Ather Energy is a Bangalore-based startup that builds electric scooters. They recently announced an upgrade to their very popular (in Bangalore and Chennai) Ather 450 model, the Ather 450X. Being fully home-grown, made in India, with a design that I would call exquisite and nearly perfect, the news about a successor to the 450 generated a lot of excitement, especially when it was made known that it would be available pan-India. And then they revealed the pricing model of the scooter. It goes that you can own the Ather 450X at just Rs.100,000! If you go “Yay! That is amazing! Shut up and take my money!“, wait until you hear the rest (yes, there’s more), a bombshell so vicious that the effects should qualify for Post Traumatic Stress Disorder. Apparently, to be able to use it, you will also have to pay Rs.2000 a month for as a “subscription fee” (technically, the battery) for the next forever months.
Wait, what?
That’s right. You will have to pay an additional amount every month to run the scooter (the “subscription” does come with a host of benefits like no-questions-asked battery replacement and free OTA updates). You still can purchase the scooter upfront, but that would be Rs.1,70,000, thank you very much. Will that be cash or card, sir? I am still trying to wrap my head around all this because none of their pricing seems to make any sense. The monthly “subscription fee” is more than what you would spend to fill petrol in a conventional scooter, and if you were to buy it out upfront, The almost two lakhs (after all the added-on government thingys) you shell for one Ather 450X can buy you three TVS nTorq 125s, or even two and enough left over to fill petrol in them for the next two years. Oh, and did I mention about the tertiary costs like electricity and the SIM data plan subscription? But even as the pricing makes no sense, Ather has introduced us to the future. This “subscription” is among the paradigm changes that will define how we buy and own things in the decade to come.
Ather has made a statement that “they are losing money on every scooter that they roll out” and hence have no choice but to sell the vehicle at a price that gives them a reasonable amount of return. So you are actually buying the vehicle at its actual price. If you look at it, this innocuous statement is among the first signs of that change in times to come. Few will realise this today, but just like Infosys’ declaration some years ago changed the Indian IT landscape forever, Ather’s statement will also embolden more businesses to come out and call a spade, a spade, the spade being consumers having to pay the full “value” of the product or service being delivered. Providers are increasingly not ready to throw around freebies or to sell things at a loss to “attract” and “retain” customers. This is shocking in the current climate where the predominant business model is one of startups throwing VC money at customers in the form of discounts to win “loyalty”. They aren’t doing that because it does not work. It never did. The model that will replace the “discount model will be the “subscription model”.
The Subscription Model
The greatest realisation businesses have had in the past decade (with Uber etc.) is that businesses cannot win customer loyalty or even make money through discounting. As money becomes scarce and returns diminish, businesses have realised that the only way to make profits remains through selling stuff at prices higher than the cost required to make/procure them and that throwing away good money will only hurt them. The great era of cheap funds seems be winding down in favour of how trade had been conducted for many millennia. But the problem now is that the great consumerist boom of the past decade and a half has made consumers (like me) so addicted to freebies that we reject the prices that actually reflect the real value of the product as “too high”. The only way to make consumers pay that amount is to spread out the cost, deflect it or disguise it. The first and the last are the subscription model while the second option is putting the product out for sale at its real cost. This is what Ather is doing. The subscription model is only the way to make customers pay the real amount of the product, disguised as customer “convenience” and battery benefits while the real purchase price is used as a deflector.
The Ather 450X is just a start. The biggest single-most significant disruption that will change how we own and use things is the new “subscription model”. Driven by the economics of need and scarcity and powered by software and electronics, one among the most fundamental of our societal concepts, that of ownership, is changing, slowly transforming from an absolute to a relative idea. Transactions always guaranteed full rights of ownership over a product. When you pay for a pen, you own the pen. Simple. When you paid in full cash for a car, you received permanent, complete, inviolable rights over the car and all its operational features. But with the subscription model, though you still “own” the car, logically speaking, but some of its features are controlled and governed by the manufacturer which you will be allowed to access only on further payment. Outraged? You don’t have to. Take your smartphone. You the idiot paid a lakh+ for your iPhone, but how much of it do you own? Nearly nothing. Android? Try uninstalling some of the bloatware, or prevent Google from collecting data using it, or unlocking all its features and settings (without rooting). The “brains” behind the working of today’s devices, the Intellectual Property (IP) that powers the software, copyright and patent are still owned by the manufacturer. They haven’t sold you that.
