Adobe & Steam fall foul of regulators

Adobe

Adobe & Steam fall foul of regulators

“As-A-Service” is everywhere in technology. Looking through my own subscriptions I have service contracts for ink (HP Instant Ink), entertainment (Apple Music & Netflix) and even fitness apps (Strava and Zwift). Even the mighty Apple is trying to pivot towards being primarily a services company. Apple Music, Apple TV+, and Apple Arcade are all designed to shore up revenues as their flagship hardware products come under attack from Android.

Service contracts such as these typically provide worthwhile benefits for the subscriber. I don’t have to remember to buy ink, and if I hear something amazing on the radio, I can get it on my phone pretty much instantly. But what happens when I want to stop my subscription? Or pass my content on to someone else? What happens if the company goes out of business? Or my (or another) government blocks access?

You may be familiar with the apocryphal Bruce Willis vs iTunes dispute. Or the wonderfully ironic removal of the novel 1984 from readers’ Kindles. Or the outrage some expressed at having a U2 album foisted upon them by Apple when they launched iPhone 6. All related to licensing restrictions and an area where ITAM overlaps with the consumer world. You don’t own content, you just own a license for that content, and that license can be revoked by the licensor for any number of reasons. Inevitably, this leads to court disputes and content providers coming up against global competition authorities.

In recent weeks, users of two high profile services have seen the impact of the As-A-Service model. In the EU we’ve seen Steam go up against competition authorities, and there’s bad news for Venezuelan subscribers to Adobe’s products.

Steam

The EU is no stranger to taking on Silicon Valley and championing consumer rights. One example of this is the ruling that software first sold and used in the EU may be resold when you no longer require it. This has led to a growing Secondary Software Market – we did a Market Guide on this which you can read here. Indirectly, it has also led to a recent decision by the District Court of Paris that states that gamers subscribing to the Steam platform are permitted to resell games they’ve purchased on that platform. This is a big deal. Steam has 1 billion registered accounts with 90 million active monthly users. It is the delivery platform of choice for PC software publishers and as such any legal decisions affecting its operation have a big impact for games and wider software market.

The Court ruled that preventing resale restricted the free movement of goods within EU states. The case rests on the notion of whether a game purchase is a subscription (effectively SaaS) or an electronic license (effectively a perpetual license). The Court chose to classify the purchases as a license which meant that the doctrine of exhaustion applies, thereby enabling purchasers to resell their games. The doctrine of exhaustion is a key component of the court ruling that legitimised the Secondary Software Market in the EU.

Regional Pricing

This isn’t the first time Steam has fallen foul of EU single market & competition rules. In an ongoing investigation the European Commission is objecting to the use of activation keys to facilitate geo-blocking and regional pricing for games in Eastern European countries. Certain games in those countries may be offered at lower prices than they would be to a gamer in wealthier Western European states. The Commission argues that  the use of geo-blocking prevents Western European gamers buying from, for example, Poland, meaning that Steam are breaking EU law on the single market for goods and services.  Regional pricing is prevalent in the business software market too – for example Salesforce “Emerging Markets” licenses are cheaper, and the license agreement prevents their use outside those markets. Geo-blocking of digital entertainment content is something you may be familiar with – for example DVD region-coding, differences between Netflix content availability between regions, and even physical media restrictions. I recall owning a Japanese-market Nintendo so I could play Japan-only games; there were also devices available to enable the region-locking to be bypassed.

Consumer choice vs Commercial Reality?

But is all this fair? Digital Entertainment licensing is hugely complex – in many ways more complex than software licensing. I’m sure Steam & Salesforce would argue that pricing a product according to the economic realities of the market you’re operating in ensures fairness of access. Why shouldn’t a company in an emerging market benefit from the same tools their competitors from the USA use, at a price they’re able to afford? This is a slightly different argument to the locks put in place to prevent “first world” consumers from accessing that preferentially priced content. I know as a movie and games fan I was willing to pay considerably more to import content and hardware from Japan when in reality it should just have been available locally in the UK. Mess with people’s entertainment content at your peril, as Apple found with the U2 album faux pas. For many, these locks and restrictions encourage grey-market imports and ways of bypassing restrictions such as VPN usage and local market accounts. Ultimately, the company still benefits from increased sales whilst still ensuring compliance with local content restrictions.

Adobe Venezuela

So far, we’ve seen how private companies use pricing and license restrictions to provide their services to customers. But what happens if you’re no longer permitted to sell that service to a particular country? That’s what has just been announced by Adobe in relation to sales of its products and subscriptions to Venezuela. Adobe state that this is necessary in order to comply with Executive Order 13884, which prevents US individuals and corporations from trading with the Venezuelan government. Oddly, Adobe have interpreted this order as preventing the supply of services to all Venezuela-based organisations and individuals, not just the government parties defined in the Order. Export restrictions are common – many license agreements prohibit sale and use in countries such as North Korea, Iran, Sudan, and Yemen for example. The export of encryption capabilities is also restricted, with the unintended consequence in the past of lowering security for many US-based users of systems such as Lotus Notes & Netscape.

What does this mean for Venezuelan users of Adobe products? In short, they will no longer have access to any Adobe SaaS products such as Creative Cloud. Creative Cloud subscriptions are enabled via periodic interaction with Adobe’s licensing servers so once the local license token expires users will lose access. Adobe have given users until the end of October to retrieve work from the services, prior to access being blocked. Should Venezuelan users of other US-based SaaS and IaaS services be concerned? So far, no other vendor has restricted access to their services, but clearly Microsoft or Salesforce doing so would have a much wider impact on Venezuelan businesses.

SaaS Risk Management

This is perhaps the biggest example of the risk of basing critical business processes around SaaS services. I’m sure there are Venezuelan design houses, architects, web designers, and engineers who are frantically trying to find alternatives to Adobe’s software, or a way around the license restrictions. Given Adobe’s market dominance and the complexity of their tools this will be costly and time-consuming.

The takeaway for us as ITAM Managers is that we should risk-assess our SaaS commitments. Where are they hosted? Is the provider financially viable? What happens if the service fails? What’s our contingency? SaaS services can disappear overnight – what impact would that have on your business? This is a key responsibility for ITAM managers alongside Procurement as we move towards cloud-first delivery of software. It is vital that the digital supply chain is secured, just as physical supply chain security must be maintained for factories.

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