This year we saw consumers push back hard on BMW’s decision to include heated seats in vehicles but only make them actually work if people paid a monthly subscription fee.
Why?
And how does the concept of ownership change when everything is smart, everything is remotely configurable, and everything can report its own level of usage?
In this TechFirst with John Koetsier, I chat with Zach Supalla, the CEO and founder of Particle. We talk about music, software, hardware, and buying versus renting … everything. What does value mean, and when do we like paying monthly fees versus when do we prefer to buy something upfront and own it outright?
And what does that mean for our right to repair the products we think we own? And does our new relationship with ownership of objects mean that the US government could force companies like Apple and Google to brick all iPhones and Android phones in Russia, if Russia used nuclear weapons?
Watch: BMW’s heated seats and the evolution of ownership
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Transcript: The evolution of ownership in the era of smart matter
(This transcript has been lightly edited for length and clarity.)
John Koetsier: So, Zach, we connected — sheesh, it’s got to be a month and a half ago or so — around BMW.
BMW offered a heated seat subscription and there was a massive pushback online and the meme warriors came out [laughing]. You know, you’ve already bought the car. It has the capability for heated seats, and BMW said, “Hey, you wanna turn those on? Fine. Pay.” Talk about how you felt when you saw that story.
Zach Supalla: Yeah. I think, so, this idea of essentially like how you pay for things when you move from a world where physical products are fully owned versus partially owned, right — which I do think as things become more connected, there’s more IoT stuff behind the scenes, like the ownership idea gets really convoluted — has, I think, a bunch of moral consequences.
Which is that — and I think this is where these topics get really interesting — people get really angry and it’s a level of anger that goes far beyond just like “I would or would not be willing to pay that amount for that feature,” right?
Like, we don’t get angry about this stuff. We get angry when it’s like that is wrong. I am…that is an amoral decision that you have made, BMW. And I think that’s how people reacted to this story, is it’s like it’s amoral. And so what is that like? Where does that feeling come from?
I think it ties to ownership.
It ties to that idea that you said of like I understand I don’t have to be an engineer to know that there is a heater in there. And if you’re willing to rent me the capability, I know the heater is in there. Like, no one’s coming to install it when I pay the fee, right? So that makes me mad because it’s my car, it’s got the capability in it, and it feels wrong to charge me for something that I own.
John Koetsier: You know what’s really interesting about that? I drive a Model Y and it’s the dual motor long range, not the performance model, but you can buy acceleration boost. I think it’s like $2,400, $2,600, whatever it is. You can also pay $400 more to … I think there’s a hardware component here as well, to have a digital garage opener attached, basically, so from your screen you can do that.
Nobody whines and complains about Tesla not allowing acceleration boost to come through, right? Nobody whines and complains. You know what? Full self-driving is now $15,000 in the States. It’s like almost $20,000 in Canada. Nobody really complains about that. Why is that?
Zach Supalla: I think that … I’ll tell you, I have a theory, but I will say, I think this is actually really complicated in terms of our perception of value.
John Koetsier: Yes.
Zach Supalla: And I guess, let’s start there. We perceive that value is delivered to us in these products in very particular ways, and that perception is tied to our understanding of how things are made and how things are built.
And when we know how things are built, it leads to us having an opinion on how those things are paid for. When we don’t know how things are built, then it gives the builder a little bit of flexibility in terms of being able to charge for something. And also, when we have incorrect assumptions about how something works, I think it limits what the builder can do.
So maybe give a couple examples.
A heater, like I said, you don’t have to be an engineer, right? There is a thing that gets warm under the chair, and like, how does that work? It doesn’t matter, right? You know it’s there and it costs some amount of money for BMW to put it in there. So, the “right” way to charge for it is that costs you X dollars to put in there, you’re going to charge me Y dollars. I assume that Y is greater than X. You’re going to make some profit, and that’s fine. Right? But that’s like the right way to do it. And that’s because I have an understanding of how that thing is built.
Now, take a different example where, this is where I would say we have a sort of incorrect understanding of how things work, which is modern cameras and smartphones.
