11 Aug 2014

Renting Our Devices

I realize I have too much old IT stuff: a computer from 2005, an iPhone 3GS, and so on.

This set me thinking: Is there an alternative economic model that lets me get rid of stuff I’d rather not be using?

In theory, I could sell off such stuff and upgrade to newer, better stuff, assuming that it’s truly better. But there are a few problems with this idea: first, the market for used goods is remarkably illiquid [1] and non-transparent, with no rules of thumb. For example, what’s the going price in Bangalore for an iPad 2 with 64GB storage, wifi-only, but with a broken microphone, purchased in 2011 April?

I searched on Craigslist Bangalore, and I see only one listing, that too for a device that’s been “hardly used”, while mine is normally used. Besides, that has 16GB of storage, while mine has 64.

I then looked on Flipkart, and found that a new iPad 2 goes for ₹20K, again with 16GB storage. Okay, so based on that information, what would you say is a fair price for an iPad 2 that has 64GB storage, has been used for the past three years, and has a non-working microphone? No one knows! And in that situation, I don’t feel comfortable selling my iPad, because I am worried I’ll get a pittance for it.

Second, selling things is an overhead. If I use eBay, I have to link my bank account with eBay, but I don’t trust them with my bank account. eBay also requires me to ship the item to the buyer, which is just unnecessary bureaucracy for me, and opens up possibilities like the courier guy stealing the iPad. Or the buyer saying he didn’t get it, which will require me to investigate.

There was a case of a person who purchased an iPhone from Flipkart claiming that he received a brick. Now, how can anyone determine whether the courier guy stole the iPhone, or whether the customer is trying to cheat Flipkart?

eBay also has an escrow system, which gives the buyer an opportunity to complain that he didn’t get what we bought, and ask to return it. While this is fair to the buyer, it’s more bureaucracy for the seller. I’m all for doing an honest trade, and when I sold my camera that takes hazy photos, I listed it as such, even if doing so made me less money, or made it less likely to make a sale. So, I’m all for doing an honest transaction, but I don’t want to deal with the bureaucracy of the escrow system. After all, selling things is not my full-time job; I already have one.

And the eBay policies go on and on for many pages. Listing something there sounds like a major amount of effort.

I’d much rather ask the buyer to come to my office or some such place, give them the product, let them take a look at it and satisfy themselves, receive cash, and leave.

Craigslist doesn’t work, either, since I get a dozen offers, rather than the system filtering out everything but the highest offer. I also have to decide to list a price, and this brings us back to the problem of not knowing the price. If I guess too low, I may get a pittance. If I guess too high, I may not find a buyer. I tend to list a price and mention that buyers can make me a higher offer, and that buyers should mention a price when they respond to my ad. But hardly anyone does, so I ask them to do so, or I ignore their mail, wasting my time in the process.

Third, there’s the psychological effect of owning something. One is then loath to part with it. Whereas, if I was merely renting a product, and it’s not “mine”, I’d be more willing to part with it.

Maybe renting is a good model. After all, what I care about is using a product, not necessarily owning it. There’s no intrinsic reason why I have to pay once rather than monthly or yearly. Or why I have to own it, as opposed to merely having the right to use it for the duration I want to.

Just as with apartments, both owning and renting have their own advantages and disadvantages. When you buy, you are locked in. You can’t easily take up a job in another city or at the other end of the city. Or you can’t move if you find a better apartment. And so on.

I think this model has its advantages for gadgets as well. Imagine renting your camera or phone by the month. There are no contracts, no hidden fees, nothing — just a simple payment per month, based on the device. An iPhone 5s might cost you ₹3000 per month when it’s new, and ₹1000 two years after it enters the market. And the per-month rent never increases (because older devices get less valuable, not more). You can use your device for ever, as long as you keep paying the rent. Or you can choose to stop paying the rent at any time, by returning the device. Or switch to another model, from which point you’ll pay the rent associated with that model.

This model has many advantages:

Buying an expensive device, like an iPhone 5s for ₹53K, to say nothing of a high-end TV or a car, is a big gamble any way you look at it. It’s much easier to convince yourself to spend ₹3K trying out a new iPhone than it is to convince yourself to spend ₹53K to buy it. What if you don’t like it? What if it doesn’t work well for you? What if the phone you already use turns out to be better? Or what if the iPhone turns out to be better but only marginally so? I’ll bet that many people who consider buying a device drop out for some reason or the other.

You can read reviews, ask friends, and so on, but all the research you do is a poor substitute for actually using the device for a month. Reviews have a point of diminishing returns. The fifth review you read of something tells you little you didn’t already know; it mostly just wastes your time. Even if you read a dozen reviews, it’s hard to anticipate how something will work for you.

For example, when I switched from a 5-inch Android phone to the 4-inch iPhone 5s, I was concerned that the small screen size won’t let me get things done effectively. Only afterwards did I realize that while that’s true, that most of my usage is in quick bursts, not long sessions. I tend to take my phone out of my pocket, send a quick email or message, and put it back. Or take a photo or two and put it back. And so on. For my usage, a smaller screen turned out to work better because it optimizes for the common case — the many short sessions — rather than the uncommon one — a few long sessions.

This kind of insight is hard to get without actually using the product. You can read a dozen reviews, and ask a friend, but you’ll still get a bad understanding of how something will work for you.

And if it’s something new you’re trying, like buying a high-end interchangeable-lens camera for the first time, when all you’ve used is a point-and-shoot, then trying it out in a no-commitment manner for a few months is even more important.

A smaller commitment [1] is a boon not just for users but also for vendors, who will find it much easier to convince someone to spend ₹3K to rent an iPhone 5s as opposed to ₹53K to buy it. Vendors try hard to get as many people as possible to pay for their products, and the best way to do so is to reduce the financial commitment users must make.

A manufacturer that’s trying to break into a market, like Microsoft with phones and tablets, may even offer their devices free for the first fortnight, to get people to use them. Of course, with some limit, like only one opportunity per year to try something out for free.

Renting means that companies have to constantly keep competing for you, as opposed to becoming complacent once you buy something. For example, they may do software upgrades of cameras and other products in the field.

Vendors will also be motivated to make high-quality stuff that lasts longer, because it’s in their own best interest to do so to save costs. As opposed to planned obsolescence, which is making products with a short lifespan, in an attempt to rip you off by selling you another product a few years down the road. When renting, this backfires against the vendors, driving up their costs by having to manufacture a camera (or whatever other product) over and over again rather than doing it once, and doing it well.

Manufacturers will also be incentivized to stay away from flashy features that look good in demos or in the shop but don’t help you in daily use, and may even hinder daily use. Users are also less likely to be misled by gimmicks or by marketing. Successful marketing may make you rent out the device for a month or two, but if it’s not as good, you’ll return it.

There will also be no need to constantly keep coming up with new models, when they get off the sales treadmill. Vendors’ financial interests will be aligned with those of users.

A rental model has many advantages for users and for vendors, and should be widely adopted [2].

[1] Countries like India desperately need laws to force retailers to accept returns. In India, all sales are final. If a retailer accepts a return, they don’t refund cash — they insist you buy something for that amount. This is anti-consumer and prone to abuse. If you buy something that doesn’t work, you should be able to return it and get a refund.

[2] In addition to, instead of, buying outright. Just as with apartments, both buying and renting have their distinct advantages, and so both should be available in the market.

No comments:

Post a Comment