One of the key point so this theory is why existing large players find it so difficult to innovate disruptively, and therefore give opportunity for tiny startups to overturn their markets. Essentially, it is in their DNA, and hence organization structure, projects, budgets and even comp plans, to protect their existing markets and squeeze more cash out of them.

Ironically, though, sometimes that very nature actually squeezes less cash out of existing markets while simultaneously opening the doors to disruptive players. It is one thing if an incumbent maximizes cash today at the expense of tomorrow; it is short sighted, but at least understandable. It is quite another when that same mentality minimizes cash today and tomorrow.

Today’s Wall Street Journal has a front page article on the rapidly escalating prices of ebooks. Most people expect that ebooks will cost less than printed copies. After all, the publishers (and retailers) are saving on physical printing costs, shipping, storage, and security. I do not know what the COGS are in the book business, but in the ebook business, they are essentially zero. An ebook that is a few MB in size does not even register as beyond a penny in Amazon or Barnes and Noble’s storage and bandwidth costs. Us customers expect that the cost savings will be passed on to them, at least in part. They are willing to give up in some of that in exchange for the convenience and easy replicability of the ebook, but not all of it.

The WSJ article explicitly states that ebooks sales will drop, or at least not rise as high as they would otherwise due to skyrocketing retail prices. Given that sales will drop, customers will be upset (optics), and thus they will hurt their own business short term while encouraging independent publishers, and perhaps Amazon and BN to become one themselves, why would they do such a self defeating move?

In the end, they are just captive to their existing mindset. They want to protect, preserve and defend their brand and margins, and so they raise prices. The fact that it will undermine, damage and attack not just their short term profits but their long term viability as a business, is something which they find very difficult to grasp.

I look forward to the disrupters.

We begin with a caveat. “The future is unknowable.” The entire rationale behind free-market economics is that the millions or billions of people making individual decisions will do so far better than a select few or one. The corollary to this insight is that whatever one person predicts, it is unlikely to match the future precisely, since it is only one person, not the market as a whole. For a more interesting look at why some people do seem to predict the future fairly well, have a look at Nassim Taleb’s books in the “Recommended Reading” list (on the right).

We are making several assumptions as to the behaviours of consumers in the music industry.

1. People want music and are willing to pay reasonable prices for it. In a year when pirated music is easy to come by, and you can even buy DRM-free music on Amazon and iTunes and redistribute it, the fact that the industry sold $10.4BN of music in 2007 indicates that people will pay for music they like.
2. People will pay what they believe is reasonable, while either not paying or pirating what they believe is unreasonable. This is the “carrot and stick” method. It is not enough to say, “we will sue you if you pirate,” or to use ads comparing casual copiers to Blackbeard the Pirate or the Enron perpetrators (let alone Fannie Mae); you need to make it as easy and cost-effective for them (or reasonably close) to do something legally as illegally.
3. Most people do not view casual copying as piracy, and never will. Their perspective is that they enjoy the music, they want to share it with a few friends, or perhaps use a small clip of it on their Website / MySpace / Facebook page (which relates to the Fair Use Doctrine, out of scope here).
4. People have gotten used to social networking, as well as mobile media. They expect it to be reasonable to take pictures at a concert with their mobile phone, or even stream it live to their Website. “Look at the great concert I am attending, listen to it!” 
5. The people who do the most casual “piracy,” e.g. the streamer and sharer above, are likely the most passionate about the artist, and most willing to expend energy to spread the word. 

The industry can either fight these trends – they have been attempting to do so for years, with little success – or embrace it. As Jeff Pulver pointed out at his recent Web 2.0 NY keynote, several artists and/or labels have actually encouraged live attendee Webcasting of concerts. The question becomes, if they embrace it, and thus remove the last barriers to people doing casual copying, how do they make money off of it?

The labels need to recognize that without the old barriers to reproduction (see Part I), music content is largely commoditized. The source is still special – very few have the talent of Billy Joel – but once it is recorded and distributed just once, it is reproduced infinite times. Thus, the music itself must be sold at prices that are almost as cheap as piracy, in other words, near-zero or actual zero. $0.99 per track on iTunes or Amazon will have to be replaced by a fraction of that price. Of course, music industry revenues then apparently evaporate. Where do they make it up? Here are just a few of the possibilities.