So, cameras have gotten a zillion times better over the last decade. A lot of those advancements are actual physical improvements to the lens, to the sensor, but a lot of them are also in software algorithms, right? Like there is a better algorithm now that takes the same information and produces a better image at the end of the day. Now, I think that if you are technical and you get into this kind of stuff then you might know that. But most everyday people don’t understand, I think, that the algorithm is a big part of that. And so let’s say that Apple said, as an example, that there’s two versions of this phone. They’re the same hardware. But one of them has the fancy algorithms that give you the better image and one of them doesn’t. So, it’s like good image, great image. And the great image is going to cost you $50 more than the good image.
How would people feel about that? I think people would be pissed, right?
John Koetsier: Yes, they would.
Zach Supalla: And I think the reason is because they’re, even though it is actual software value, they’re perceiving that it’s a hardware capability and they don’t like paying for a sort of hardware difference in an…Now, I think the example of the Model Y, what’s the feature that you can pay for?
John Koetsier: Performance boost.
Zach Supalla: Performance boost. I think, actually gets into this zone where we don’t actually understand how it works and so we’re willing to take a little bit of nudging from the manufacturer, which is like, why is it that the car can go faster when you do that? Well, and I will say, like, I’ll start by saying I actually don’t know how this works, right? So …
John Koetsier: That’s two of us.
Zach Supalla: My guess is, at the end of the day, there is something they’re doing in software to be able to get more power out of the battery and pass that into the motor on a shorter time frame that gets you more power.
This is like, we have a bunch of Dyson stuff in our house, right? This is like, Dyson’s magic is their ability to maintain power levels out of a battery is really good, but that’s all like software stuff that they’re doing within the circuitry and the embedded systems that are in there. So, now I think what allows them to get away with charging that as a premium is that we don’t actually know how it works, but we’re willing to believe that it’s a software-ish kind of a thing.
And I think people are willing to pay for software add-ons, right? Like we’ve been trained on this. The App Store is just like a bunch of software add-ons.
And so the idea that you pay for a software enhancement after the fact is acceptable to us, as long as we perceive that it’s software or that we don’t know. And if you tell us…I think that this is also, Tesla markets this way, so they’ll say it’s a software feature and because we don’t know any better we’re like, “Yeah. Okay, sure. It’s fine.” Right?
John Koetsier: Mm-hmm.
Zach Supalla: Whereas if you did that with, again, coming back to the phone, I think if you said this was a software feature that makes it good, people would be like, “That’s not how cameras work.” [laughter]
John Koetsier: Exactly. Computational photography. It’s interesting that you mentioned this because kind of the origin story behind Particle was, in a sense, a software feature and upgrade to a piece of hardware, right? You programmed remotely a light to flash — if I remember the story correctly — so your dad would know when you texted him, because he was deaf or hard of hearing and he couldn’t hear the little beep. Is that correct?
Zach Supalla: Yep, that’s correct. Yeah. Good memory. So yeah, I, and it’s funny ’cause this product never came to be, right? This was the early idea that we pivoted away from and eventually became a platform.
But, you know, it’s interesting where you’re going with this because the idea that I had for that product was that it’s a product with APIs and it’s a product with apps, right?
So the way that we presented this initial lighting product was like you’re gonna buy a light, and that light is going to have apps. And my, like, this is not laid out in the Kickstarter campaign in much detail, which is where are you gonna buy those apps? What do the apps do, right? The Kickstarter campaign describes the basic functionality of a connected light, which is like, okay, what do you need? You need to be able to turn it on and off from your phone. You need to be able to do scheduling. You need to be able to do scenes and things like that. That’s the basic requirement.
So, the connected light, that’s built in. You’d get that with the light. And then something like a notifications app would be an app, not…this is not described in the Kickstarter campaign, it says, “It could use apps,” right? Well, like, okay. What? How would those be purchased? I actually had not really worked this out, but my expectation was that those apps are not going to come from the manufacturer. Which I guess was us, right?
So, my expectation was we were going to sell you the product and that other people were going to have apps and they were going to sell you the apps.
And that also creates a separation where, so let’s say somebody builds the notifications app on top of this thing that allows somebody to flash the lights when something happens like you get a text message. If that isn’t us, then I think coming back to the morals and what’s right or wrong, I expect that somebody’s going to be willing to pay that app developer for the app, right? And therefore, they’re okay paying like that sort of app add-on fee on top of the initial hardware purchase.
