As a user, this is great news. I think that the artificial lock-in to services that have near zero cost of on-boarding and off-boarding is not what nice companies should do.
As an entrepreneur, this is amazing news! This means users can now more easily switch to my superior service.
At least this is how I choose to see it. It seems to encourage healthy competition and I'd rather compete on the service quality and value than the cleverness of my contracts and discounts. I'm sure it will hurt the bottom line of some companies, but I'm not sure it's a bad thing.
Absolutely, companies who remain stagnant will fall behind if they don't offer something as good as or better than competition. Only shareholders who are concerned about "guaranteed income" regardless of its sources will not like this imo.
... of course it's the EU. It won't be enforced against large companies. I mean, it seems to me pretty obvious that this outlaws microsoft office. And yet, it's september, and ...
Seems to me these trivially violate just about every condition talked about in this article ... yet it's still for sale with no way to cancel and get your money back. Am I missing something?
In fact this store only sells subscription software. That's the only thing available. Non-cancelable, of course. And there's plenty of technical and bundling barriers to switching.
Have you contacted Microsoft and they rejected your request? EU is not asking SaaS providers to implement a 'Cancel Anytime' button. EU is not banning SaaS providers from selling one-year subscription either.
> this article
You mean this AI slop. The OP's article has very little to do with what EU Data Act is.
I expect that in the EU, this is somehow only going to apply to small EU companies. I'm sure there's technical reasons for that, that are currently thoroughly de-emphasized, difficult to find, but that will be the outcome.
This is also too little, too late, as usual in the EU. Extremely large companies have already profited incredibly of of this.
Plus, most provisions are again people, business people, refusing to pay for software. As a software engineer, I can't say I like this idea.
From my understanding, yes. Microsoft should give {unused portion} - {operation cost of migration} back with you if they're compliant with EU laws.
Actually, I expect they'd do that. I actually contacted Adobe support many years ago to complain about the cancel fee, and they did cancel the cancel fee for me.
What is the issue?
There is 2 month's notice.
If you have bad services and customer don't need it any more makes sense to allow termination, instead of contining to bill customors for nothing.
This is more healthy and would push more SAAS to focus on Sales not building tricks to force retain customers!
>Nothing in this Regulation prevents a customer from compensating third-party entities for support in the migration process or parties from agreeing on contracts for data processing services of a fixed duration, including proportionate early termination penalties to cover the early termination of such contracts, in accordance with Union or national law.
That's true. If you have a business deal that immediately creates a loan when a customer registers, you can make this early termination cost whatever you want, you could even make it more than the remaining value of the contract.
>> The issue is you can't use the "I'll give you a deeper discount for a 3 year contract" line anymore.
I don't see why not. You can still offer a low price right? You can still promise it won't go up for 3 years. But the customer can now cancel at any time.
Well, if you bought hardware to support that client for 3 years and the client changes their mind 2 months later then you are stuck with this hardware....
You can, but the thing that you get as a SaaS company in exchange for that 3 year discount is the certainty that you'd have a customer for 3 years. There is no longer an incentive to offer the discount.
But there is once you remain competitive, if the reason for people staying on your platform is because they're locked in for 3 years then you're not offering a good enough service as others. This opens the market to competition who will offer better services or prices. The free market at work.
First off, we all know that unfortunately just offering the best product is not enough to guarantee that a customer will pick you and stay with you. Secondly, because of the use of ARR as a key metric that lock in has an extra benefit to the SaaS provider in dealing with investors.
Sure, but again the issue is that this is the incentive behind those discounts and when that incentive goes away justifying that discount is that much harder.
I don't know how the law is framed but generally no refund is illegal because it would be too easy to create loopholes in the law otherwise.
What's customary is forfeiting any discount, then a partial refund with eventual early termination processing fees.
So if you had an annual subscription with a 10% discount which you stop after 3 months, your refund would be what you have paid minus three months at full price plus a token processing fee. It's a very common setup for mobile phone and internet subscriptions here. You generally end up paying roughly the equivalent of one additional month when you cancel which competing providers often actually refund when you switch.
No refund is perfectly legal. Just continue to offer the service/product, i.e. cancellation only takes effect at end of term as was contractually agreed.