• Concerts: Someone who owns an MP3 of Natasha Bedingfield can reproduce it and redistribute it infinitely, but they cannot reproduce the concert experience. The music itself – the MP3 file – becomes advertising, an investment, in getting individuals to buy non-reproducible services, like the concert. Concert ticket prices, however, have gone through the roof as well. In order to make up the revenue losses, ticket prices would need to come down, while the number of concerts would need to go up (revenue = number of tickets x price per ticket). I am currently working with a software start-up that is dealing with an identical issue: can we avoid fighting piracy entirely by essentially giving away the software, but only selling the ancillary online services?
• Memberships: Most music fans – certainly those who currently or until recently paid for music – tend to be fanatical about their fan-hood (pun intended). Very few who were around or have seen videos of teenagers flocking by the many thousands or more to see the Beatles in the 60s can doubt that, and the trend is only stronger since then. Labels can essentially give away the music as advertising, but sell club memberships, or sell the music with membership and special benefits embedded. For a long time, media celebrities have viewed fan clubs as a loss-leader, advertising to drive music/movie sales. In an era when music/movie sales are low and getting lower, they need to explore the other way around.
• Frequent Flyer: Although this has rarely, if ever, been applied in the entertainment industry, it has worked quite well in many others. The story of American Express haughtily turning down American Airlines’ AAdvantage for their members is legendary and taught in just about every business school. Someone can download 100 MP3s of Kate Perry from EMI or Alicia Keys from Sony Music (the label formerly known as Sony BMG), but actually buying 10 or 20 can get a free concert discount, signed copy, special release, etc. 
• Volume: It turned out, much to the music industry’s surprise, that the entertainment business is very price-elastic: when they raise prices on CDs, concerts and movies, fewer people attend. But there is another side to this price-elasticity: if prices are lowered, more music will be sold. Can it sell 10 times the amount to make up for it? I doubt the industry produces enough music per year to get to that volume. However, people were very skeptical that, following telecom deregulation, people would make enough long-distance calls to make up in volume what was lost in per-minute profit, and we were all quite wrong. Volume will definitely make up for a lot of the reduced price, although unlikely to do so entirely. Total direct sales of music will likely come down, but overall profit margins can actually go up. Where will the volume come from?
  • Increased sales of existing artists. Plenty of people who love Madonna will not buy Coldplay or vice-versa at $0.99 per track. On the other hand, plenty will be willing to pay a dime or a quarter to try a few and see if they can expand their tastes.
  • Increased artists. The industry will need to expand its pool of artists to go beyond superstars into those who can “only” sell a few tens of thousands or hundreds of thousands of tracks (not albums). The Indies are already doing that, and will continue to eat into the major labels unless they restructure for it. The restructuring will need to include lower-cost methods of finding talent, producing it and promoting it.

There are many other possibilities…

Note that all of the above require not only serious and fundamental strategic rethinking, but also a hard look at the operations side, likely leading to major changes to support new business models. 

What impact will all of this have on the industry in general and artists in particular?

1. Likely greater competition for moderately talented artists, leading to greater revenue for those who do not hit superstar status.
2. Reduced gross profits (but possibly higher profit margins) for the industry, or at least those who adapt.
3. Reduced compensation and harder work for superstars, who will no longer be able to get wealthy on percentages of sales, but rather on ongoing labor, such as working with fan clubs, signings, concerts, etc., and greater competition from the next tier.
4. A more mobile growth and ranking system. A good but not superstar artist will be able to make a living, or at least supplement one, through labels, while possibly moving up the ladder as they get better. Conversely, it will also be easier for superstars to fall down the rankings as their star wanes.
5. Greater availability of varied music.
6. Possibly a dilution of culture. I am unsure if this will happen, or if it matters, but fewer superstars and more music means fewer shared elements among everyone in society. I am not worried about this, but a recent piece by Elizabeth Wurtzel, author of Prozac Nation, did worry about this. Personally, I cannot believe that greater consumer choice or competition is ever damaging.

Short form: lots of challenges to the industry. I see a number of failing players, consolidation, and rising Indies. Whether or not even one of the major labels can rise to the challenge is a question time will tell.