John Koetsier: Yeah, and it’s pretty interesting because you have layers of capability and add-ons and actually layers of delivering that functionality as well.
This area is fascinating to me for a lot of different reasons. I mean, you had a lot of conspiracy theorists over the past couple years quoting somebody from the World Economic Forum, “You will own nothing and you will be happy” [laughs], and looking at that as, you know, that’s the goal there.
But there are areas where I’m happy to do that and music is one.
So, I subscribe to Apple Music and I’m happy to rent my music there. It sucks in some ways because it’s a qualitatively worse experience in some ways than buying a piece of plastic and owning it, or buying a song, because songs will go missing. They’re just not authorized to play anymore or the favorite song that you love will suddenly change. And guess what? The artist wasn’t getting paid for that and here’s a version that they are getting paid for so they’re substituting.
So that sucks in some way, but the utility is still good enough, great enough — access to 15 million, 25 million, whatever the number is, songs, I don’t have to think about it ever — that I make that call. But I’m sure there’s some places where I wouldn’t make that call. I don’t think I would make that call with a car.
I don’t know, where’s your line?
Zach Supalla: I think I, well … I think the line will move for all of us over time. But, which is to say, if I go back to that idea of the World Economic Forum like you’re not gonna own anything. I think, if we, actually, let’s maybe use software as an example of this, right, ’cause this has already happened in software.
Once upon a time, the way that you got software was you bought a CD or a floppy disk or whatever, and it came with that software on it and you put it in your computer and you loaded it up. Now, that feels like ownership. But ownership’s complicated. Like, in fact…
John Koetsier: You didn’t really own it, right?
Zach Supalla: Right. You didn’t own it, you had a license to it. And even, I think music and media are kind of that way too, which is like when you buy a record, there is a certain level of ownership that you have over that thing. Like you own the record, but you don’t own the music. The music is, you have a license to use that music. If you play that song in a particular kind of environment, you have to pay a licensing fee, right?
John Koetsier: Yes.
Zach Supalla: Like, if you took that record that you own and you played it in a venue with 50,000 people there, right, you don’t necessarily get to do that for free.
John Koetsier: Yeah.
Zach Supalla: And so, the reality is that ownership’s always been complicated. It’s just that it’s not been quite so visible in how it’s complicated.
And SaaS, I think, is a good example of, in the early days of SaaS, which is like Salesforce, right, inventing the concept, they used this as a value proposition to say, “Look, the thing is about licensed software is that you never really owned it anyway, and you’re just paying an annual fee to have somebody come maintain this stuff,” right?
Like, when you have an Oracle license, you don’t actually own that Oracle software. And so let’s just accept that, and actually move to a model that embraces that and uses it to create a better product. And when you move to SaaS, here’s why SaaS is better than licensed software … our product gets better every day.
And that was Salesforce’s “no software” thing, right? And now it’s been embraced by all enterprise software such that these days enterprise software is just sold that way and it’s not even, you don’t even question it, right? If somebody sold licensed software you’d think that was weird.
But it starts with all of those SaaS products improve consistently over time. That’s the expectation customers now have.
So, if we now apply this to physical products, I think that the ownership model will change. And my expectation is that over time we do move to a model where more and more of the stuff that we own is not in fact owned, but is paid for as a service. I don’t think this will ever happen to cheap stuff, you know, like a toaster. This just, it’s not that expensive and so we’re not gonna get to…
John Koetsier: 10 cents to get toast today [laughter].
Zach Supalla: Not gonna happen, right? But like, a good example of something kind of expensive in your house would be like, okay, let’s say you live in a place with not great electricity and you have a generator. That’s a really good example of a thing that, yeah, kind of makes sense that you could move to a world where that starts to become rented. And solar panels…
John Koetsier: Solar is often sold that way … “sold” that way.