Someone will have to take the risk that the customer will walk away from the deal. Insurance companies maybe would pool different customers in some insurance pool?
An alternative would be to ask the customer to pay in advance for 3 years. This way both the customer and the producer have an incentive to keep this deal going (if the producer reneges on the deal the consumer can take the producer to court. My reading implies only the consumer can walk away with 2 months notice). But in the world of 6% interest rates who would want to front that much money?
In the world of 6% interest rates it is expensive to pre-pay. So definitely an issue. Prepaying also takes away some of cloud computing's financial flexibility .
ARR is a metric. It does not assume anything. The people using it assume, and that's where the mistake is.
Most of the monthly subscriptions currently allow you to cancel at any time. And most of the yearly plans are actually "yearly-prepaid", and this isn't affected (per my understanding) by this law. What is actually impacted are plans like the Adobe year plan, where you pay monthly for a service and cannot cancel unless you pay for the amount remaining of the year.
ARR isn't dead, at all. ARR of the current year was always a predicted metric, subject to plenty of factors such as payment refused on peoples cards. Maybe some businesses were not correctly using this metric and now will have to be more careful.
This is a silly article. It seems premised on the idea that ARR can only happen with contractual or vendor lock-in. Which is silly. Like most things, if you can get in the door, and aren't price gouging, few people will want to rock the boat for the sake of it.
Offering a discount for longer contracts and jacking up the price for shorter contracts have no noticeable difference to either party.
I feel like this article is thus being overly generous. The EU simply wants consumers to be able to cancel digital products that have no marginal cost anyway, which makes intuitive sense imo.
The article is hyperbole and this only impacts ARR for consumer services, which tend to be either month-to-month paid in arrears, or annually prepaid. It doesn't change anything, but if your gym membership goes high-tech it might be easier to cancel.
The specific provisions[1] covering unfair contract terms apply only to "unilateral" contracts, meaning contracts that are offered to a customer who meets two important criteria. First that they attempted to negotiate specific terms in the contract. Second that they had no ability to influence those terms but continued to purchase the service anyways. Real, scaled, committed SaaS ARR isn't going anywhere.
This article is just a lie and also seems deeply confused. First it talks about the (false) claim that you can no longer count a yearly contract as such, then it switches to "involuntary churn" without at any point explaining why those concepts are related in any way.
The regulation[1] explicitly says:
> Nothing in this Regulation prevents a customer from compensating third-party entities for support in the migration process or parties from agreeing on contracts for data processing services of a fixed duration, including proportionate early termination penalties to cover the early termination of such contracts, in accordance with Union or national law.
Limiting notice period to two months and forcing you to give customers the possibility to terminate at any time is not killing ARR. It might moderately increase churn but even then, unless you are frankly dishonest, not that much.
You still have ARR when your customer can terminate their contract.
Even yearly discount which the article presents as done for are still a thing with the possibility of early exit. You just put a clause indicating that the discount is forfeited if the customer leave before the end of the contrat. Phone companies do that all the time.
I agree the article seemed disingenous and almost felt like it was shady (can you believe the EU lets them cancel in a sane way?!). When I hear ARR, I don't think of an annual contract. ARR is equivalent to MRR*12 and can be a mix of contract types or even utility spend ($ per bytes). I understand that "committed spend" is when a business agrees to pay $XX annually, but that's not defined by ARR.
Sure but if you actually have customers paying the annual fee in one go (instead of 12 monthly payments when they can cancel at anytime) the ARR number will be much more reliable. With MRR12 you're counting people who sign up for a month and quit.
And ARR assumes it's recurring too - it's a metric that (people incorrectly think) shows how good your business is at retaining revenue year-over-year.
If a big proportion of contracts in Y1 get terminated at the end of the 12m period (because, say, the customer forgot to renew) - then the ARR will drop like a rock in Y2.