First, The Wall Street Journal, one the front page of its Tuesday, August 5, 2008, edition, had an interesting article on the financial troubles of Six Flags and the turnaround plan of its CEO and CFO. The short form is as follows:

1. Six Flags is in trouble. Without going into too much depth, over the last three years, it lost $105MM, $203MM and $234MM, in 2005, 2006 and 2007, respectively. Although a large chunk of that loss is due to losses from some of its minority interest in other investments (approximately $40MM) and its huge debt load (payments of about $200MM per year), its revenues have hovered between $945MM and $973MM, i.e. not growing significantly, while its operating income has shrunk from $148MM (15%) to $33MM (3.4%). SixFlags has way too much debt, growing expenses and stagnant revenues.  
2. In order to fix this, the management team is shifting away from its classical customer – the high-octane teenager who wants ever greater thrills – and towards families – smaller rides, lots of kiddie rides, tighter dress codes, etc. The theory is that families will spend more, and more in one shot, than a single teenager. Additionally, the big rides teenagers want cost about $20MM to build (and much more to operate); family-friendly rides are significantly cheaper, and lower-end roller coasters average about $7.5MM. 
3. Six Flags tried raising prices about $5-10 per person and saw a drop in attendance. The management team was quite surprised to find that attendees are price-sensitive, or that there really is significant price elasticity. 

Second, last week, I was one of those families going to amusement parks, taking my family to HersheyPark, owned and operated by the privately held Hershey Entertainment and Resorts (which, of course, does not provide financial statements to the public). Interestingly, I spoke with several local season pass holders (those who spend $1,000 or more per year to bring the family as often as they like). Apparently, Hershey has been attempting to reduce expenses by cutting back on service where it can, as well as using less-experienced (and hence lower-paid) employees. The season pass holders – who are the bread and butter of the business as they are local and provide reliable cash flow – immediately noticed the differences, and several are considering cancelling their season passes. It is likely they will still come, but if you pay for each visit, you come a lot less frequently and spend less. Interestingly, Hershey is already on the family-friendly model that Six Flags is striving towards: bathing suits are banned outside of the “Boardwalk” water area; there is a huge number of children’s rides; etc. 

The key question is, will the Six Flags management plan, such as it appears to be, work? Only the future will tell for sure, but here are some predictions:

1. Keeping the costs of constructing rides down is the right way to go. Roller-coasters have some element of keeping up with the Joneses (“my ride is bigger than yours”), but unless there is intense competition nearby, there is less of a need. Maintain what you have, build new as necessary, but a new $20MM ride is not going to bring in the masses. No one will pay $40 to go ride the new Space Coaster or Fahrenheit once or twice. 
2. Family-friendly is theoretically a great idea… but families are far less likely to spend $200 on a day at an amusement park than a single teenager spend $30-40. If they do, it is a once per summer, perhaps twice per summer, event.
3. Make the parks more appealing to families not just by environment, but by economics. Most families are strained – gas is around $4/gallon (much more in high-tax states like New York, California and Illinois), food prices are multiples of just a few years ago, clothing is more expensive and families have kids to clothe – while $200 for a day at an amusement park is discretionary. Provide ways to make it economically sound for families by tying into their needs, not just their wants, and make their wants better fulfilled. These provide additional revenue and cash-flow management opportunities.

What sort of opportunities arise? Any family with children has constraints on them in terms of food, child-care, rides, etc.

• Make better line-management (Disney is an excellent example of this); nothing turns a family away more than half an hour on line in the hot sun with a cranky, impatient child. 
• Provide limited at-ride child-care. Yes, child-care. Parents with two little kids actually want to ride the coaster or the flume, but someone has to stay with the kids. Parents will pay a premium for this, because they get a family day *and* time alone, even if only for 15 minutes. 
• Provide stroller and bag parking at rides. Parents with kids might want to go, but someone has to watch the bag. Adults online or teenagers don’t carry the same massive baggage.
• Allow food into the park. Yes, it will cut into some of the food sales and the high margins those provide. But families with kids are non-stop hungry, and if the cost is $100 in food on top of $200 in admissions, they are not coming. On the other hand, every family wants to buy some food in the park and will probably spend all day. Let them bring food in, and they will bring one meal and some snacks while buying another.
• Many many more ideas… 

And last, but not least, retire the debt. This is a crushing debt burden, with monthly payments equal to greater than 20% of revenues. If Six Flags cannot find a way, then Chapter 7 may be the only way to go.

Good luck to them.