Intellectual Property Inside
If you have noticed, the subscription model is already the “default setting” of the digital world. You no longer “rent” or download videos or films or music, you “subscribe” to Netflix or others to steam the video on demand. You can no longer “buy” Adobe Photoshop or Kaspersky Antivirus or Windows 10 anymore but only “subscribe” to them for a fixed period, post which you cannot use the application. Even the e-books you “paid for” on your Kindle aren’t yours, they can be digitally wiped by whoever owns the IP to the content. This digital phenomenon is being extended to the physical world. In the case of the 450X, the software that controls the output and efficiency of the battery and hence the power and torque of the motor and the range of the vehicle are intellectual property right of Ather. This is why you have to “subscribe” to the battery while you “own” the rest of the scooter. They will adjust the software to release variable specs of the scooter hardware depending on how much you are willing to pay for the IP. This is how any why they offer different variants of the same hardware based on different “subscription plans”. You own the scooter, but are renting Ather’s intellectual property to run it. Coming to think of it, subscriptions are better. Why spend a lot of money on buying something you don’t really own and cannot even use fully?
In short, the entire premise of “subscription” is based on the assertion that intellectual property rights (IP) form the core “working and money making part” of the product and hence can only be can only accessed as per wishes of the owner and creator. And most IP today is software that is in most cases embedded and forbidden to be accessed. This is why most modern cars can be serviced only at the workshop. Subscription to features based on IPs will increasingly be how “ownership” of objects will be defined going forwards. Everything from computers and appliances to houses and cars will be “locked” on subscription by their intellectual property (IP) right owners through software. What do you think the “Internet of Things” is about, Alexa enlightening you on what the capital of Czechoslovakia was? Still, if properly implemented, subscriptions would not really mean a bad thing and electric vehicles which actually run on software, are the perfect way to popularise the subscription model. The user pays a lesser amount of money initially and selects which “features” of the product to use as per their requirement for the defined time period. The user gets more value for their money and does not have to pay for all kinds of things they never use (like the top gear in Bangalore). Let me think out of the box here. Ah, the possibilities are limitless. :)
Homes: Buy a 3BHK at the price of 2.5BHK with the option to pay a subscription charge to use the third bedroom only when you need it. An entire entire house could be available on subscription. Put all your stuff in a room and cancel the subscription for all but that room for the six months you spend abroad, during which the provider can rent the remaining house to someone else. Use the subscription model for all the Swimming Pools and Gyms and Saunas and Squash courts and all the other assorted crap you never use.
Cars: Drive mostly in gridlocked cities? Pay less for a car with an optional subscription for using the fifth gear. Use it when going for a long highway drive. Utilise subscriptions for different levels of usage, performance, top speeds, torques, air conditioning, infotainment systems, etc., providing practically unlimited numbers of variants.
COCCYX: “But I own the scooter! I paid once for it, and it is now in my name! Why should I pay subscription as well?” Oh, you own the scooter alright. All of it. Except the battery, which you don’t, but are paying subscription charges for. If you don’t like it, you are allowed to exercise your “free will” and “power of choice” vested within you as the almighty consumer to totally reject that idea and refuse to take the battery! You then will also be able to boast of the most expensive cloth drying stand in your neighbourhood.
Your sense of humor is fantastic, your logic of access to 3rd bedroom and 5th gear using subscription was letting us mortals know what trap we are getting into. I had booked ather 450x and finding their pricing and subscription funda illogical and greedy, thinking of canceling it, you have helped me in making my decision easy. And brought out Athers deceptions with very good examples.