Should The Products We Buy Always be Expected to Work at Full Capacity? (And if Not, Can We Hack Them?)

I found an article by Alex Tabarrok on Marginal Revolution this week discussing an idea that Tesla sells “damaged goods.” It’s a nice piece to get you thinking about some of the assumptions we have with products in the digital age and how things are priced.

Price differentials for tiered products have been around with software for as long as I know. The freemium or ad-based free software concepts have expanded in the last decade with the explosion of Web 2.0 tools. This isn’t a bad thing, as it’s a great way to let people try a product and see if they want to purchase additional features or functionality. Tiers of software functionality are commonly sold by software companies, giving people the level of service that they want with a price that matches the chosen level.

But we are now seeing dynamic product differentials that can change at any time with hardware too. In the case of the article above, premium services and functionality of hardware are provided by Tesla in the hardware that you already own and this functionality can change, but only if you pay. And it can change after the point of sale, even months or years after the purchase.

To summarize the Tesla case, the batteries on the discount models of the Tesla car (Model S and Model X) are the same as those in the premium car models. You should physically be able to go the same distance in both cars per the specs of the physical parts in the cars. However, drivers cannot go as far in the budget models because of software in the car that limits the batteries’ delivery of power after a certain time (or, more specifcally, limits the number of kilowatt hours [KWh] that can be used by the driver on a single charge). These differences came to light this week because Tesla sent out a temporary software update to all of the budget model cars (which it can do automatically, as all cars are connected wirelessly) in anticipation of Hurricane Irma. The company’s wireless update changed the car’s software allow the cars to go further than they would otherwise be able to, allowing Tesla budget-model drivers to get out of Florida easier. This is great, but brings up some questions.

The update gets me thinking about a concept of a product working at what I’m calling hardware full capacity, or what the author of the article calls “damaged goods.” I suppose I expect my hardware and tools to work completely and efficiently to their ability, if there is indeed a way to measure the efficiency or functionality of a product. Software products can have modules added to increase functionality or change what it can do. Mobile companies throttle people who go over their data plans, reducing the capacity of their service for those who use the most data. And now it seems that although Tesla gives out the exact same equipment to all customers, the car’s software controls the KWh power output of the batteries based on the amount paid, even though the car has the capacity to go further if you consider its hardware alone.

Once sold, should this car hardware that is owned by not-Tesla be expected to work it’s “best” (however we define it)? Mind you, this is hardware that car owners should know is fully capable of working harder and going longer. Under the current precedent of policy and practice in our digital economy, making your hardware tools do what you want them to do to their capacity may not be possible because of the complicated relationship that hardware has with software today. Software has become increasingly embedded in the physical stuff we own. You may own the car, but you don’t own the code in the car that makes the car go. If we can’t get the car to live up to its capacity from the dealership, should we be able to hack the car, or install our own operating system in it if we own the hardware? There’s no clear answer, although I lean on yes, I want to be able to customize things I own. It’s the same principle that Apple uses to try to prevent people from jailbreaking their iPhones or even repairing them on their own. The car’s hardware and batteries are owned by the consumer, but the code is licensed. Thus, you never truly own the car. This is especially evident when the company sends updates to the cars and changes their functionality potentially years after purchase. The same can be said of any owner of a MacBook in which Apple pushes out a new operating system: updates can dramatically change the look, feel, and capacity of the tool to help you do work.

Although it’s not technically what is happening, no, I don’t I like the idea of having to hold a license on the use of hardware that I bought outright because of its embedded software. Plus, I like tinkering with stuff or having the opportunity to do what I want with a product that I purchase under no presumable license. Although the Tesla case is not a formal licence or lease on the car itself, it might as well be with the use of all the software that’s included. Similarly, I read recently that John Deere doesn’t like people fixing their combines and tractors because of the embedded software and even suggested to the US Copyright Office that farmers don’t own their equipment that they outright bought. To this end, farmers and other owners of any physical object that has embedded software or proprietary parts have been involved with a movement called “right to repair,” which is led by many groups that push for legislation to prevent companies from establishing lease-like relationships with hardware owners and provide information, tools, and equipment necessary for making repairs and modifications. To one extreme in a fight against John Deere’s software restrictions, farmers have gone as far as trying to overwrite the John Deere software with a black-market cracked version of the operating system from Ukraine in order to gain full control over their hardware.

I get the value of having software embedded in hardware, and see the benefits of having regular updates to patch holes, repair, or remotely improve products, or to prevent unprincipled updates applied to products that may make them dangerous (such as with cars or flammable phone batteries or tractors). However, it’s a loss of control over products by consumers and creates confusion as to who really owns both the ability to use the product and the product itself. Plus, it really stifles ideas, innovation, and a critical focus on why we use tech in the first place. Tech with such restrictions really can end up pushing us to do certain things we didn’t intend to do, or toward the agenda of the tech’s designer. We should be aware of this possibility and challenge it when appropriate.

We may also be seeing a shift in models of ownership of physical goods to more of a subscription or licensing model. Some have even called the phenomenon “the end of ownership.” Even though you buy access and use a product, you may not fully own the product. It’s a good set of questions for technology users and consumers today and we should ponder this some more.

Finally, on the question of price tiers, varied pricing has been around forever. Companies have offered different qualities of products for different prices, with premium products demanding a higher price. If you want HBO on top of your cable, you’ll need to pay for it. You get something in return. Having early adopters and premium-tier customers can help finance R&D. Elon Musk’s goal is to get the car to everyone, but aside from giving up his company to investors (and thus losing his vision), funds have to be raised for R&D somehow. However, the ability to throttle the Tesla battery output up and down can be kind of concerning. Also, these controls also give companies (but not necessarily Tesla) the ability for varied pricing based on a given set of rules. This is not necessarily a bad thing either, unless it goes too far and expands into price discrimination based on various customer traits. To prevent possible injustices in our digital future, this is something we should keep an eye out for.

The pricing schemes are a non-optimal balance between what people are willing to pay and the volume sold, which reminds me a lot of those classic supply/demand economics charts in my college econ courses. There are hundreds of examples of exclusive premium products being used to finance the development of cheaper, entry model, or otherwise affordable products. Although software companies for years have priced premium product tiers at higher prices than people are willing to pay, what is new about this is the easy ability to influence perfectly good hardware, both at the factory and remotely over the airwaves. Tesla owners presumably all have the same hardware, and thus means for going the full distance in their car. However, the software of the cheaper model locks people out from using the full extent of their battery. I’m not upset at this and support premium tiered pricing for non-required-to-live products to fund developments in future offerings. Presumably it’s how the pharma industry runs in theory, but it’s too easy to get greedy and take advantage of folks who need products to live happily. The Tesla is not a product that we need to live, so I’m ok with tiered pricing and premium models. The revenue for R&D has to come from somewhere if a company is sustainable and not just hemorrhaging venture money. It’s just an interesting point to keep an eye on and consider as we move to more digitally mediated ways we use products.

Also, presumably, if Elon is the world genius we all hope him to be, maybe he can turn on everyone’s cars to max output when his R&D goals have been realized and a consistent revenue stream starts to pour in. That would be nice if he’s truly on a mission to improve humanity and justice.