their greed)? In fact, the sanctimonious finger pointing about the greed of successful people can just as easily be a function of the envy of other (less talented) greedy people as anything else.

Well, since you can't quantify greed, I think that it might be more useful to look at command economies vs. free market economies and look at how they handle any greed that might crop up. I mean, what are the effects of greed under different economic systems? Or, put another way, what might greed motivate someone to do under different systems?

The central feature of a command economy is that somebody, well, commands the economy. Socialism is a mild command economy where the government controls certain universal services like health, broadcast TV, transportation and, well, anything they can control without actual armed revolution. Communism goes further and attempts to control the production of everything (er, so does fascism, come to think of it...) and just makes sure that any armed revolution is beat down. So if you are a greedy person and you are born in a country with a lot of command over the economy, what activities would you undertake if you wanted more stuff? To me, the answer would be that I would do what I could to make sure I was the commander rather than the commanded. Greed reinforces oppression.

In a free market however, since few outside influences can touch the economy, anyone who is greedy is forced to figure out a way to get the stuff that others have. As long as the free market is accompanied by the rule of law, Greedy people have to convince someone to give them stuff--they have to be persuasive (this is where Russia is failing, by the way--they have a free market without the rule of law). I have to give others something that I value less than whatever it is that they will give me for it. In other words, I have to figure out what others want and try to provide it. Did you catch that interesting transformation? Free markets turn the impulse to greed into a search to satisfy the needs of others. Pretty darn cool, I think.

What that means is that a free market is the only way to take the inherent greed of people and turn it to the service of others. Now, this isn't as clean as it should be. For one thing, there is no such thing as a free market. None exist in the world today at any rate. I'm afraid that in our world once a certain level of wealth is achieved, that wealth tends to be directed towards controlling the hand of commanders to protect or grow the wealth. So greed reinforces oppression in any system. In the United States, that means that once companies become a certain size, they feel the need to manipulate government force to their advantage by erecting barriers to competitors (taxi companies in Las Vegas for example or Doctors and Lawyers with their respective legally enforced practice requirements) or by directly petitioning for government subsidies and "protection". If you want pristine forests, but can't afford to buy one, your greed will seek to oppress those who don't value pristine forests as highly.

But here's my conclusion. The freer the markets that can still maintain the rule of law, the less problem they will have with greed. Not because greed won't exist but because the effects of greed are ameliorated by the freedom of those around the greedy. Our society *does* have a problem with greed, no doubt about it. Too many people are willing to sacrifice morals and relationships for material possessions. I'm just glad that our freedom provides us some protection by forcing the greedy to get our permission before taking our stuff. There's a warning in that. The more power to oppress that we give others, *any* others, the more greed can hurt us.

Greed is bad. But amassing power to take stuff from the greedy as is proscribed by the political left in the United States is entirely the wrong way to solve the problems of greed. That just leads to the smarter greedy people switching sides to where the power has been amassed. The antidote to greed is to reinforce freedom from oppression and to put as many checks on power as we can find. That won't get rid of greed, nobody can do that, but it *will* turn the effects of greed into services and goods we might actually find useful.

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1. May 2001 11:20 by Jacob | Comments (0) | Permalink

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