The Subscription Era of Smart Devices: The End of Free?

The Subscription Era of Smart Devices: The End of Free?Most consumers are used to buying a TV, smartphone, computer, or smart speaker with a single upfront purchase and no further fees. However, we are now entering a new phase where device makers are potentially charging for formerly free tech software on an ongoing basis

The Subscription Era of Smart Devices: The End of Free?

Most consumers are used to buying a TV, smartphone, computer, or smart speaker with a single upfront purchase and no further fees. However, we are now entering a new phase where device makers are potentially charging for formerly free tech software on an ongoing basis. This signals a full-fledged rollout of the subscription service model.

Amazon plans to launch a new, AI-powered Alexa next month that will cost $10 per month. This will be the first time in Alexa's decade-long history that users will be required to pay directly for the voice assistant. Samsung executives have suggested that they may consider charging a subscription fee for AI features, possibly as high as $1900. As for the nascent AI features in Apple's latest iPhone operating system? Bloomberg reports that Apple is considering charging for them in the future. (Apple said on Monday that the latest iPhone operating system will remain free. The company declined to comment further.)

Paying for internet capabilities in your devices is not new, but it has been largely confined to niche gadgets or optional add-on services in the past, such as the Oura health tracker, Samsung TV's art mode, car safety services, and iCloud storage. What's different now is that more and more companies are starting to charge for core features on devices used by millions of people every day. You may not like it, but it's coming.

Why Are More Devices Going Subscription-Based?

Theres a saying in tech: Hardware is hard. Developing a new phone, camera, or facial recognition device is expensive. If it's not a hit or companies can't convince users to pay enough, they can go bust. But what if you not only paid for the product but also paid a monthly fee, or even paid continuously? That alters the company's financial model, and it changes how you consume.

For example: The $170 Hatch alarm clock offers a $4.99 per month subscription service; there's also a home sous vide machine that comes with a subscription app. Even printer ink now comes on a subscription basis (not great, we know). Peloton users typically pay a monthly subscription for online fitness classes on top of the price of their home workout equipment. Car companies, such as Tesla, charge subscription fees for driver-assist features. If you rent or buy a Snoo bassinet for $1695, features like sleep tracking, simulated car ride mode, and weaning mode are included for free. But if you resell or give the device away, the new user may have to pay $19.99 per month for access to those features. (The basic functionality is usable without a subscription.)

"Subscriptions absolutely have a lot of benefits in terms of creating a good experience for customers, but the bar is really high," said Amy Konary, founder of the Zuora Subscription Intelligence Center, which provides solutions to help businesses create subscription billing and strategies. Konary points out that users may feel like they are being nickel-and-dimed when they are now charged for features that were previously free or have to pay extra for basic functionality on a product they already paid for. However, she says that users are more likely to accept a subscription service if they feel that they are getting a new, valuable experience for the monthly payment.

Konary uses her car as an example. Basic features like digital maps and navigation come without extra charge, which is a basic expectation of users. Enhanced navigation features with satellite maps, however, require a subscription.

Alternatives Beyond Subscription

Many companies are hoping that AI features, much like Konary's enhanced navigation maps, will provide enough utility beyond basic functionality that users would be willing to pay for them. It will be interesting to see how this unfolds.

Samsung has pledged not to charge for AI features in its smartphones until 2025. And reportedly, even if Amazon starts charging for AI-powered Alexa, the classic Alexa will remain free. Large consumer device makers and car manufacturers typically offer free basic software updates for their products. However, they would be entering a whole new territory if they started making features such as AI or cruise control features subscription-based.

An interesting idea emerged from a Zuora consumer survey. Most respondents said they would prefer to pay for AI features on a usage basis, rather than a fixed monthly fee, if they had to pay at all. Imagine paying only a few dollars each time you ask Alexa to do your homework, rather than paying $5 per month whether you use it zero times or 20 times a day.

If you're old enough, you might remember a similar pricing model: people used to pay per minute for long-distance calls or text messages. Now, we just pay a monthly fee for a subscription.

Challenges of the Subscription Model

The subscription model is not without its challenges:

• User adoption: Users may be reluctant to pay for features that were previously free, especially if they feel that these features should be included in the price of the device.

• Price transparency: Subscription fees need to be transparent and reasonable, otherwise users may feel cheated.

• Competitive pressure: If multiple companies start adopting the subscription model, users may be tempted to switch to competitors with lower prices or more robust features.

Looking Ahead

The subscription model is changing the business model of the tech industry and also presents new challenges and choices for consumers. As technologies like AI continue to develop, the subscription model may become even more prevalent. Consumers need to carefully weigh the pros and cons and make informed decisions based on their individual needs.

Conclusion

The subscription era of smart devices is upon us, and it will change how we use and understand technology. In the future, we will see more devices and services adopting the subscription model. Consumers need to adapt to these changes and find the usage patterns that work best for them.