
Subscription Pricing Is for Stagnating Products - jakobegger
http://jakobegger.at/2016/04/06/subscription-pricing-is-for-stagnating-products/
======
screature2
Props to succeeding on growth. However, pretty sure your success doesn't mean
that one-time purchase models are unreservedly better than subscription or
that subscription products are subpar.

Pricing and monetization models are often strategic decisions that can have a
number of different short and long-term implications for a company and for its
product development.

@maxpupmax has a great point about aligning incentives with referral
structures.

@compumike has another good point about b2b customers many times preferring a
recurring subscription in return for certain enterprise type features like
Support and SLAs.

on the P&L side, @lukebennett makes a great point about ongoing cost with
cloud services. This is generalizable to any sort of ongoing cost incurred to
provide the service (e.g. support, guarantees on service, security, or even
processing costs in ecommerce).

Additionally, subscription contracts provide some means making cashflow
predictable as some flexibility in creating more immediate cash flow via
prepayments or in letting companies borrow against existing contracts. Tomasz
Tunguz ([http://tomtunguz.com/](http://tomtunguz.com/)) has a bunch of
fantastic posts on this.

Finally, on the product side, I'd actually argue that in many cases a
subscription model actually better aligns incentives between customer and
company. In one-time purchase models, new customers are king. In subscription
models, churn is a huge concern and customer success eventually becomes
paramount and I think there are more than a few cases where that creates a
better product. Tomas explains this better and in more detail than me:
[http://tomtunguz.com/renewals_percent_rev/](http://tomtunguz.com/renewals_percent_rev/)

Not saying that subscription models are categorically better, just saying that
it's a decision that might make a lot of strategic sense and shouldn't be
disregarded out of hand.

~~~
jakobegger
A big argument against subscription pricing is that you are locking out casual
users. Only those who regularly use your app will keep paying.

People often move from one project or job to the next. If they rent their
software, they'll unsubscribe when they no longer need it, and cease being
your customer. But with a perpetual license, your customers will never cease
being your customer.

This makes it much more likely they'll pick up my app again, when they need it
again. For SaaS, I presume that the number of people resubscribing after
unsubscribing is very low.

Now why is that important? Because a big user base is necessary for growth.

Word of mouth and personal recommendations are extremly important for a small
developer like me. The biggest problem I have isn't convincing people to buy a
license; my biggest problem is that my prospective customers have never heard
of me.

~~~
noir_lord
That only matters if ($months_subscribed * $monthly_fee) < $one_time_fee or if
the tool isn't the dominant one for whatever you do (or one of the dominant
ones).

For example I pay for the intellij monthly subscription, if I changed job it
would be to a similar role and I'd keep paying for intellij (or my employer
would).

Since JetBrains switched there hasn't been any stagnation that I've seen in
their development speed or addition of new features.

JetBrains is competing against free in many areas of it's product range so
they have an incentive to ensure that users are happier paying than not
paying.

~~~
jakobegger
Note that I was explicitely talking about casual users, not power users.

I think that subscription pricing is a perfectly fair deal for software you
use everyday. But lots of software has a long tail of casual users. I really
want to make my apps affordable for those less invested users as well.

~~~
noir_lord
Indeed, not sure one model will fit all cases either.

It's fairly hard to be a WinZip power user after all.

------
lukebennett
I share the sentiment that there are plenty of products going the subscription
route without any meaningful justification. However, one argument the author
doesn't account for is the increasing prevalence of apps that involve cloud
services - which, even in the case of something lightweight like a sync
mechanism, will still incur ongoing costs for existing users indefinitely.
This situation does go some way to justifying subscription pricing - though
plenty of apps use subscription pricing without any cloud involvement (looking
at you Parallels).

That said, one counterpoint to this is that too much software depends on the
cloud unnecessarily - in many cases there's no need to use the cloud, what the
user wants to do should be perfectly possible locally and therefore the lack
of any ongoing expense would remove the need/justification for subscription
pricing.

Edit: Here's a perfectly timed example of this:
[https://news.ycombinator.com/item?id=11439001](https://news.ycombinator.com/item?id=11439001)

~~~
danieldk
_However, one argument the author doesn 't account for is the increasing
prevalence of apps that involve cloud services - which, even in the case of
something lightweight like a sync mechanism, will still incur ongoing costs
for existing users indefinitely._

This IMO is another disease. I don't really want to store my data in the cloud
of a small independent company, who probably don't have many security chops,
are not audited, etc. Moreover, if a company goes under, I can only hope that
I can still access my data.

Give me a choice to store my data in Dropbox, iCloud, or whatever, but not in
your private cloud.

