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A Critical Analysis of the Subscription Economy

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Re: A Critical Analysis of the Subscription Economy

#71

Earlier quoted context omitted.

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?

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.…

Thank you for explaining!

Re: A Critical Analysis of the Subscription Economy

#72

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 cus…

Adobe users like to whine but ultimately they're more likely to give up their firstborn child than switch products they're so attached to the Adobe tools and ecosystem. And I'm not sure the upper tier of users who are kind of setting the standard is all that price sensitive to begin with. I'm sure they lose hobbyists. But I don't think there are enough defectors to change the bottom line of their de-facto monopoly on raster/vector graphics software.

Re: A Critical Analysis of the Subscription Economy

#73

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 cus…

I personally hate the Adobe model and am still on Photoshop CS6 but my artist friends all love it. Maybe they don't realize they're paying at least double. All they concentrate on is it's cheap to stsrt.

The pricing difference really depends on what apps you use and what your update schedule was before, it was from a general paying at least double (yes, a lot of the professional users I know obviously did those calculations when the subscription stuff started. Enthusiasm about it varies accordingly)

Re: A Critical Analysis of the Subscription Economy

#74
post #57

Earlier quoted context omitted.

> It seems like GP is calculating 20 years worth of subscription cost. Well, yes and no. GP is calculating the discounted value of receiving $N annually forever (assuming a fixed constant interest rate r): N/(1+r) + N/(1+r)^2 + N/(1+r)^3 + ... = N/r Thus, receiving N$ forever, given rates are 5%, is worth 20N. (You can derive it from (for |q| Note, by the way, that currently rates are very low (say 1%), and thus rece…

Except ... they are the ones lending you the money, so they would be the ones paying that high price now for the comparatively low future interest payments from you?

Not really.

As you say, they're lending you what would've been the upfront payment for the software. They receive your subscription, and have to pay (in interest, to their bank) very low rates. So, on the (fixed) notional they currently pay low rates, while receiving high-ish subscription.

Re: A Critical Analysis of the Subscription Economy

#75

Earlier quoted context omitted.

If you play World of Warcraft for 20 years, it's easily worth $3600, especially paid out in monthly installments.

Perhaps, I'm just comparing the cost to other games. If you buy a normal game you own it forever. If you wanted to go into debt and pay for a $60 game in unending monthly installments, you'd only need to pay 25 cents a month.

Except that with a normal game you don't expect to be able to play online with other people on a server you don't personally own.

Re: A Critical Analysis of the Subscription Economy

#76

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.) D…

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 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.

Re: A Critical Analysis of the Subscription Economy

#77

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.) D…

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 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.

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.

Re: A Critical Analysis of the Subscription Economy

#78
post #74

Earlier quoted context omitted.

Except ... they are the ones lending you the money, so they would be the ones paying that high price now for the comparatively low future interest payments from you?

Not really. As you say, they're lending you what would've been the upfront payment for the software. They receive your subscription, and have to pay (in interest, to their bank) very low rates. So, on the (fixed) notional they currently pay low rates, while receiving high-ish subscription.

What is the basis for the assumption that the subscription is high-ish in comparison?

In an ideal market, you would expect the discounted subscription to match the upfront payment, which would mean that the "high value" is simply the price that they have to pay to get those future subscription payments (or that they could sell those future subscription payments for on some sort of "customer subcriptions market" if there were one). Once they've bought them, they also have the risk of rising interest rates wiping out the value of that investment.

(And also, this doesn't really apply all that well in this case anyway, because your typical software license subscription is not a perpetuity, the span of time that people will want to pay for using the software as it is now is rather limited, and they can pretty much stop paying at any point, while you'd supposedly have spent the loan from your bank on your programmers, and your bank will still want to get their interest payments.)

Re: A Critical Analysis of the Subscription Economy

#79
post #68

Earlier quoted context omitted.

>> But you do realize that the subscription model is exactly the thing that removes the incentive to do that, right? > Can you name a single case where this has happened with subscription software, though? Every single one of them. It's just a matter of logic that that incentive is removed. There might be other incentives that still keep them innovating or whatever (like, say, competition, if it's reasonably possible…

No, it isn't. It is not a matter of logic that the incentive is removed. One could logically say that if the company wanted people to continue subscribing, they would have to keep up with the bugfixes and patches.

Only if you ignore migration costs and assume that alternatives exist in the first place.

With the model where you can just keep using the old version without any further payments, you as the customer have at least two options two choose from: keep using the old version (doesn't cost anything), or buy the new version (you have to pay). Those two options effectively compete for marketshare, and as such, the latter option has to convince you with something that you consider valuable enough for you to pay the higher price. There might be further options in the marketplace, but that's not guaranteed, and also, migrating to a different solution usually has costs associated with it (learning the new software, lower productivity in the beginning, downtime, paying for the export/conversion/import of the data, ...), while the migration costs between versions of the same software tend to minimal, in particular lower than migrating to a different product altogether.

Now, with the subcription model, the first option is removed from the market. You only can buy the new version, or pay the migration costs of switching to a new product. Which is also not lost on the company selling you the software: If their market research people are any good, they'll set prices such that it's a bit cheaper than the competition plus migration costs, effectively turning a large part of your potential migration costs into their profit.

Re: A Critical Analysis of the Subscription Economy

#80
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/

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=subscription+*...

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