Zach Supalla: Right. Right. Exactly. And so, but I think it has to come with real value to the consumer for people to not be upset about it, which is if you say, “This is now, you’re going to pay it as a monthly fee instead of owning it, but here’s what … but … it’s going to get better all the time, or we’re going to provide a better service. We’re going to guarantee it always works.” Right? Now, I think when you create that value, then I think that that makes it feel like a good choice for the consumer. And I do expect there will always be the, just like in music, while streaming services are becoming increasingly the standard way that people will consume music, vinyl’s back in, right?
John Koetsier: Yes [laughs].
Zach Supalla: I do think there will always be the counterculture, which is as you move more towards as-a-service subscription models, then people are gonna be like, “Nah, right to repair.”
Here’s something that like the I now blank on the laptop that has become the sort of new modular laptop that has made it possible, that’s shown that you can in fact have like swappable components and…
John Koetsier: Yes. I saw that, actually. Yeah, last week.
Zach Supalla: And that’s, you know, that’s the counterculture, the opportunity for somebody to come in and sell against that general direction towards subscriptions and things of that nature.
John Koetsier: It’s really interesting actually, because something that Apple has been rumored to be working on and be releasing at some point is a subscription service for your phone basically, right? You have it for almost everything else, and you know you pay a certain amount and they ship you a new phone every year…
Zach Supalla: Right.
John Koetsier: Or every two years, maybe, depending on your level, whatever the case might be. And Samsung can do that, anybody can do that. Google can do that as well with Pixel phones or something like that.
Pretty interesting, but there is a risk, right? Because like one of the things, we live in the real world. We live in a world with complex geopolitics. We live in a world in which Russia … Russia’s president has threatened using nukes if it’s not allowed to keep the parts of Ukraine that it’s taken.
And one of the responses that I have read about that could be considered if they do, is the U.S. government could force Apple and Google to say, hey, brick those phones. Right? Brick those phones.
Zach Supalla: Right.
John Koetsier: It’s an interesting possibility.
Zach Supalla: Right. But I think what’s interesting about that is that how long has it been true that Apple could just brick your phone?
John Koetsier: Probably since the beginning.
Zach Supalla: Right? Like that’s in, it’s 2022. The iPhone was launched in 2007. I would be curious to know like, oh, interesting…how far would you have to go back before Apple could do it? But it might not be since the beginning. It’s probably pretty close, right?
John Koetsier: Yes.
Zach Supalla: So, like really this whole time. And that, I think, is the key here is things are being increasingly…the things that we use are increasingly reliant on companies that are going to provide ongoing service.
And that’s true whether it’s an IoT thing or it’s true whether it’s, you know, I mean, like a good example would be just like construction equipment, right? If you buy a Caterpillar piece of construction equipment, well you’ve got to buy, like, you’re going to break a part and Caterpillar’s got to be there to provide that part, right? They have to still be making those parts or there have to be enough of them out there that you can use them.
So, you are relying on that company’s continued existence to provide those parts. If Caterpillar sanctioned the…well, this is actually interesting now, because then you can imagine, well, let’s say that the U.S. government said you can’t sell those things to Russia anymore. What would they do with their construction equipment? Well, they would probably weld the machine… [crosstalk]
John Koetsier: They probably would.
Zach Supalla: …replacement parts.
John Koetsier: If they could.
Zach Supalla: So that’s why I think it’s interesting, right? Is like whether or not you can repair it on your own, Right to Repair legislation gets really interesting here.
John Koetsier: That exact scenario you just described is happening right now with jets that Russia has in its property right now. And of course it’s been going on for years with John Deere equipment where farmers have been advocating for [the] right to repair.
Zach Supalla: Yeah.
John Koetsier: So, it is an interesting world that we are creating. And, you know, just imagine the hack that somebody could hack in, have access to Apple servers and convince Apple that every single life iPhone has been stolen.
Zach Supalla: Right.
John Koetsier: That bricks every iPhone in existence. Well, there’s… [crosstalk]
Zach Supalla: I think…
John Koetsier: Go ahead.
Zach Supalla: Business models around this stuff, it’s a lot like privacy and security issues, right, which cover like all the same topics. There’s a lot of moral complexity around how companies deliver product and services here. And I think, at the end of the day, there are opportunities for companies to stay ahead of the game on right to repair, on ownership models, on privacy, on security. But generally speaking, the thing that trumps everything else is … is your product better than the next guy’s product, right?
