Technology By the Glass
May 27, 2003

By James Klein, Larta VOX Editor

From media to software to hardware, companies are giving consumers the technology they want in the quantities they need.

Selling consumers only that portion of an item they can use at one time probably goes back to the origins of homo sapiens. If the first profession was hunter, the second was middleman. The hunter couldn't use a whole mastodon, so he'd trade it to a middleman with a distribution system that could accommodate five tons of mammoth meat at a time. The origin of wine dates back to the very beginning of human civilization, and the ancient profession of bartender soon followed as individual consumers wanted to buy a single drink instead of a whole bottle (or ceramic pot, as the case may be).

To this day, you can walk into a bar and buy most anything by the glass. It's cheaper to buy it by the bottle, but sometimes you just want one glass. This simple, ancient, powerful idea - selling the consumer only that portion of a product they want, is being applied to new products and markets every day, and is transforming IT and other technology industries.

Used to be, you could buy two songs at a time. It was called a "45" and played discs at 45 rpm (revolutions per minute) on an ancient device known as a "record player". A 45 had a larger hole in the middle, but an inexpensive plastic spindle attachment was all you needed to convert your existing system, which played an LP (long playing) record at 33 rpm. Consumers didn't have to buy the whole album - they could get just the hit songs they wanted. Unfortunately, 45s went the way of the Edison wax cylinder. Consumers still wanted to only buy the hit single, but were forced to purchase an entire CD, even if it contained songs no one wanted to hear. For years, the music industry relied on hit songs to boost sales of otherwise lackluster albums. Consumers were naturally frustrated buying twelve songs when they only wanted two. This frustration is one of the reasons online music piracy grew so rapidly. Not only were music pirates able to get whichever specific songs they wanted without having to receive an entire album, they could also rationalize their actions because of what is still seen as record companies' unfair bundling of music into an "unbreakable" package.

As perhaps the most effective answer to music piracy to date, Apple's new online service, iTunes Music Store, and other similar services like MusicNow, Rhapsody, and Pressplay, sell music one song at a time, enabling consumers to purchase their favorite hit songs without having to buy the whole CD, providing the music industry's most viable alternative to KaZaA and other illegal file-sharing services. Apple's iTunes Music Store offers songs from all five major music companies - Universal, Warner, EMI, Sony and BMG. The iTunes music store will initially offer 200,000 songs. Users can preview a 30-second sample and then decide if they want to buy a high-quality audio copy for 99 cents, less than the price of a 45 in 1973.

Ideally, consumers should be offered everything by the glass, giving them the option of purchasing only that part of the item they're interested in at any one time. Cars might seem like a commodity that would be hard to sell by the glass, yet leasing does exactly that, allowing people to buy only the new part of a car's lifecycle.

Part of the "by the glass" movement is driven by organizations increasingly outsourcing functions and services they used to perform themselves. Buying something whole takes more money than buying it by the glass - money that detracts from building a company, or that must be borrowed and paid off with interest. Companies and individuals are also realizing that with ownership comes responsibility, for maintenance, repair, and replacement - activities are often not part of a company's core activities or competencies.

Software companies are increasingly offering their products by the glass. Salesforce.com is one of many companies that sells metered access to enterprise software, rather than requiring consumers to purchase the entire package. Salesforce.com CEO Marc Benioff plans to take the by-the-glass concept even further. In early June, Salesforce.com expects to release sForce, a system that allows any software company to sell its software product as a by-the-glass service.

Other companies are offering software by the glass for specific functions. WebEx enables online meetings, Employease offers online HR software, and Arena Solutions facilitates outsourced manufacturing. IDC, a technology research company, expects outsourced software services to grow to $8 billion in 2007, from $2.2 billion last year.

Even Big Blue is getting in on the act. "We've been on a model where everybody's got to buy their own thing and pay for it in one big gulp," IBM's Senior Vice President for Strategy, J. Bruce Harreld said in the May 12th issue of Fortune magazine, "We need a change in how people pay for information technology, so it's more by-the-drink, flexible, buy-it-when-you-need-it. IBM is transforming its operations to offer its customers what it calls "on-demand computing".

IBM first described the company's vision for on-demand computing last year, committing $10 billion to on-demand initiatives, beginning with the opening of four On-Demand Design Centers to help customers test new products and services. In IBM's vision, on-demand networks will offer customers more flexibility and a greater choice of services. Companies in such an environment could pay by the month for software systems rather than maintaining them in-house.

The biggest buyer in the United States - the federal government - is seeing the wisdom of purchasing services instead of owning equipment, and is increasingly outsourcing functions it used to perform. David Drabkin, Deputy Associate Administrator for Acquisition Policy at the General Services Administration (GSA), which contracts for billions of dollars in products and services, explains: "People used to like to own everything. Many companies were spending a disproportionate amount of time focusing on owning all those things and trying to keep them up and running and keep a workforce to keep them up and running and it was detracting from their ability to do their core mission. Well, the government has come to the same realization. We don't like to own things anymore."

We're likely to see more on-demand products, services and initiatives in the future, as technology industries adapt to customers' needs. The winners are the consumers, who will have more choices in the variety and quantity of services available. Small businesses will especially benefit, as they're frequently strapped for operating capital, and require software and hardware services that fall below the cost advantages and economies of scale delivered by owning entire systems. Technology companies will benefit from both sides of the coin, buying only the services they need, and selling their products in new, inventive ways. To the by-the-glass movement, we should raise our glass and say cheers.

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