~~~
npunt
Exactly. Most are just a new shiny way to be back in the business of holding
data hostage, rediscovered by another generation of naïve app developers who
probably don't fully know what business they're in. The new version of Day One
(Mac/iOS) just did this and it infuriates me to no end.

------
compumike
Are you selling B2B or B2C software? They're very different worlds.

B2B customers overwhelmingly would prefer to pay subscriptions instead of
fixed up-front fees. It scales up and down with use, carries less risk when
trying something new, is easier to evaluate "is this worth it?", and preserves
cash.

B2C customers overwhelmingly would prefer not to pay for anything at all. :)

~~~
Silhouette
_B2B customers overwhelmingly would prefer to pay subscriptions instead of
fixed up-front fees._

Not necessarily. For example, none of my businesses use any software on a
rental model where it is critical to our business and having it changed or
switched off in the future could cause serious damage. Recent versions of
several expensive professional applications we use have gone subscription-
only, and our response is simply that we'll keep using the older versions and
do without the latest features. If that ceases to be viable because we can't
buy any new copies we need any more, we'll take our entire business elsewhere.

I have yet to encounter any software at any price in the business world where
there really is no sensible alternative to paying an arbitrarily high price
forever and for risking your business taking a big hit if the software gets
turned off. And while sometimes compatibility and data formats can form a
significant barrier, I have also yet to find any issue that truly could not be
overcome or any customer, client or supplier we couldn't work with because
they were using the latest and greatest version of something and we weren't
(or vice versa).

~~~
petra
>> none of my businesses use any software on a rental model where it is
critical to our business and having it changed or switched off in the future
could cause serious damage.

That makes sense.

I do wonder why nobody offers a subscription service but with some kind of a
lease like option, when after paying X months(or when stability is at risk, or
too big of a change happens) - you can with a button click port it to a 3rd
party hosting and pay only hosting fees ?

That seems to better align with the customers , right?

~~~
trentmb
Isn't that what JetBrains switched to?

~~~
jaymzcampbell
That's correct, they have this 'perpetual fallback' model which I wish more
companies would offer, it makes it feel like you won't lose out on your
investment even if you grow out of the subscription; though they are (mostly)
offering IDEs without cloud services to host and maintain which no doubt makes
this an easier thing to deal with.

They've some nice diagrams illustrating how it kicks in here:
[https://sales.jetbrains.com/hc/en-
gb/articles/207240845-What...](https://sales.jetbrains.com/hc/en-
gb/articles/207240845-What-is-perpetual-fallback-license-)

------
aytekin
It is the opposite. Subscription model is a good solution for preventing
stagnation. Because we have such a large subscriber base, we have to keep our
product shiny and keep our users happy all the time. We doubled our
engineering team last year and we are investing in improving all parts of our
product continuously. We are listening our customers and doing everything we
can (usability testing, A/B testing, surveys, feature usage tracking) to make
sure they are content with the product.

~~~
danieldk
_It is the opposite. Subscription model is a good solution for preventing
stagnation._

Really? If you own a niche, before you had to convince customers to upgrade by
adding good new features. Now the money flows in automatically. And since you
own the niche, where else can the customers go?

~~~
kobayashi
Great point, though, how many programs truly own a niche.

Still, as a personal preference, I feel like subscriptions are less
preferable. I want to buy something and own it, and the continued costs of
subscriptions feels like a money suck. Beyond that, it seems to me that
subscription costs almost always end up costing me, the end-user, more money.

Edit: thinking a bit more about it, I do suppose that I'm okay with paying for
some subscriptions (e.g. VPN provider, Netflix, etc.) but it's the software
program subscription model which I find most irksome.

~~~
radley
Adobe's Creative Cloud

~~~
Hoasi
It certainly looks to be working for Adobe:
[http://venturebeat.com/2016/03/17/adobe-sees-
record-1-38b-re...](http://venturebeat.com/2016/03/17/adobe-sees-
record-1-38b-revenue-in-q1-adds-798k-paying-creative-cloud-subscribers/)

------
Elepsis
On the other hand, products that don't have subscription pricing are compelled
to continue to add hot new features in a never-ending race of convincing their
customers that they really should pay x dollars every 1-3 years for an
upgrade.

That's not to mention that they have to deal with maintaining old versions of
their products, and support costs that could easily exceed the LTV of a
particular customer.

As a customer, I am often hesitant to shell out the big bucks for subscription
software, especially because both Microsoft and Adobe have set up a pretty
clear ceiling on what I consider to be worthwhile by charging $10/month for
really really compelling product offerings (O365 Home for Microsoft, Photoshop
& Lightroom for Adobe). So a "small"/less compelling app has to charge a good
bit less for me to be willing to pay.

