
A Critical Analysis of the Subscription Economy - BuleBule
https://medium.com/@guisebule/subscription-psycho-a-person-who-knows-its-a-good-idea-to-get-you-away-from-perpetual-licensing-b8dec71bf7d0
======
samsolomon
The case of Adobe is interesting. I think the move to a subscription model has
been a hostile move for customers. The second you stop paying for the
software, you lose the ability to open your old files.

This has allowed smaller software applications such as Sketch, The Affinity
Suite and Capture One to grab marketshare. I think Sketch’s current business
model is perfect. Customers pay for a year of updates. If a customer decides
not to upgrade, they stay at the same version as when their license expires.

I’m certain Adobe has made a good amount of money in the short term, but
they've forfeited a monopoly. I’m more skeptical about their long-term
business.

EDIT: Updated for clarity.

~~~
maxxxxx
"The second you stop paying for the software, you lose access to any of your
old files."

It seems you lose editing access, you still can view them. Still not great,
but I wanted to clarify.

~~~
samsolomon
I've updated my comment. You don't lose access, but you cannot open old files.

I suppose you could use a PSD or AI to Sketch converter. I'm unsure about
other file types.

~~~
maxxxxx
I think you can open and view them with Photoshop, just not edit. At least
that's my understanding.

~~~
ptero
I suspect you can still edit them with an older version of the Photoshop. PSDs
have been around forever.

I am not arguing that subscription models forced by Adobe on users is a good
thing. It is, IMO, horrible and is the reason I am still using CS3 for my
photography hobby.

~~~
maxxxxx
I left Adobe because of the subscription model. The fact that they don't
handle Fuji images well made this decision easier.

------
Houshalter
It's worth considering what a subscription would be worth as a fixed cost.
Like say the company was going to invest the fixed cost into the market, and
take the interest as if it was continuous income from subscriptions. Or if a
user wanted to just invest a fixed amount of money so the interest will always
be there for to pay for the subscription.

At 5% interest, a subscription of $1 a month is worth a fixed cost of $240.
Photoshop and Netflix's $10 a month is worth a fixed cost of $2400. Xbox
Live's $60 a year subscription makes it worth about $1200, making it cost 3
times more than the console itself. World of Warcraft's $15 a month
subscription comes out to a whopping $3600, making it 60 times more expensive
than a normal new game (if you wanted to subscribe to it forever.)

~~~
softawre
Can you explain why considering the dollar amounts that would earn interest
equal to subscription costs has any relevancy into how much these services
cost?

Or put another way -- what?

~~~
Houshalter
Economically you can convert between a fixed price and a subscription price. A
subscription has a fixed economic value governed by the interest rate. That is
if you have a thing that generates $10 every year, you should be able to sell
it for $200 (if the interest rate is 5%.)

I think this is something people don't often think about. But it makes it very
easy to compare different costs and benefits that involve time. E.g. imagine a
building is costing $1000 a year to maintain, and a new building would cost
$50,000 to build. You can figure that it would be easier just to invest
$20,000 and use the interest to pay for the maintenance. And save $30,000.

But if building a new building cost only $10,000. It would be a good
investment. And you would expect to save more money than you would gain from
anything else you could invest in with that money.

The same logic applies to subscription fees. If a software license costs
either $120 a year, or a fixed price of $5,000. You should prefer the
subscription. Hypothetically you could just invest $2400 and use the interest
to pay the subscription. Saving $2,600.

~~~
zAy0LfpBZLC8mAC
> Hypothetically you could just invest $2400 and use the interest to pay the
> subscription. Saving $2,600.

Except you do not actually use software forever, and there is also no market
for licenses for 10-year-old versions, so you have to actually calculate it as
an annuity.

So, if you expect to use the software for ten years, the NPV of 120$ per year
would be about 900$ at 5% interest.

------
nodamage
The challenge with modern consumer software is that:

1\. Users expect their apps to work on their computers, tablets, and phones,
which generally means you need to provide some ongoing service to keep your
data synced between all of the devices. (For some simple apps you can get away
with using a third-party service, e.g. Dropbox or iCloud, but many apps with
complex data will need their own custom-built solutions.) Depending on the
kind of data you are storing, this can get expensive.

2\. Users expect perpetual upgrades for every new version of
iOS/macOS/Android/Windows that comes out. This obviously requires development
work, especially since iOS/macOS/Android are annual releases at this point.