This is wonderful, occasionally the EU bureaucracy gets something right
Yes it’s good for customers, but it’s also good for vendors. They are no longer subject to this arbitrary and destructive pressure from investors, and may see a revenue increase as customers lower the bar for signing up
The right measure of ARR is statistical anyway. Just because a contract lasts for a year in no way establishes the contract as recurring. It has been a very arbitrary standard
If you wanted to get rid of your subscription, you were going to waste money on something you weren't going to use, and that doesn't really help the business or you. (except the business leeches cash, but that shouldn't be their business model anyway)
I think that AWS Reserved Instances will still be OK. That is purchasing a product with an expiration date, with the product being compute hours. And its mostly B2B, this article is mostly focusing on B2C. AWS will mostly be in the clear. Services are already billed per call or per monthly usage.
Usage-based will be fine, but if you sell usage-based with a discount that assumes the customer will stay with you for, say, 3 years - this law means they can leave after 1 and not stay for the full length.
Then, you've given a discount that wasn't in your interest to provide.
I wish EU (or may be just a Swedish thing) also could have same kind of cancellation possible for post-paid phone/ internet, eye-glasses subscriptions.
So, can I use this against Google to get our locked-in annual gmail subscription nuked in 2 months, instead of next May when the contract change date is?
This is a big problem for many enterprise startups. Most (90%+) are customer funded, not VC funded, and it is common to have a few big design partner customers as they figure it out. Imagine several 3yr $1.5M ($500K/yr) contracts, so a team of 10-15 funded on that.
Companies have annual whimsical budget cycles, with new innovation initiatives always big easy targets as not cemented yet. This change makes it very easy to yank one of the 3 year commitments... Which would cause layoffs of a third of the startup.
30% of the corporate blog links on HN the last 4 weeks have mysterious distance from the facts they purport to relay.
Then, they pivot to something vaguely related that is more fun to talk about.
The distance is never closed, and then you're hit by the ur-slop: "That's not X—its Y" and realize where we're at: it used to be a good idea for SEO to write informative blog entries, then it got outsourced from subject matter experts to marketing, then it got delegated to the interns, then the interns got told to use an LLM. And I love LLMs! Just makes me smile and wish for a new way to run links sites.
I'm curious if AI writing style is going to leach into human use and possibly even self-reinforce.
I also really don't understand why it is apparently so difficult to teach LLMs not to repeat the same sloppy sentence style multiple times per paragraph...
If a company offers a discount (or not) for a longer minimum term contract and you accept then that's just liberty in action as long as the terms are made clear in advance. There is neither a need nor benefit in regulatory intervention, especially considering all the actual issues on Europe's plate...
How is it a problem? Any bad software companies put a gun to your head to force you to buy their products on their terms?
I am an EU citizen, too, and I would like that the EU do not intervene and regulate anything and everything they might think of just for the sake of justifying their jobs...
B2C in Europe has very strong consumer protection laws, so terms must be clear and fair. People can then make their own decisions. B2B has less protection, i.e. you're supposed to be clued-up a minimum to read and understand contracts, but then people can make their own business decisions, too.
The problem is that when it comes to software there are some pretty hard to avoid monopolies. Adobe products being a major one that abuses their position and who would be pulled into line with this regulation.
Hmm that makes sense, but it probably would be best to measure cash flow instead of revenue year over year, maybe some kind of Earnings Before Interest, Taxes, Depreciation, and Amortization. Alternatively you could skip all of that and just go with yearly revenue like you said although that could obviously be gamed with some stupid one-off sales and fees so maybe some kind of Annual Recurring Revenue metric would be more useful?
The only thing this 'kills' is a stupid metric. You can no longer guarantee a customers LTV will be more than two months. So the metric used to try to value these businesses will change a little. Otherwise, if you offer a good product and don't engage in scummy practices to lock people in, you should be unaffected. If you're a scumbag (and unfortunately, there are a lot of them out there) you will need to work a bit harder to maintain your subscribers.
"Article 25, Contractual terms concerning switching … The rights of the customer and the obligations of the provider of data processing services in relation to switching between providers of such services …"
Wow, companies being forced to provide good service to customers through a contract term and upholding the primary driving force of market capitalism (customer can take their money to a better provider).
As an entrepreneur, this is amazing news! This means users can now more easily switch to my superior service.
At least this is how I choose to see it. It seems to encourage healthy competition and I'd rather compete on the service quality and value than the cleverness of my contracts and discounts. I'm sure it will hurt the bottom line of some companies, but I'm not sure it's a bad thing.