1. Sell the upgrade. Many sales systems, even fairly primitive ones, support this. You create a separate SKU for each major release, and possibly for each minor, and a separate license key scheme for each major release (but not minor). The licensing ensures that different minor releases within the major release will allow cross-upgrades (or downgrades). For the sales, you create a coupon that says, “if a return purchaser bought one of the following SKUs (all those in the previous major release), give them x% off for this SKU (all those in the latest major release). Note that some systems do have limitations with this. For example, esellerate can apply the coupon for everyone, one time, or one time by email. But what if a previous purchaser bought 3 copies? Well, then, you are out of luck.
2. Sell the plan. You need to manage your customer data set on your own. You then need to manage the customer interaction with the sales system, so that only appropriate users see the appropriate pages, either the regular SKU with an appropriate applied discount, or special discount SKUs. 

Inevitably, one will ask, can any sales system handle being so controlled from your Web store, such that it will only display appropriate pages to appropriate people? One does not want to have a new buyer get to the supposedly hidden pages and get the product for free! As the old saying goes, “security by obscurity is insecurity.” Here is a short summary of what I have found.

1. No open-source cart system manages this. Period. Zen-Cart, osCommerce, CubeCart, even the new Magento all fall short. Nor I have seen a commercial system that manages it.
2. The sales channel providers, like FastSpring, which combine sales management, reporting, up-sells/cross-sells and the like, but have the actual catalog per se on your page, are focused on letting you sell anything you want, provided the URL is correct. Needless to say, this is not something they offer. FastSpring is pretty impressive, but is not built for this. 
3. Surprisingly, the best solutions come from the least-featured providers. PayPal Website Payments Pro, Google Checkout XML API and Amazon FPS all are strong in this area because they allow your site to talk to their service, server-to-server, and will reject any transaction that your server has not approved. The downside to all of these is that accepting credit-card information means you must become PCI-DSS compliant, a not-insignificant effort. It is not very difficult, especially if you never store credit-card information, and almost all of the recommendations are good security practice, but a small ISV may simply not have the time to deal with it. I recently worked with a client on converting to PCI-DSS compliance. We did the analysis very quickly, but the conversion is taking time. 
4. The lower-end services of these Internet giants are less functional in this area, with one shining exception. Google Payments HTML API and Amazon Buy Now buttons both depend on data stored in the user’s browser to submit payment information. A user could easily change the information and get the cheaper or free prices, and even set up a Website to make it easier for others. The shining exception is PayPal, which is strong because of its weakness. Like the others, PayPal’s Payments Standard system is built around buttons that are configured and submitted from the user’s browser page. Because users can modify these and submit, thus cheating the ecommerce seller, there is an option to encrypt the buttons, thus allowing PayPal to authenticate that the values are valid. Put in other terms, PayPal’s need to resolve its weakness provides a strength in dealing with this issue. 

A number of providers also provide post-processing notification. FastSpring has Notification by POST to a Web site, PayPal has IPN. These can provide backstops, but they are not recommended for this purpose. Why? Because they only allow you to confirm or deny a sale after it is done, meaning the user thinks s/he is done and then gets told, sorry, no deal. This may even run afoul of consumer protection laws.

Conclusions:

1. For the short-run, if you need to boost sales by selling upgrades, sell upgrades to major versions, free updates to minor versions, and use whatever your sales channel will support.
2. For the long-run, get control of your customer data within your own databases, and provide authenticated Web API access. Wrap the data with a business logic layer, and then provide interfaces to your sales channel, so you can control how customer specials are managed.
3. If you need more complex structures, use PayPal or similar services until the mid-channels are mature enough to provide them.
4. Hopefully, at some point, the mid-channels like FastSpring will expand to provide these services.

Sell the Plan has a lot of appeal for ISVs, especially when you start to sell to businesses, non-profits, or any group that budgets. The benefits are:

1. Predictable cash flow. The reality is that most individuals and organizations that have recurring charges simply keep on paying them. This creates more predictable cash flow for your ISV business.
2. Earlier revenue recognition: Let us assume that you release version 1.0 in Jan 2006 and 2.0 in Apr 2007. If you sell the upgrade, the purchaser of 1.0 will wait all the way until April to pay you. On the other hand, if you sell the plan, by Jan 2007 he is already paying you the plan fees for the coming year.
3. Easier recurring sales. Most organizations budget capital expenditures, especially for new purchases, separately from ongoing operating expenses. The $50 they will spend next year to buy the next version of your product must be approved and budgeted, and for the following version, and again. On the other hand, if buying the product the first time comes with an annual $50 charge for “maintenance,” it gets built right into the ongoing operating budget and is automatically approved.