These ongoing costs imply that some kind of recurring revenue is necessary to
keep the software running and up to date, which is why the move to
subscription revenue has become more popular lately.

Besides, I question the premise that "perpetual" licenses have ever truly been
perpetual except in name only: eventually that software you bought will stop
working on newer operating systems and devices and you'll have to buy a new
version anyway.

~~~
noobermin
1\. No they don't. Some may want it, but no one "expects" it and will
gleefully accept your invalidation of their previous purchases so you can
provide a feature they didn't ask for.

2\.
[https://www.youtube.com/watch?v=sxXs0Yy5-0Y](https://www.youtube.com/watch?v=sxXs0Yy5-0Y)
For 2, yes, users may get mad when some vulnerability ends up leading to a
leak of PII or worse, but to claim they "expect" it, again, no.

~~~
nodamage
1\. Yes, they do. Especially consumer software like 1Password or Evernote is
expected to be accessible on your phone, tablet, and computer.

2\. I'm not talking about OS updates. I'm saying consumers expect their apps
to be updated to keep them compatible with new versions of their OS. That
means someone that bought your app for iOS 6 five years ago absolutely expects
it to be updated to work on their new iPhone 7 running iOS 10.

Besides, Windows is probably the outlier here. People might hate Windows 10's
automatic update system (which was clearly implemented poorly) but a lot of
people update to the latest iOS, macOS, and Android versions right after
they're released.

------
aerique
While I don't like the move to a subscription model for a lot of software, I
really couldn't finish this piece. I don't think it was very well written,
mostly because it kept repeating the same points over and over written a
little differently. It could have been much shorter.

I don't like the subscription model because in the end, for multiple
subscriptions, it all adds up and ends up being more expensive. And that after
spending a lot of money on a subscription you still don't own the software.

(Not to mention "season passes" for games.)

~~~
BuleBule
This is actually the best feedback I have had on that article, thank you so
much for commenting, you know proper critical feedback is the best kind of
feedback. Truth be told, I hammer the same point how thrice, simply because my
papa told me people were stupid.

------
michaelt
I know a lot of people here on HN think subscription models are pretty swell -
personally I think they're not so great.

Sure, they provide revenue that can support security fixes - but at the cost
of decimating the incentive to improve features to generate upgrade revenue.

After all, if spending more on development doesn't raise revenues much, but
cutting down to a skeleton team of maintenance developers means that
subscription revenue is almost pure profit, there'll always be investors
pushing for that.

Seems to me that invites our industry to stagnate and stop producing value, if
you don't need to make a better product in order to bring in revenue.

~~~
adrianN
In my opinion software doesn't have to add features all the time. It would be
okay for me if it kept doing what it's doing, except bugs get fixed and
performance improves.

~~~
tonyedgecombe
Yes, this was particularly evident at Adobe where they were scratching around
adding features to justify the upgrade costs.

------
pspeter3
As a counter point, I hope that by paying a subscription, I get a continuous
stream of small patches with bug fixes, security updates, and design
improvements.

I like the subscription model, especially if it has a free tier, because
passionate customers can support the developer team and subsidize less
passionate users

~~~
Dylan16807
> a continuous stream of small patches with bug fixes, security updates, and
> design improvements

That doesn't require a subscription. Plenty of companies offer a permanent
purchase that comes with a year of updates or all minor-version updates or
similar.

The option is there to treat it similarly to a subscription, but importantly
you never have to pay and what you already own can never be changed or taken
away.

~~~
brynedwards
One I know is Bitwig who recently changed their licensing model so you get 12
months updates with your perpetual license and can pay to continue receiving
updates after 12 months[1].

[1] [https://www.bitwig.com/en/17/new-license-
model.html](https://www.bitwig.com/en/17/new-license-model.html)

~~~
pspeter3
That seems like a good hybrid model

~~~
toyg
It's the old JetBrains model.

------
zAy0LfpBZLC8mAC
Or in other words: You should not allow a company to build a monopoly on a
skill of yours, because, as it happens with monopolies, they will end up
abusing it.

------
bocz
It is hard to classify Microsoft in the "#SubscriptionPsycho" category in
regards to Office. They still offer perpetual licenses alongside the
subscription model. However I do believe there is a huge marketing failure in
making the distinction between the two product offerings.

------
BuleBule
This is a follow up to my previous article "To Catch A Liar: 1Password
Edition" : [https://medium.com/@guisebule/to-catch-a-liar-1password-
edit...](https://medium.com/@guisebule/to-catch-a-liar-1password-
edition-4bfa30fbd7e4)

~~~
yborg
Completely agree with your analysis, and at the same time cannot fault
1Password for doing this since they are in a position to do it. They are
potentially a hundreds of million dollar acquisition if they juice those sub
numbers. But they have to do this NOW, because what they are doing is not that
difficult, and come the day, as it always does, that Google spies an
attractive mechanism to drive more people into their ecosystem and decides
they don't want to acquire you, your business will (probably) evaporate
overnight.