John Koetsier: Yep.
Zach Supalla: Like, if you make a better product or service, something that actually meets the need, people will generally bend a little bit on their requirements and expectations of all those other things in order to get that thing.
And that’s where like BMW, coming back to the original model, that’s where they failed, right? It’s like, yeah, you couldn’t maybe compel somebody to pay a subscription for something in a car, but you know what they’re not going to do it for? The heated car seat that’s been in the car for decades, right?
John Koetsier: Yes.
Zach Supalla: You have not earned the opportunity to charge me in these new and interesting ways.
John Koetsier: I like what you’re saying there, and I think the other component of it is … law, essentially.
Zach Supalla: Yeah, totally.
John Koetsier: Because we’ve evolved very strong law, whether it’s good or bad, around physical ownership of things. Inadvertent transfer of ownership, we could put it that way. We’ve got laws around that. We have penalties around that. We have jails for that.
We have not really updated those property laws — and it’s “property” in quotation marks as we mentioned earlier on this very call — for when you are paying for access to a service.
There has been in Europe some pushback against EULAs, right? End-user license agreements that you sign or check a box, or don’t even check a box, you open a package, right? But we probably need some level of those around consumer rights so that we solve some of these issues on the back end as well. Anyways, it’s a brave new world that we’re entering. Any last thoughts?
Zach Supalla: You know, just on that point, I agree, ’cause I do think Right to Repair legislation is, I think, is good for all of us, right? And it has to be written right, it has to be written in a way that actually leads to the right outcomes. And this stuff can be challenging ’cause, you know, the wrong regulation can create more problems …
John Koetsier: Yes.
Zach Supalla: … than it solves. But with these examples, for instance, I think about in IoT how a lot of it’s not that uncommon for IoT manufacturers to go out of business and leave all their devices bricked, right?
John Koetsier: Mm-hmm.
Zach Supalla: Like, how could regulators, government entities, address those problems? Well, you know, it’s tough to say that a company is required to provide ongoing service forever ’cause what if that company goes out of business, right?
John Koetsier: Yes.
Zach Supalla: But you can imagine saying, well, a company is required to, if they go out of business and can no longer, then they have to do something to deliver the source code to customers. So, like a good example of this is when Pebble was acquired by Fitbit and they released Rebble, the open source software, and basically said like, “Hey look, we’re gone. And that does mean these watches are gonna stop, but … here’s a bit of software that you all have control over. Goodbye.” [laughs]
John Koetsier: Yes, yes.
Zach Supalla: Those watches still work. And I think that that is inspiring and it is something that more companies could do. And unfortunately, I know Eric, the founder of Pebble and a lot of the early employees there, and they care a lot that that watch still worked. I think Eric might have done it just so that his watch still … he still wears one and he…
John Koetsier: Those people swear by it [laughter]. They swear by it. They still wear those Pebbles.
Zach Supalla: Yeah. But that is something that more companies could do, and maybe with the right pressure which could come from regulation, to say like, “Look, you kind of gotta set yourself up this way, such that if you blink out of existence that your stuff keeps working. If you’ll release the software to make it still, you know, to allow people to take control in an environment where you’re no longer able to provide that service.”
John Koetsier: And this is a very real issue that is ongoing all the time. Google just exited Stadia [stah-dee-uh] — or Stadia [stay-dee-uh], I don’t know how you say it, Stahdia/Staydia — which is their cloud gaming service.
Zach Supalla: Yep.
John Koetsier: And people swear by the controller for this gaming service. They love this control. It’s great, it feels good, works well, all that stuff. It will be useless the second Stadia or Stadia is gone.
Zach Supalla: Yep.
John Koetsier: And they’re asking Google for a small firmware upgrade so they can use it as a Bluetooth controller on other devices. So, we’ll see if that happens. There’s a petition going around right now, I believe, and we’ll see if that goes on. But it’s a real issue.
Zach Supalla: That is a perfect example, right? Which is like, yes, of course, just release the firmware update. Like just put in the little bit of effort to make this less terrible for the people who are negatively affected.
John Koetsier: Exactly. Zach, thank you so much for taking this time.
Zach Supalla: Absolutely. It was great.
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