HaaS / Hostage As A Service Explained In-DepthBy John Honovich and Gurami Jamaspishvili, Published Jun 10, 2021, 10:52am EDT
Watch the 5+ minute video explaining HaaS / Hostage as a Service in video surveillance:
Do you have the right to use the items that you buy? Seems pretty self-evident and uncontroversial. If Maytag remotely turned off your refrigerator, you’d protest. If Honda sent a command to kill your car, you’d rightfully be up in arms.
But this is the Silicon Valley ‘innovation’ that these "Hostage as a Service" providers have financially engineered.
You buy and own cameras, but they do not even stream video, the most basic function of a camera unless you pay them more every year.
And it is not like Netflix or the New York Times. Sure, if you cancel your Netflix or New York Times subscription, you no longer get Netflix or the New York Times but Netflix does not brick your TV nor does the New York Times remotely shutdown your phone.
Hostage As A Service providers disable the cameras you own.
It’s great for sellers and their investors.
But a trap for end-users and the public.
Holding customers hostage maximizes profit-making.
Investors prefer subscriptions over one-time purchases because buyers will spend more money over time.
But the risk, for investors, with subscriptions, is customers canceling.
Hostage-taking solves this in 2 ways.
Investors and sellers measure this with the churn rate. A regular subscription business can have 10-20% of customers cancel each year. In 5 years, this means more than half of those customers are gone.
But when you take hostages, the churn rate is more typically 2%, which means in 5 years, the hostage taker keeps more than 90% of those customers.
Why the massive difference?
Well, consider if you are unhappy with your provider but he’s taken the equipment you bought hostage. If you stop paying, he remotely sends a command and bricks the devices you bought.
What then? One, you need to pay someone to go around and uninstall the bricked devices, even if they are mounted on roofs or light poles.
Plus, you need to buy all new devices and install all those new ones.
Altogether, that’s an extreme amount of money and ultimately most buyers will give up, rather than paying some more each year to get those hostages free.
These sellers know it and tout it, like Verkada’s Chairman:
The chuckling in the background of that video is other Silicon Valley entrepreneurs in attendance laughing.
But it gets better (or worse if you are the buyer).
Another critical metric for investors and sellers is the NDR or net dollar retention, that is, do buyers buy more or less from the provider over time.
Hostage taking is excellent for maximizing net dollar retention.
Here is how a famous investor in Latch described it:
"Once installed it is more expensive for Latch clients to churn than remain a client driving massive NDR (net dollar retention)."
These are closed systems where you can only monitor the security products you buy on their platform so unless you want to risk fragmenting your security on multiple apps, end users are even more tightly held hostage.
This is the Stockholm syndrome of SaaS sales.
Once a provider has taken you hostage, the costs of getting out makes it easier, short term, to simply buy more hostage-taking products.
In the long run, buyers are trapped under the load of hundreds or thousands of devices they bought but do not effectively own, while sellers, and their investors, reap massive profits of users held hostage.
This is why the hostage takers can lavish money on acquiring new hostages / buyers.
100,000 Yetis that cost millions of dollars? No problem!
$25 gift cards just to attend a webinar? No problem!
Sending out free cameras? No problem!
Hiring legions of inside salespeople to call and email buyers over and over again? No problem!
From the hostage takers perspective, backed by Silicon Valley investors that brought the world the dysfunction of Facebook, this is an excellent investment.
Some counter: "Isn't this just essentially a lease?"
One, these companies sell them.
Indeed, leasing is uncommon and unpopular in video surveillance.
Having to uninstall various cameras on rooftops and poles is far more expensive than simply driving a car back to the dealer.
While leasing is unpopular, this Silicon Valley “innovation” of selling things buyers do not effectively own obscures the risks to buyers.
We want the risks to be made clear!
Hostage-taking is ultimately bad for buyers.
The sales pitch of these providers is that they will take care of everything and that the offering will get better and better.
Experience shows most providers, good or bad, suffer serious problems over time: They can be breached. Caught with sexual harassment. Raises prices. Slows down development. Technology changes. Gets acquired. Go out of business....
The problem with hostage providers is the buyer is trapped.
With open systems, the buyer can switch but the hostage providers know they have you caught.
And this is ultimately bad for the public. These hostage systems are being most heavily marketed to government customers such as public schools.
The sellers and the investors are going to make massive returns but at the expense of taxpayers.
It is bad for security overall, as making the right security decisions is undermined by being held hostage to a specific security provider.
The right to use the items one buys is critical.
Don't be held hostage.
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