This, for the vendor, is the other edge of the subscription model. If another
flavor of the day arises that costs less, your customer base can swiftly move
to this new contestant, especially in the enterprise space, because unlike a
fixed license, a subscription isn't a capitalized cost. For Adobe, with their
massive ecosystem, this is less practical for their customers, but a password
manager? There are already a host of commercial alternatives that to an end
user are all more or less the same.

~~~
BuleBule
I had not considered this angle, thank you for commenting.

------
v12golfcart
Seems like the point of the article is that subcr is bad for customers and
therefore bad for biz... the psychos should have known better.

It's true that we pay more for stuff now vs. perpetual licenses (it's prob a
book's worth of material, but "opt-out is better than opt-in" and Houshalter's
point on chunking are most of it). But in exchange, companies have the ability
to invest that greater profit __to a greater degree __in innovation, so in the
long-term we, customers, should get more out of it than we lost in dollars.

First an observation: Adobe's decision to increase profit secularly (i.e.
beyond any accounting nuances at the time of switch) by switching to
subscription is actually TWO decisions. 1) the switch in revenue mechanism
itself and 2) the decision to NOT invest the additional profit.

#2 is the crux of my point, but the "to a greater degree" thing is a 1+1=3
effect:

"more profit" is straightforward because subscriptions increase dollars in,
often more than making up for any churn. That cash could be invested to
accelerate innovation. It's 1-to-1 apart from timing issues (queuing "yearly
up fronts" :D)

"to a greater degree" \- this is the special part. It is easier to spend more
when predictability is higher. Or put another way, volatility is the enemy of
spending to the "hilt". So companies like Netflix can spend (for our sake)
more to the hilt when you have a tighter distribution as to where the hilt
could be (vs. perpetual products which have poor visibility). Just ask any
marketing person or sales person about how easy it is to spend in channels
when attribution isn't a problem. BTW I define hilt as "as much as necessary
to stay ahead of threats of competition/churn"

But yes, the company does have to choose to do this. Some are more relentless
for their customers :). I just heard about the www.relentless.com thing
lolz...

Quick aside: I saw this sick chart that compared 12-month lifetime value
between Dollar Shave Club (subscription) and Harry's (previously per unit).
Even though Harry's has always been branded as a more premium product, DSC
made more money by the 12th month (even after churn). It's easy to forget that
monthly click -_-

------
ChuckMcM
Interesting take on it. For historical accuracy this was something that Sun
talked about in the 90's, you sold someone some software, and that was the
last bit of revenue you ever got from them. Except you still had the
programmers who wrote the software to pay.

This then is the fundamental problem, when you finish the software do you fire
the engineers that worked on it? If not, what do they do?

The fact is that software can actually be "done" and it happens every where.
And it takes a special kind of engineer who will work on simply removing
blemishes (bugs) and not write any new features.

And that fundamentally points at a really really deep problem, engineering
software rather than just writing it.

If your software has very well specified and defined interfaces, and no
'escapes' then you can say it is engineered to be partitionable. And an
engineer can be tasked with fixing one part, they can fix that part, and do
the qualification tests for that part and then when they integrate it they can
be assured the system as a whole continues to work as it always did, but now
with a slightly different part. Not surprisingly this was a part of, if not
the major part of, the notions in object oriented programming. Once the part
(object) worked, you didn't have to think about it any more. An auto-mechanic
doesn't have to know the physics of a an ignition system to replace a spark
plug, a spark plug manufacturer doesn't have to know the geometry of every
cylinder to make a spark plug.

Software as books. You don't go to the library and periodically buy updates to
the books you own. Textbooks pull that off but even they know its really a
scam. Pythagorean's principle hasn't actually changed and the last text book
was just fine.

Open source kind of wins and kind of loses here. The poster child is gcc.
Looking at the code base changes over time for a given architecture they start
with a flurry of functionality changes, then smooth out to just bug fixes and
the occasional optimizer tweak, and then when the noise floor of change
frequency gets to a certain level you start seeing really sort of adhoc
changes or perhaps changes that only help a very very small part of the user
base. Its hard to capture both a gcc for ARM9 and gcc for ARM9 embedded in an
FPGA fabric that can have optimized bespoke instructions. And yet they will
try.

The author calls them psychopaths but they are the current generation of
entrepreneurs which are building businesses based on rents rather than sales.
Its all the rage, is not Uber a rent seeking business that simply takes a tax
or rent for you using their app? The 'sale' was the car ride, the 'tax' is
everything else. This works because collecting rent of $1 a month from a
million people is "easy" they hardly miss it, and you're $12M/year richer for
it. Selling them $12M worth of value is so much harder. Why push yourself?
Everybody is doing it, the streaming company, the phone company, and even the
maker of your coffee machine. If you haven't got an ARR you aren't a 21st
century company these days.

