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Rather Than Buy Products, We Buy in to Services

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It used to be that you bought a product, took it home, and used it until it ran out or broke. If you needed to, you bought another. Today, we don't just buy things, we buy into them.

Two big trends have been reshaping the consumer marketplace: something-as-a-service and the experience economy. If you're wondering about why there's been a push for these two trends, the answer is exactly what you'd expect: they're profitable.

Something-as-a service is the way consumption is going. Anecdotally, today the most often-signed consumer contracts are for cellphones, Internet access and T.V. signals. Consumers pay a monthly fee and gain access to all this great information. As all suppliers seem to be well-aware; ISPs, telcos and cable giants are on a collision course: once everything turns into data, all consumers will need is a dumb pipe.

If everyone is selling dumb pipe, there's no reason for consumer loyalty and everyone flocks to the lowest-cost provider. Fortunately, service providers have strategies to "reduce churn," which is jargon for "making it harder for customers to leave." Favourite solutions include fixed-term contracts with rewards for re-signing, and bundling of services, where the more you pay, the more you save. In business theory, this is an age-old strategy, often called "barriers to exit" or switching costs. Make it hard for a customer to leave and they'll probably stick around.

But there's a new class of product that tweaks this formula: digital products. Already the idea of renting a DVD or buying an album seems quaint. It's just information and it should find its way onto our TVs and into our iPhones without making detours that artificially increase prices. After all, it's just information. There are a handful of companies that are now selling streaming video and music as a service, like Netflix and Hulu for video, Spotify and Rdio for music.

These services are pretty straightforward: consume as much as you like, but stop paying and the music (or movie) stops. The switching costs here aren't too bad, mostly just the time and energy that it took to set up playlists.

For non-streaming services, things are a little different. Videos you buy for your AppleTV will only play on Apple devices -- which tend to be pretty expensive and released on a frequent upgrade cycle. Google, with their Google Play service, appears to be following suit, but at least the hardware sticker prices are lower. Amazon, now both streaming and selling media of every sort, has done an excellent job being present everywhere, so as to not tie consumers to any one media front-end.

But in every case, each new piece of media you buy is a brick in the wall you'll have to hurdle if you ever decide to switch loyalties and head to a competitor. You're not buying a product (literally, you're only licensing one). Instead, you're buying into an ecosystem. So the question becomes "who do you trust for the long term?"

Apple's recent move of shipping an incomplete Maps app as part of its slapping fight with Google demonstrates pretty clearly that the company has no issues with putting its own interests above those of its customers. Google and Amazon have, for now, the luxury of behaving better, but the rivalry in the industry as a whole is only going to escalate.

All of this is to say that companies are coming up with increasingly compelling ways to make it difficult for us to switch to their competitors. We're no longer just buying products; we're buying into long-term relationships with brands. So, who do you trust?