But in the long run, I'd rather pay, say, $20/year for a useful piece of
software in perpetuity than $100 once every five years--because that way I
always have the latest version and don't have to think about whether I really
want to upgrade or not. And that aligns my incentives with those of the
developer and reduces their support costs.

Over time, I imagine small software developers will figure out what a
reasonable price is for subscriptions, and more software of any complexity
will converge on this model. I, for one, don't especially mind.

~~~
Spooky23
I think this is death for small developers. How many "easy monthly payments"
do people want to deal with?

Microsoft and Google can add little features that do just enough to wipe out
niche products and make their suites stickier. Example: Google Docs voice
dictation

~~~
danieldk
_I think this is death for small developers. How many "easy monthly payments"
do people want to deal with?_

Also, people will be comparing subscription prices to Microsoft et al. If I am
paying ~$7 per month for an Office 365 subscription[1] that comes with Office,
1TB OneDrive space, Skype minutes, etc., $4 for some small utility would be
overpriced.

[1] I actually pay far less, since I can use the academic version.

~~~
Spooky23
Exactly.

How many Dropbox customers went to that model for free, even though OneDrive
is a garbage product in comparison?

------
arcticfox
I think this article is a little myopic: perhaps if your global target market
is 7 billion people you can rely on permanent growth.

But what if your target market is 100,000 people? You can reach market
saturation quickly and if you're only monetizing on the first purchase, you're
SOL.

~~~
pzone
Absolutely. Maybe the article is correct that subscription pricing is for
products that do not have an increasing user base, i.e. the user base has
plateaued. Just because the user base has stagnated doesn't mean the product
has to stagnate though. Adobe certainly does good business, and their products
improve at a very rapid pace.

~~~
autokad
Netflix did OK growing with subscription based pricing. i think the method of
pricing is more dependent on the product and how it gets to consumers rather
than plateaued user base.

------
dirtae
Charging for software on a one-time basis without paid upgrades is inherently
unsustainable. The only way to make it work is to, as the author points out,
continually find new people who are willing to purchase your software. If you
can find an infinite stream of new people to purchase your software, then you
may be able to make it work, but in practice, there aren't infinite streams of
people.

This post seems to have been written two years ago. I would like to see an
update from the author on how his "free updates to people who only paid once"
strategy is working out in 30 years.

(Of course, if you don't care about building a sustainable business, and just
want to make some money now and possibly abandon everything in a few years,
then this doesn't matter. I personally am interested in building sustainable
businesses, though.)

~~~
skj
You could make a new product and sell it to the save people, too.

------
edoceo
I target a very small group (<10000) and subscription SaaS is the only way it
works. Not just on-going cloud sync stuff but product improvements,
maintenance and continuous updates to a changing legal landscape.

For a stagnant product I don't know what the right model is.

For one that must keep iterating and maintaining and improving (based on
direct customer demand) subscription works.

When revenue (and profit) comes from only one source (subscribers) the model
is solid

~~~
abraae
The subscription model allows the vendor to make strategic, long term-ish
decisions around hiring and enhancements, knowing with a high degree of
certainty that the money will roll in each month to fund these plans of world
domination. It wouldbe very hard to run a SaaS business with totally variable
monthly revenues.

------
halotrope
I think subscription pricing makes sense. Yes it is taxing you perpetually but
it could also create an equilibrium where a publisher gets paid by happy
customers for keeping everything up to date while not having to constantly
create BS features and waste resources by marketing these new versions. Adobe
would be a good example of adding ever more dilutive features while breaking
compatibility for existing versions to urge users every year to upgrade
products they might actually be fine with.

I think this dogma of growth is dangerous as it can only go so far. Our whole
economy relies on the notion of growth but I never quite understood why
everything would either have to grow or die. In nature things grow to some
extend and then try to form a self sustaining ecosystem that would basically
go forever. Ironically the things that grow most aggressively in nature are
the things we consider toxic. Things like viruses, cancers and weeds.

------
mark_l_watson
Congratulations to the author for having a nice business.

That said, I don't agree with his premise in regards to Microsoft, Apple, etc.
I like having small continuous upgrades and in the case of Microsoft I am
happy to pay $99/year so my wife and I get an Office 365 family plan.

I don't like new features added to just drive sales.

------
codingdave
Everyone has the right to make their own business choices, but I have never
before heard anyone try to argue that recurring revenue is a bad thing.

~~~
resu_nimda
Exactly, this article is bizarre...basically saying "yeah that whole SaaS
model that everybody realized was a good thing over the past few years? It's
actually for scrubs, because I'm still doing fine with the old model in my
one-man niche software shop."

And that's the whole argument for why anyone doing subscriptions is obviously
doomed to fail. Weird.