~~~
BuleBule
You divined my thoughts exactly Sir. As others have expressed in this
conversation, we lament the rent seeking world.

------
dredmorbius
This is a topic that could use a good article. This was not that article.

It's one thing to rail about the varios psychotics or psychopathics of this
that or another. That's not the same as understanding the dynamics through
which a situation emerges. What's particularly disturbing is when it appears
that the outcome is inevitable.

I.F. Stone, writing in 1967 on the Arab-Israeli crisis:

 _The essence of tragedy is a struggle of right against right. Its catharsis
is the cleansing pity of seeing how good men do evil despite themselves out of
unavoidable circumstance and irresistible compulsion. When evil men do evil,
their deeds belong to the realm of pathology. But when good men do evil, we
confront the essence of human tragedy._

[http://www.nybooks.com/articles/1967/08/03/holy-
war/](http://www.nybooks.com/articles/1967/08/03/holy-war/)

Let's look at the problem here.

In a commercial software world, there's a mismatch between cash flows and
development. Worse, there's _also_ a conflict between market mechanims based
on marginal-cost pricing, and the long-run average costs of development.
There's also the tremendous variance in customers' ability to pay -- price
discrimination -- particularly for enterprise software.

If you sell shrinkwrap, or some other form of buy-once software, then
sustaining the development efforts for the _next_ version is ... difficult.

The two largest consumer softare companies of the 20th century, Microsoft and
Apple, both sponsored that development through hardware sales. Apple did so
directly, by selling its own hardware. Microsoft did it indirectly by way of
per-CPU licensing of IBM-compatible PCs. Both companies avoided the
significant costs of direct software sales.

The concept of recurring-subscription revenue is usually associated with
periodicals, though that is a relatively modern development. The term doesn't
emerge until the 19th century (previous usage was generally in a religious
context), and it generally referred to _stock_ subscriptions. Another variant
was the _subscription library_.

(See links below.)

In a magazine subscription, you pay for the right to receive _fresh material_
, but continue to possess any previously received issues.

The model for software subscriptions was in large part IBM's practice of
_leasing_ rather than _selling_ computer hardware. Phone systems often
followed similar practices. Hardware and software occupy different worlds in
that hardware is fairly intrinsically limited: you have _a computer_ , or
perhaps a rack, or aisle, or datacentre. But these are unitised, and you're
not individually leasing, say, hard drives, CPUs, memory cards, or capacitors,
within the computers.

My Debian systems typically have a few thousand individual software packages
installed. For a proprietary OS, that number falls, but is still considerable.

Dealing with individual software packages on a subscription basis from here to
eternity is itself a major complexity problem I'd, frankly, rather not have to
deal with. It may work in instances, but not at scale.

At the same time, there are the financing and cash-flow problems of software
developers.

How _do_ you bridge those divides?

