Let’s assume that this isn’t some grift like “we hope they’ll pay more than what it costs us in maintenance” or “hope they forget to cancel”.
Don’t subscriptions only make sense if you have lots of customers? If you only have one customer, if they cancel their subscription, your product is dead. You also can’t amortize your fixed development costs across many subscriptions. How many customers can Lockheed have, realistically?
This just sounds like a Government contract with extra steps (read: extra $$$)
It makes sense for a few reasons (ideally..., but this is the mil-ind complex...)
1. Predictable income / expenses for each party, many defense projects are cut at the whim of politicians. This is partly why we are having trouble ramping up production for the weapons Ukraine needs.
2. The US military is trying to adopt more agile development practices. They definitely want to move away from waterfall software as part of that.
3. Your 1 customer argument falls apart as soon as you talk about per-seat pricing. The US mil can buy more or less seats as the size of the force changes or is reallocated. It also sets Lockheed up to charge for drone connectivity. The military benefits because they could opt not to buy more if it doesn't turn out well.
note, I have not delved into the details of this article, but base these hypotheses on the developments at large I've seen elsewhere.
4. Subscriptions can be better for aligning goals. If I charge you $20 upfront, then I just want to build whatever I need to build to make the sale. After that, I'm not really incentivized to improve things or fix bugs unless it's going to directly lead to more sales in the future. On the other hand, if I charge you $1/month upfront, you'll be paying more after a year and half, but if you aren't happy after 2/3 months, you can cancel and go elsewhere, and I'll likely lose money due to customer acquisition costs.
That said, I understand why people hate subscriptions. I'm not claiming there are no downsides. And also, yes, as you pointed out, this is the military/industrial complex, so who knows how this will play out.
nothing says aligned goals like a private corporation telling the government that if it wants its jets to keep working in wartime it needs to fork over more money
In a true time of war, and not an "overseas contingency operation," the government tells the private corporations what to do. Packard (a car company in Detroit) built Merlin aircraft engines in WWII.
I generally agree, though the government could just as well prohibit price increases outside of a pre-arranged schedule. Consumers can't do that, the US government can, and does.
> 1. Predictable income / expenses for each party, many defense projects are cut at the whim of politicians.
> 3. Your 1 customer argument falls apart as soon as you talk about per-seat pricing. The US mil can buy more or less seats as the size of the force changes or is reallocated. It also sets Lockheed up to charge for drone connectivity. The military benefits because they could opt not to buy more if it doesn't turn out well.
Either they have predictable revenue or the government can cut seats whenever they want. How can it be both?
And for the same reason it doesn't solve the 1 customer problem. If the Marines want something and nobody else does, the contractor has to be charging enough to not go out of business even while only selling it to the Marines. So the rate per seat has to be unreasonably high, which is bad when they're only selling it to the Marines, but even worse if the whole government wants it and they're still paying the same rate.
> Either they have predictable revenue or the government can cut seats whenever they want.
Say the government agrees to buy 200 planes, so the manufacturer prices the planes in a way that they recoup their development cost (which can be many many billions of dollars), and in the midst of the contract the government decides to say "we don't need more planes" and the manufacturer is screwed.
With "plane as a service" however, should politicians decide to cut delivery of more planes, they can at least recoup their cost with the license fees that apply during the plane's usable life time - it's not like the US government will suddenly go to Eurofighter, and it's not like that there will be much US-based competition in building fighter planes.
In the end there are two problems, the one being that the US government has gone down the drain regarding reliability with multiple shutdowns and a barely avoided default in the last decades and a re-allocation of military budgets looming around the corner, and the other being that there's zero competition to Boeing and Lockheed left so these two companies can milk the government at will.
> With "plane as a service" however, should politicians decide to cut delivery of more planes, they can at least recoup their cost with the license fees that apply during the plane's usable life time - it's not like the US government will suddenly go to Eurofighter, and it's not like that there will be much US-based competition in building fighter planes.
How does that solve it? If they can charge high enough service fees against 200 planes to recoup their costs then either the license fees aren't fixed per-plane -- in which case the government is effectively prepaying for the lot of them regardless of whether they're any good -- or they are, and then the government is getting soaked in both cases.
> the one being that the US government has gone down the drain regarding reliability with multiple shutdowns and a barely avoided default in the last decades
This was never an actual problem, it's just political posturing. They're not going to default. They just find it politically useful hold out until the last minute. And when a budget ultimately gets passed the contractors get paid.
> the other being that there's zero competition to Boeing and Lockheed left so these two companies can milk the government at will.
This is the actual problem. They should both break these companies up and make it easier for other companies to bid on government contracts.
Regardless of the reasons they spout I have 0 belief that the C suite of LM or any company for that manner would make any decision that would make them less money.
Whatever excuses they come up with at the root of it is the idea that they will make more money by doing it this way.
I get your cynicism, but it doesn't really offer any ideas for improvement.
If both parties are happier with the arrangement, and it leads to more agility, what exactly is wrong with it. The military is projected to decrease (as % GDP)[1] over the next decade. If they spend more on software and less on overpriced hardware, that might be a good thing.
They are saying the same thing the military is. The US Military is actively trying out new ways of purchasing, because the old model is not working and not agile enough for today's environment.
I trust that the people leading the military know what they need and that Lockheed cannot force them into this. Everyone is ideating right now, the UA War seems to have woken the West up. No need to derail an idea just because it comes from Lockheed's CEO
It's not a zero-sum game. Risk hurts everyone. If risks can be reduced, then both Lockheed Martin can earn more profit and the costs can be lower for taxpayers.
Let’s assume that this isn’t some grift like “we hope they’ll pay more than what it costs us in maintenance” or “hope they forget to cancel”.
Don’t subscriptions only make sense if you have lots of customers? If you only have one customer, if they cancel their subscription, your product is dead. You also can’t amortize your fixed development costs across many subscriptions. How many customers can Lockheed have, realistically?
This just sounds like a Government contract with extra steps (read: extra $$$)