It is important in this scenario to give new purchasers at full retail a “free” year (more or less, depending on your customers, but a years is fairly standard) of upgrade plan. The free helps you sell, but also avoids the sense from them that they are getting no support in terms of patches, upgrades, etc. 

So how do we go about implementing “Sell the Plan?” Again, we have multiple scenarios.

1. New purchaser: This purchaser simply buys the product outright at full retail price, in our case $100.
2. Return purchaser on plan: This person should be able to upgrade for free, whether it is because they are within their “free” year, or because they are within another year (or ten) of paid plan.
3. Return purchaser off plan: This person should be able to upgrade, but not for free. Instead of buying the new product, they buy another year (or more) of plan. This plan is normally sold at some discount off the current retail price of the product. In our scenario, we will assume it to be 50%.

How does implementation of each of these scenarios happen?

1. New purchaser: This is a standard sale. The purchaser buys it outright, gets a license key, installs, and goes.
2. On-plan purchaser: This is complex. This can be implemented either via the licensing system or the commerce system.
   • Licensing system: The licensing system needs to issue licenses that understand when upgrades are allowed and when they are not. It further needs to recognize when a version was released, compare that to the range of dates for which upgrades are allowed, and then allow or disallow the upgrade. I have not seen a single, solitary license system that can do this.
   • Commerce system via product SKUs: As in the “Sell the Upgrade” scenario, you can either have limited availability SKUs or the same SKU as new purchases, but with special coupons. In either case, the commerce system needs to  recognize that this is a returning user and precisely what rights they have. I have seen no commerce systems that do this correctly, either. The closest I have seen is that some systems will issue coupons based on previous purchases of a particular SKU by a returning user. However, these systems all treat the upgrade (for free) purchases as if they are new, and thus give them a whole new year for free.
   • Commerce system via plan SKUs: This is an approach that no commerce system has recommended, yet offers an intriguing new way. Each product has its own SKU, and each plan for free upgrades (12 month, 24 month, etc.) has its own SKU. When someone purchases a product outright, they receive the free upgrade SKU bundled with it. When they come to upgrade, the commerce system should recognize that they have a recent purchase (within time frame) of the plan SKU, and either give them access to the limited availability free upgrade SKU or the appropriate discount coupon for the regular SKU. Again, I have seen no commerce system do this outright, but some have shown flexibility in the right direction.
3. Off-plan purchaser: An off-plan purchaser is one who once was on-plan, and is now off. Essentially, they need the ability to subscribe to the plan again. This requires a separate SKU for plan, followed by a recognition of the ability to join the “free download” group. However, it is important that the commerce system only allow someone who once purchased to join the plan, else anyone will just buy the plan SKU at less than full retail and get free upgrades.

Conclusions:

1. Commerce system intelligence is a must. No system has shown the ability to do this, but some have shown promise. See my follow-up post on commerce systems.
2. Some of this can be handled in licensing, but some must be handled in commerce systems. As before, make commerce systems your focus.

So you want to implement sell-the-upgrade. To do that, you need to have several scenarios, all working in concert. You have released one products with three versions: 1.0, 1.5 and 2.0. You are currently selling 1.5, but will soon start selling 2.0.

1. New purchaser: This is, of course, easy. You have a single product, call it SKU15, representing version 1.5. Everyone pays full price, say $100.
2. Return purchaser: This is someone who already bought 1.0 and now wants to upgrade to 1.5. The return purchaser should pay nothing for version 1.5, as it is a minor upgrade. You have a few choices: 

• Keep the same SKU for upgrade purchases and new purchases of all releases of the major version of the product. SKU10 covers version 1.0 and 1.5, whether new purchase or upgrade. Rely on your licensing system to recognize the allowed upgrade. This usually works if the same license set covers both version 1.0 and 1.5.
• Use the same SKU for upgrade purchases as for new purchases, but different between minor versions, and rely on your commerce system to recognize that this purchaser bought 1.0 already and is thus allowed a 100% discount off the purchase price of that SKU. 
• Use a different SKU for upgrade purchases than new purchases, say SKU15U (U for upgrade), and rely on your commerce system to recognize the allowed purchase. In other words, it is a limited availability SKU. 