[https://books.google.com/ngrams/graph?content=*_NOUN%20subsc...](https://books.google.com/ngrams/graph?content=*_NOUN%20subscription&year_start=1800&year_end=2000&corpus=15&smoothing=3&direct_url=t2%3B%2C%2A_NOUN%20subscription%3B%2Cc0%3B%2Cs0%3B%3Bstock_NOUN%20subscription%3B%2Cc0%3B%3Btrial_NOUN%20subscription%3B%2Cc0%3B%3Blife_NOUN%20subscription%3B%2Cc0%3B%3Bmagazine_NOUN%20subscription%3B%2Cc0%3B%3BAnnual_NOUN%20subscription%3B%2Cc0%3B%3Byear_NOUN%20subscription%3B%2Cc0%3B%3Bgift_NOUN%20subscription%3B%2Cc0%3B%3Bguinea_NOUN%20subscription%3B%2Cc0%3B%3Bmembership_NOUN%20subscription%3B%2Cc0%3B%3Bpenny_NOUN%20subscription%3B%2Cc0#t2%3B%2C*_NOUN%20subscription%3B%2Cc0%3B%2Cs0%3B%3Bstock_NOUN%20subscription%3B%2Cc1%3B%3Btrial_NOUN%20subscription%3B%2Cc0%3B%3Blife_NOUN%20subscription%3B%2Cc0%3B%3Bmagazine_NOUN%20subscription%3B%2Cc1%3B%3BAnnual_NOUN%20subscription%3B%2Cc0%3B%3Byear_NOUN%20subscription%3B%2Cc0%3B%3Bgift_NOUN%20subscription%3B%2Cc0%3B%3Bguinea_NOUN%20subscription%3B%2Cc0%3B%3Bmembership_NOUN%20subscription%3B%2Cc0%3B%3Bpenny_NOUN%20subscription%3B%2Cc0)

[https://books.google.com/ngrams/graph?content=subscription+*...](https://books.google.com/ngrams/graph?content=subscription+*_NOUN+&case_insensitive=on&year_start=1800&year_end=2000&corpus=15&smoothing=3&share=&direct_url=t2%3B%2Csubscription%20%2A_NOUN%3B%2Cc0%3B%2Cs0%3B%3Bsubscription%20list_NOUN%3B%2Cc0%3B%3Bsubscription%20price_NOUN%3B%2Cc0%3B%3Bsubscription%20paper_NOUN%3B%2Cc0%3B%3Bsubscription%20lists_NOUN%3B%2Cc0%3B%3Bsubscription%20rate_NOUN%3B%2Cc0%3B%3Bsubscription%20library_NOUN%3B%2Cc0%3B%3Bsubscription%20books_NOUN%3B%2Cc0%3B%3Bsubscription%20book_NOUN%3B%2Cc0%3B%3Bsubscription%20rates_NOUN%3B%2Cc0%3B%3Bsubscription%20concerts_NOUN%3B%2Cc0#t2%3B%2Csubscription%20*_NOUN%3B%2Cc0%3B%2Cs0%3B%3Bsubscription%20list_NOUN%3B%2Cc1%3B%3Bsubscription%20price_NOUN%3B%2Cc0%3B%3Bsubscription%20paper_NOUN%3B%2Cc0%3B%3Bsubscription%20lists_NOUN%3B%2Cc0%3B%3Bsubscription%20rate_NOUN%3B%2Cc0%3B%3Bsubscription%20library_NOUN%3B%2Cc1%3B%3Bsubscription%20books_NOUN%3B%2Cc0%3B%3Bsubscription%20book_NOUN%3B%2Cc0%3B%3Bsubscription%20rates_NOUN%3B%2Cc0%3B%3Bsubscription%20concerts_NOUN%3B%2Cc0)

~~~
BuleBule
I agree with you, this is a topic that could use a good article and as OP, I
did not write it. My hope was that others would pick up the thread and run
with it, thank you for pointing this out.

~~~
dredmorbius
As a general suggestion: instead of looking for personality faults to explain
some situation, look to systemic dynamics.

William R. Catton, Jr., has a concept he calls "futile vilification", short
version: "There is no point to another morbid wringing of hands over mankind's
alleged "greed" or immoral myopia."

Longer, quoted here:
[https://www.reddit.com/r/dredmorbius/comments/2v3251/william...](https://www.reddit.com/r/dredmorbius/comments/2v3251/william_r_catton_jr_author_of_overshoot_has_died/)

Donella Meadows has a concept of 12 leverage points. "Changing personnel"
doesn't even rate mention.

[https://en.m.wikipedia.org/wiki/Twelve_leverage_points](https://en.m.wikipedia.org/wiki/Twelve_leverage_points)

The history of IBM, AT&T, and Xerox focusing on _leasing_ rather than
_selling_ hardware is useful, as is a reading of the history of the publishing
industry. Software is, in some ways, a development of that.

~~~
BuleBule
Ah, but nothing catches the eye or flares the nostrils as somebody calling
somebody else a psycho :)

Thank you for this, I do intend to drill down into the subject a little more
and this will make for good reading, as will this entire thread.

