Subscription Pricing is for Stagnating Products

I make desktop apps, and sell them for a one time fee. It’s a really simple business model, and my customers seem to like it. After you bought one of my apps, you can use it as long as you like. I believe this is a good deal for my customers, it’s a good deal for me, and it’s how it should be.

However, a lot of software publishers have been switching to subscription pricing lately. Usually the argument is that modern apps aren’t static; developers continuously work on bugfixes and new features; and if people keep using a piece of software it’s only fair if they keep paying for it. Allegedly it’s not sustainable to deliver free updates to people who only paid once.

But how come I can make a living with buy-once apps?

The secret is growth. As long as my app gains new users every day, new people will buy my app. And it doesn’t cost me any money to give updates to existing users.

So why are other companies so eager to switch to subscription pricing? I believe the answer is that they are stagnating.

Microsoft and Adobe are a perfect example of this case. Both companies completely dominate their market. They have little perspective to grow, since everyone who needs their software is already using it anyway. Paid upgrades won’t help. Many designers would be happy with a version of Illustrator that is a couple of years old, and the typical office worker is probably even opposed to upgrading their good old copy of Word. Thus, the only way to increase their revenue is to charge their existing users more. Hence, subscription pricing.

As a small independent developer, I’m in the opposite position. I’m far away from market dominance, my user base is growing every day, and I don’t need to charge recurrent fees for users of my software. And it works out just well.

The one thing I don’t understand is why smaller companies are also trying to switch to subscriptions? Are they also suffering from a stagnating user base, and hoping to increase their bottom line? If that is the case, they are doomed — subscription pricing will only diminish their user base even faster, and won’t fix the underlying problems that led to a lack of growth in the first place.

Comments 5

  1. Lev Lazinskiy April 6, 2016

    I think you make some good points. However using Adobe as an example is interesting. Adobe used to charge upwards of $600 for each individual product, although it all evens out in the end $20/month seems like a much easier pill to swallow for a lot of poeple.

    I think subscription pricing does not make a whole lot of sense for Desktop software I am curious what your thoughts are on web applicaitons though, it does not make a lot of sense to charge a flat fee for “services”.

    Liked by 1 person

    • Jakob Egger April 7, 2016

      Yes, the up-front cost might seem lower for Adobe’s month-by-month subscriptions, but it only evens out for those who used to buy every upgrade. If graphic design isn’t your day job, Adobe’s subscription prices are way too high. Their business licenses are annual and cost at least 360€ plus tax for an individual product. It’s a lot more expensive than buying a full license at 600€ and using it for 5 years.

      I think this is the reason why many smaller companies have been pretty successful in this space recently; apps like Sketch, Affinity Designer, etc. are reasonably priced even for casual users like myself. I need to create some vector graphics every now and then. I’m happy to buy an app for 100€ since I’ll be able to use it for a few years; I’m not ready to pay 30€ every month.

      Concerning web apps, it really depends. If providing the service has significant costs per user, it’s obviously necessary to charge recurrently. But many web apps have a negligible cost per user; and the main motivation for calling it a “service” might be to justify recurrent charges. In that case, I think a flat fee would be more adequate.

      Like

      • Lev Lazinskiy (@levlaz) April 7, 2016

        Hey Jakob,

        Thanks for the detailed response. Interesting that you mentioned Affinity Designer, I was in a similar boat this month where I needed to make some vector graphics (and Inkscape on OS X is completely unusable). I downloaded the Adobe CC Trial but then realized that even if I liked it — there is no way I would be willing to spend $20/month to make an occasional vector graphic. I purchased Affinity Designer and it is just perfect.

        >But many web apps have a negligible cost per user; and the main motivation for calling it a “service” might be to justify recurrent charges. In that case, I think a flat fee would be more adequate.

        This is a very interesting perspective, I primarily make web apps and I have not though much about this. Definitely some food for though, thanks so much!

        Like

  2. Cody April 9, 2016

    You also have to remember it sounds like you’re a solo developer. Many, even seemingly small app companies, can have a half dozen employees, so their ongoing costs are much higher.

    Like

  3. Jon Frisby April 10, 2016

    Unity Technologies, for example, has seen the opposite trend: Their growth has only accelerated with the switch to subscriptions.

    Also: One benefit of the subscription model in acquiring customers is reduced transactional friction.

    Like

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