Wave Systems Corp. (WAVX) thinks you won't always want to buy software. More and more, rather, you'll want to rent it.
Proof is in the Internet, the company says, where content is supported by advertising and (some) pay-per-view. Similarly, the future's dominant software and content business model will be supported on a per-use basis, not outright ownership.
On this reasoning, Wave is equipping PCs with a usage meter -- the built-in ability to track and bill a consumer's use of content and software. WaveMeter is the company's proprietary hardware-based system for measuring, controlling, and billing the use of electronic content for this purpose.
"It's a piece of hardware in your computer," said Wave Systems president Steven Sprague. "Using a dial-up connection and your credit card, you put money on the meter."
To get this technology under the hood of consumers' PCs, the company announced today that integrated circuit-maker Standard Microsystems Corp. (SMSC) has licensed the technology to build WaveMeter technology into its chips.
Users of PCs with meter-equipped Standard Microsystems chips will thus be able to purchase pay-per-use or rent-to-own entertainment, education, and software titles. Wave Systems says it has partnerships with some 30 consumer software companies offering game and family software titles, such as Red Storm Entertainment, McGraw-Hill Home Interactive, and GT Interactive.
With metered usage, these publishers see lower marketing and distribution costs, along with the ability to reach new users not interested in buying software outright.
Consumers meanwhile can pay for software and information based upon actual use in incremental amounts. If it's a software title, the payment system might be something like $1 or $2 per day, capped at a total expense of 80 percent of the retail purchase price. (At that point, the user would own the software.)
But Wave Systems has been trying to advance its ideas in hardware for over four years now, with no successes to this point. For the fiscal year 1997, revenues were a mere US$11,000 for the company, with a $16.4 million loss.
Some observers think there's a reason the company has yet to make money on its technology.
"I don't perceive a considerable consumer pull for the applications this technology will be used with," said Jupiter Communications analyst Seamus McAteer, an opinion echoed by another analyst, Zona Research's Vernon Keenan.
"Overall I'm pessimistic on metered content. Like micropayment, it relies on capabilities built into the client -- i.e. the user's PC. That needs to be widespread with a critical mass," Keenan said.
Part of the lack of interest on the part of consumers, McAteer believes, is an aversion to monitoring technology built into their PC, be it a smart-card reader or a usage meter. "I don't know if people are comfortable with that notion."
Nor does McAteer see the pay-as-you-go market. Consumers, he said, like to own. "There is a real value in ownership." Part of that value is the consumer's ability to take their time in getting to know a piece of software, he said.
As far as the Internet being proof of the pay-per-use model, McAteer says such content has been a small part of Web use, and primarily confined to pornography publishing. Even there, he said, "I don't know if people are gong to want to have a chip on their motherboard for pay-per-view porn."
These negatives are why these analysts see a niche application at best, though Keenan believes that if Wave Systems can achieve the all-important critical mass, with PC manufacturers building the technology into PCs, it may have a chance.
Wave is relying on the field-of-dreams, "if you build it they will come" philosophy, he said. But in this case, he points out that there are several parties that have to build it -- from chip suppliers like Standard to PC manufacturers to software companies, including Microsoft Corp. building metering APIs into its operating system.
When there are that many builders involved, Keenan says new technologies such as the WaveMeter usually don't achieve the critical mass they demand.
Still, Wave Systems recognizes that ubiquity is the name of the game for such technology to work, and hope that today's announcement is the beginning of such a trend. And that will depend on PC manufacturers opting for the added cost of WaveMeter in the motherboard circuitry they purchase from Standard Microsystems. Sprague estimates that the cost for manufacturers will come in at an acceptable, sub-$5 per PC.
Standard Microsystems is a sizable partner too, supplying integrated circuits to PC-makers worldwide. It shares the market for such chips primarily with National Semiconductor. Wave Systems' Sprague believes Standard Microsystems' hardware is found in 30 percent to 40 percent of the PCs sold.
The initial plan calls for Standard Microsystems to build the metering capability into an input/output motherboard device it supplies to PC manufacturers. Independent of the CPU and the operating system, the triple-DES-encrypted technology is very secure, Sprague said.
To sweeten the pot for manufacturers opting to order meter-enabled hardware, the Wave licensing arrangement lets them draw a percentage of all pay-per-use revenue.
"You have to be pervasive on the desktop before you can introduce a client security solution," Sprague said. "This helps us get the technology broadly deployed."
