One problem with trendspotting is that often, trends are reported as facts even though by definition they’re really predictions.
Example: My friend Adam Hartung, he of Forbes estimable “Phoenix Principle” blog, is enamored of the trend away from ownership in favor of renting. This trend will, he’s concluded, end the PC era and have a major impact on IT due to the ability to store data in the cloud and rent applications that run there, SaaS in the form of the overused-because-it-has-too-few-brethren Salesforce.com being an archetypical example.
On the theory that if you can’t pick on your friends, who can you pick on? … I’m afraid this isn’t Adam’s most compelling effort.
His trail of logical breadcrumbs begins with an unfortunately weak example — the illogic of owning a video library in an era of streaming videos. Except that videos tell us nothing about the desirability of rentership compared to ownership, because with the exception of a few classics like Back to School and Caddy Shack, relatively few of us watch the same movie over and over again, unlike our cars, which we drive on a regular basis, and homes, where we spend a lot of our time.
Also, not to quibble, but quibble me this: the fraction of Netflix’s video library available for download is small, suggesting we aren’t quite there yet when it comes to getting all of our bits from the cloud when we’re in the mood for them.
Adam also cites the move away from home ownership. Except that, last I looked, demand in this marketplace is up at the moment, not down. He asks, rhetorically, “Home ownership costs are so high that it means giving up a lot of other things. And what’s the benefit? Just to say you own your home?”
Like so many rhetorical questions, this one is easily answered: (1) Rent goes up. You can get mortgages that don’t. (2) If you own your own home you can decorate it as you like. If you rent, you can’t. (3) If you rent, your money is spent. If you own, some of your payments become equity. (4) The rent for a specified space in a specified neighborhood isn’t all that much lower than a mortgage would be, even before the rent goes up.
One more topic, cars, which, “especially in urban areas” are often more trouble than they’re worth.
Except, this has been the case for decades. Take New York, where the solution isn’t and has never been to rent a car when you need one.
New Yorkers know the solution: cabs, subways, and busses. In deeply urban areas, owning a car really is more trouble than it’s worth, but that’s because mass transit makes owning a car more trouble than it’s worth, unlike the suburbs, exurbs, and rural areas. Do you know anyone in non-urbanized areas who rents a car when they need one because that’s more convenient than having one in the garage? Me neither.
There’s a simple example that might illustrate the point well enough to put this to bed: Most men own their own suits, shirts and ties, but rent a tux on the rare occasions they need one.
Is the balance shifting? Maybe. Is a reported tendency of millennials to prefer renting to owning more than older generations evidence that this is a trend? Maybe, or maybe millennials have less income and wealth, on the average, than older generations. When I was younger and my personal pittance was even smaller than it is today, I rented because I had no choice. But being human I rationalized it as a preference.
Not sure this matters, but I’m guessing it should play a part in the analysis, too: In order for one person or business to rent something, another person or business has to own it. More renting doesn’t mean less owning. It just means someone or something else does the owning, and (and this is very important) they have to turn a profit on the deal.
Which is why, in the absence of factors like an owner having greatly better economies of scale, the economics of renting have always included an inescapable calculation: In the aggregate it has to cost more than owning the same item.
Is rentership on the increase? My guess is that there’s a trend in here somewhere, but it will turn out to be smaller and more nuanced than its current proponents are predicting. So far as actual evidence and logic are concerned, though, support for the claimed rentership megatrend is both sparse and ambiguous.
And as we’ll see next week, the connection between rentership and yet one more IT-is-going-to-go-away prediction is even more tenuous.
All I can say is that the State of Michigan spends an awful lot to host applications which it continues to develop, though a significant amount of development is performed by contractors. And we just ordered new mainframes from Unisys so that we can continue to host our COBOL applications.
I agree with your article, especially about the trend being smaller and more nuanced. Even Home Depot gives you a choice of buying or renting tools, but the section for purchase is bigger.
Some of us even own our own tuxedos. You don’t have to go to too many galas or fund-raisers to justify the cost and an owned tuxedo looks much better than those weirdly strap adjustable things available from the rental places.
One example, rental automobiles are an exception. Maybe I should say “leased” automobiles. Leasing is VERY popular for many reasons. a) no downpayment to buy, b) lower monthly payments, c) new car every 36 months, d) few maintenance headaches… The economy of leasing is interesting: you pay just a little more than the depreciation of the car in lease payments. This is affordable because the leasing company (owner) pays a lot less than you would pay to buy the same car due to their “Fleet Purchase” price. You pay them all of the depreciation and then they sell the car for the same amount that they paid for it on the fleet purchase plan. Lots of profit in leasing and the lessee gets their benefits as well – BUT NEVER gets to enjoy a period of no payments.
Interesting economics, and there is a trend toward leasing.
I suspect some of the choice between rental and ownership may be generational and cultural — my generation (Baby Boomers) had a preference for ownership that my daughter’s generation does not seem to share. I have done both with my cars– lease and own — in general, if you use little, lease makes sense; but if you drive a lot (I take a 1500 mile trip every month), only ownership makes sense.
My house is three times the size of my last apartment. My PITI is less than the rent was (it’s gone up since then).
You correctly point out that, aside from cost, control and convenience are points to consider.
The control issue pops up even when the rent is free. My experience with Microsoft One Drive shows what a nuisance leaving the supplier in control can be. I used Sky Drive under Win 7 & XP to keep selected files available for all my devices. When I upgraded to a Windows 8 machine, One Drive’s default behavior put an end to that.
Acting on the default, One Drive attempted to load all my jpeg and mp3 files. I didn’t find out until I got an email telling me I needed to buy more storage. My 30gb of jpg doesn’t fit on the 7gb they provide. I knew that. I didn’t want them all in the cloud. My cloud is clogged, the synch is paused, and I don’t use it all.
Similarly, except for insurance, why would anyone want to make regular payments on something they use only occasionally? Adobe is actively pushing for people use their subscription service. I enjoy using Photoshop Elements, but photography is something I seriously engauge in only intermittently. Making an occasion version upgrade works best for me.
Lastly, there’s the question of risk. A few months ago, a commercial cloud services provider pulled the plug on their business and informed their customers they had two weeks to off load their data. Some customers had petabytes of data.
When I first signed up with Sky Drive, the service agreement stated that I was responsible for assuring that anything I put on Sky Drive was backed up elsewhere. How many people do you suppose paid attention to that?