In both of the commerce-system-dependent solutions, an upgrade means buying the new product, but having the commerce system recognize the purchaser as someone who purchased before, and thus give them the product at 100% off, either via discount of limited availability SKU. It is important that the commerce system recognize that the purchaser is a returning purchaser, and exactly how many copies they have the right to upgrade. For example, someone who bought 5 copies of 1.0 should have the right to purchase 5 copies of 1.5 for free, but not 50 copies. There are varying ways to do this, but very few, if any, commerce or cart systems seem to know how to manage this.

Now we move to major upgrades. People are buying version 2.0.

1. New purchaser: This is, again, easy. You have a single product, call it SKU20, representing version 2.0. Everyone pays full price, say $100.
2. Return purchaser: This is someone who already bought 1.0 or perhaps 1.5 and now wants to upgrade to 2.0. If you don’t give upgrade discounts, it is very easy: they are just like a new purchaser. However, most ISVs, especially mISVs, give upgrade discounts. For argument’s sake, let’s say our discount is 50%. The return purchaser should pay $50 for this upgrade. Managing this through the licensing system is nearly impossible, since they can only upgrade if they pay something, which means a new purchase, which means a new license key. Additionally, you are likely to have a separate SKU for this new version. Thus, your only choice is to manage it through the commerce system. Within the system, you have a few choices: 

• Use a different SKU for upgrade purchases than new purchases (SKU20 and SKU20U). Rely on your commerce system to recognize the allowed upgrade. Again, this is a limited availability SKU.
• Use the same SKU for upgrade purchases as new purchases (SKU20). Rely on your commerce system to recognize that this is an upgrade purchase, and thus provide the appropriate 50% discount.

In both of these cases, you depend on your commerce system for a lot of intelligence about returning purchasers. Once again, I have seen few, if any, commerce systems that can do this properly.

So, what is the solution to sell-the-upgrade?

1. Recognize that most of this is going to happen through the commerce system. Have a good cart of system that ties closely into your customer history database.
2. Make licensing as easy as possible, and have it trust your commerce system. Licensing may solve some of it, but major upgrades between SKUs will have to generate new license keys, so focus your energies on commerce systems.

esellerate, despite many other severe issues (not least of which is absurd pricing), does have the ability to do this decently using coupons. Their customer technical support is also excellent.

I have recently spent time with the various open-source cart solutions: magento, zen-cart, oscommerce and cubecart, as well as esellerate and a nice newcomer service, FastSpring. I will write a separate blog post on these services and carts soon. Unfortunately, none of these has the ability to do this cleanly. 

Next up: “Sell the Plan.”

1. Founders sometimes feel that to charge for upgrades would somehow offend existing customers. This was not at all the case with this customer. Nonetheless, many are afraid to do so. The opposite is true. Most customers not only understand that the service a vendor provides is ongoing, and requires compensation, but want to ensure the vendor will be around for a long time. Wisely, this founder had been saying from the beginning that as of now, upgrades are free, but he reserves the right to change it.
2. People equate value with price. Sure, everyone looks for a bargain, but if something seems too cheap, too good to be true, they subconsciously, and sometimes consciously, assume it to be, well, cheap and worthless. For a great reference, see Joel Spolsky’s article in the Inc magazine of July 2008.
3. Repeat customers are always lower cost to sell to than new customers, in every business.

It seems fairly simple, then, to charge for upgrades. But how to do it? We were left with two primary options:

1. Charge full price for a new customer, 40-50% off for upgrading customers at major revisions. This means buyers of 2.5 get 2.6 for free, but pay discounted price for 3.0. This is known as “sell the upgrade.”
2. Charge full price for a new customers, give them 12 months (or similar) free upgrades, whether minor or major versions. When the 12 months are up, they get no upgrades or updates. At that point, they can buy another 12 months (or similar) of free upgrades at 40-50% off the then-current retail price. This is known as “sell the plan.”

Sell the upgrade is cleaner to manage and implement, and is similar to what most large vendors do. When you buy Windows XP or Mac OS X Tiger, you get all the service packs for XP and updates for 10.4 for Tiger for free. You do, however, have to pay for Vista or Mac OS X Leopard.

Sell the plan has better revenue timing (it comes in earlier), and better cash flow. Further, it makes it much easier to sell to organizations that budget. Rather than a capital expenditure each year or two, it becomes a maintenance expense, built into the operating budget each year automatically.

For the above reasons, we went for sell the plan.