The Price of Paywalls
In SMB (small-to-medium) and enterprise IT, locking hardware and software features behind paywalls is a common practice. This is a great model from the perspective of the hardware and software vendors, but not so much for smaller clients whose IT budgets generally aren’t as vast. Feature paywalling increases recurring revenues for vendors and, when done right, creates a segmented product or feature stack that never gives customers more than they paid for.
At Geek Housecalls, we see this mostly in business/enterprise IT, but the practice is becoming more common in consumer IT, as well. Consider devices like Internet-connected security cameras from the likes of Ring, Wyze, and Nest: you can use the cameras without paying for a service subscription, but the manufacturers know you probably want to unlock those exciting paid features. In fact, most people who buy these smart devices do opt for paid subscriptions in order to realize the utility of their device.
In the case of Wyze, which sells a variety of smart devices, including network cameras, smart locks, and doorbells, the hardware is enticingly inexpensive while the subscriptions are where Wyze sees bigger profit margins. A Wyze Cam v3 starts at $29.99, while its Cam Plus Pro subscription runs $3.33 per month when billed annually. The service may seem to come in at a radically low price, but when you consider a home might use 4 or more Wyze cameras for outdoor security, the subscription spending adds up quickly.
Meanwhile, in the enterprise, let’s consider Fortinet, known for its hardware firewall devices, intrusion prevention systems, and cybersecurity services. A five-year license for its Fortigate 100F firewall appliance runs a staggering $21,896. This license includes FortiGuard 360 protection and ASE FortiCare, which are two of Fortinet’s comprehensive SaaS (software as a service) solutions. Broken down by year, that’s $4379.20, which may be well worth the expenditure in a larger organization, but then again a larger organization may find that the Fortigate 100F may find that the hardware itself isn’t appropriate for their size.
Pricing models like these, which are easily digested by larger organizations, tend to alienate medium-sized organizations which need the hardware prowess but can’t necessarily afford the various service subscriptions that the hardware all but requires. Smaller organizations can get away with using consumer or prosumer networking hardware, but as your employee count grows, so do your IT demands. $4400 a year for software licensing for one piece of hardware could be a big hit to a medium-sized business’s bottom line; we can understand why managers and executives of these businesses are so reticent about buying into enterprise hardware.
My own belief about this practice of locking away software features behind considerable paywalls is that it’s often a predatory business practice. Does it make sense in larger enterprise environments where service-level agreements and high uptime are absolutely critical? Yes. But most businesses in the United States are small businesses. According to the United States Small Business Administration, as of 2020, there are 31.7 million small businesses in the country, comprising 99.9% of all businesses. These businesses also account for 40.3% of private sector payroll. In addition, only 35% of small businesses survive for 10 or more years. Even in good times, keeping a small business growing and in good financial standing is tough, but when externalities like high inflation and decreasing access to capital are factored in, running a small business becomes a Herculean task (ask me how I know).
Geek Housecalls doesn’t serve the large enterprise–they have their own massive IT departments and budgets that would make the average person’s eyes water. We work exclusively with small and medium-sized businesses. We understand that making payroll and reinvesting in the business is a higher priority than spending on IT. That notion might seem to run counter to our business model of selling IT services to businesses, but we believe that enabling clients to spend less time thinking about their technology problems is the real value here. Our hourly rates aren’t the lowest or the highest in the area–we believe demonstrated value more than justifies the rates we charge. We also believe that giving clients the hardware they bought, full stop, is the best practice for our clients and for us.
If we installed a complete network solution for a client and then told them, “sorry, you’ll need to pay us another $4000 a year to unlock WiFi security”, the client would rightly be reluctant to ever work with us again. Practices like these alienate clients, which might be an acceptable outcome for the big IT players like Cisco who enjoy something of a monopoly in their industry, but it’s not acceptable to us. When we write a project proposal, the quote you receive includes the full functionality of the hardware you buy. If a vendor we purchase from wants to sell us hardware lockouts and ‘premium’ features, we look elsewhere.
If your IT budget is spiraling out of control and you feel like you’re not getting the value you deserve, get in touch with Geek Housecalls today and let’s work together to install the right solution for your business.