------
maxsavin
Agree - its basically a way to take away ownership. That way, for the next 10
years or whatever, you're guaranteed to be a return customer. If software is
standalone, I still believe in ownership. If there is a system, or data, to
access, then subscription makes sense because those incur a recurring cost for
the business.

------
benp84
Subscription pricing is also a mechanism of price discrimination: users who
need it once pay less and users who need it regularly pay more, as they both
should. The author is fortunate to be in a position of sustaining a business
on new users alone, but most companies don't have the margins to afford to
leave that much value on the table.

------
drawkbox
Subscription products, and free to play in gaming, can elongate the life of a
product. They are both evolutions in product development due to the nature of
the market. Consistent revenue or revenue that isn't so spikey, gives a
company leverage and self-sustaining power.

------
jasonjei
And then there's Quickbooks where next year's version is fundamentally the
same, albeit buggier. They make their old versions not work with online
banking or payroll after 3 years (payroll is an annual subscription too).

------
hoodoof
OK so can you back that up with numbers that say how much you are making? Even
some approximation of how many units you are selling?

I am currently planning on selling a desktop product and I would be fascinated
to know how many you sell.

~~~
jakobegger
My current revenue from Postico is roughly 10000€ a month.

Feel free to email me with any questions, I love talking about the business of
desktop apps.

~~~
antaviana
With this pricing level and turnover, if you create a trial of 30 days of
actual use (not calendar days) for the casual users and keep these very same
prices but for yearly suscription for the avid users who extract more value of
your tool, you should be soon making some 30000-40000 a month and won't have
to compete with yourself with upgrades eventually.

------
white-flame
I would reword it as "Subscription Pricing is for Saturated Markets", since
that's basically what he's saying.

------
dudus
I kinda see how the subscription pricing makes sense for software such as
Windows, Office and Adobe Creative Cloud. I like it but as long as the
perceived cost per year of use is lower than the old one time licensing costs.
If it's the same or higher it just feels like a scam. So I think it's a matter
of price adjustment.

I'm hoping for a future where I can pay per hour like I do with an AWS server.

Want to use Adobe, download for free and pay 10USD per hour of usage. License
as a Service.

------
Silhouette
_As long as my app gains new users every day, new people will buy my app._

That works as long as there is plenty of market opportunity left for your app,
which might be the case for a little business in a big market. It's not the
case if you actually do have close to a 100% installed base in your target
market, though, and that is what some of these huge software companies are
facing.

What I don't buy is the idea that going subscription-only is the only
plausible alternative. I agree with the author here that trying to force
subscription-only pricing is often a warning sign of stagnation, precisely
because I disagree with this:

 _Paid upgrades won’t help._

Why not? If you're providing _useful_ new features, or _relevant_
compatibility changes as other parts of the technology world evolve, or
_effective_ security fixes in the face of new threats, you have added value
and you can offer that through paid upgrades.

I would happily pay a sensible rate to Microsoft to continue providing
security and compatibility fixes for my various Windows 7 PCs for as long as I
need them. I think it's reasonable to expect a certain amount of support to be
included for free with something like an OS -- after all, those security
vulnerabilities are by definition defects in the original software -- but it's
not reasonable to expect indefinite free support, and I'd be open to a
transparent and reasonably priced alternative model. However, I won't pay them
for Windows 10 under any circumstances, because the forced updates and
questionable privacy/security details are deal-breakers no matter what else it
has going for it.

Even without the security and compatibility issues, there are plenty of
functions Adobe could have added or improved in various Creative Suite
applications that would have justified a paid upgrade for everyone who uses it
in a small business I work with, and we would gladly have paid the kind of
upgrade prices they used to offer for those improvements. Sadly, they never
did make most of them despite numerous users apparently sharing our interest
in them, so they never got our money for any upgrades. Given that so far we've
noticed only a few modest improvements we would actually have cared about in
all the time since they went to Creative Cloud, we're perfectly happy with our
older CS releases and not being locked into paying them money for whatever
they think is a worthy improvement instead of whatever we think is a worthy
improvement. We're currently far more interested in some of the newer
competitors springing up in various niches, some of which are or might become
better tools for us anyway.

So I agree with the author that trying to force a subscription model with no
apparent benefits to the user is usually a sign of commercial desperation, and
I expect that at some point (probably relatively soon, by business standards)
the market will push back and the companies trying to do this will suffer for
it, though no doubt they'll make a substantial amount of extra money
exploiting their pseudo-monopoly status for a while first. However, I don't
agree that selling fresh copies to new customers and giving free upgrades is
necessarily the only viable alternative.

------
ImTalking
> As long as my app gains new users every day, new people will buy my app

(cough) Ponzi Scheme (cough)

