Subscription Psycho : Analysis Of The Subscription Economy & Its Bad Actors
In case you didn't already know there is a new game in town, coming soon to a software vendor near you, and its called the subscription shuffle.
The Subscription Shuffle
The subscription shuffle is the art of migrating the perpetually licensed customers that you originally built your business on, into a recurring revenue stream using a subscription model because you can.
The best bit about this story is that software vendors froth at the mouth when you dare to suggest that they adopted subscription for any other reason than money, I was even abused by Bob Egan for saying so.
At least the vendors who have to work really hard to justify a subscription froth at the mouth, those who started out with a subscription from day one just shrug, they know their customers made that choice.
Vendors who deliver a service where the subscription model makes a lot of sense to the customer are not the focus of this article or my analysis, because we all know that the subscription model can deliver value in some cases.
The Subscription Psychos
This article is dedicated to those vendors I call subscription psychos, people who know its a good idea to migrate you from perpetual licensing onto a subscription, because in doing so they make more money.
We all want more money, but sadly it doesn't grow on trees.
The psycho element is why you only see the subscription shuffle being performed when a company is either preparing to sell itself and needs to juice revenue or where its already been acquired, the original founders left and its in the hands of people who have no real loyalty to customers.
You see if you really cared about your customers, if you really weren’t a psychopath, then you wouldn’t be inflicting never ending payments on them after watering down ownership of software that they already bought, for no other reason than you want never ending money you psycho.
When Are Subscriptions Good For Customers?
Subscriptions are actually brilliant for lots of different products and services, the subscription model was first pioneered by magazines, for as long as you subscribed, the magazine kept on arriving. But before long they were joined by others as the subscription model spread to other industries, where offering a subscription to your service naturally made sense to customers.
Think Netflix where it makes perfect sense to subscribe to their vast movie library because you would never buy all those movies and also because Blockbuster was just awful, or the Dollar Shave Club where you actually save a ton of money over buying traditional off the shelf razors in a store.
We traditionally subscribe to something because it saves us money over the long term, also because its convenient and saves us time.
The cloud services and managed IT services space is a good example of where the subscription model really makes sense, when businesses pay a per user per month fee to gain access to complex IT systems that would be a real pain to set up and manage internally. Cloud IT customers really see value in paying a regular, predictable per user fee for services, because they know exactly how unpredictable OPEX and CAPEX can be when they DIY.
If a technology (hardware or software) is complex enough to need dedicated teams to regularly manage and support it, lots of infra to run it and it costs a small fortune to buy on a perpetual license, then it makes sense to rent that service from a qualified service provider on a subscription basis.
When Are Subscriptions Bad For Customers?
My general answer to this question is when you have been quite happily using a piece of software on a perpetual license and suddenly the vendor decides that you need to subscribe to use software because they want recurring revenues.
For a long time, subscription model remained confined to those industries where it naturally belonged, but then suddenly the subscription economy became a thing and Adobe led by example, showing software vendors everywhere that you can screw your outraged customers by forcing them into a forever subscription model against their will.
In Adobes case customer opposition to the subscription model was so fierce that thousands of their customers signed a petition to make Adobe stop. To make matters worse, Adobe pulled all kinds of dirty tricks to get people off their old perpetual licenses, like automatically cancelling their perpetual licenses if they signed up for a free trial of the subscription service.
The sad truth is that even though Adobe lost a lot of customers over the short term, their mid and long term profits soared on the back of the new recurring revenue model and in the end it did not really matter if there was extremely vocal and bitter public screaming from their customers.
Because of Adobe, software vendors now know that in order to successfully convert customers to subscription, all you have to do is be a psycho.
The subscription model is bad for customers when its clear that the reasons for adopting the model are mainly of benefit to the vendor, because renting software for ever quite clearly costs you more money than buying it.
Why Do They Do It?
The subscription psycho has good reasons for forcing you into doing something that isn’t really good for you and its rare they inflict the pain of never-ending recurring payments on you out of sheer spite, although in the case of Adobe any graphic designer would tell you that its a tough sell.
As much as we want to believe that they are just greedy people, the truth is actually more complicated than that, because even though the subscription model may not deliver any tangible benefits for buyers of perpetual software licenses, the model delivers some really solid benefits for software vendors.
It is obvious to any Chief Executive Officer that charging their customers on a regular basis for ever is good for their bottom line and their share price.
We all agree that people giving you regular amounts of money forever is a good thing, but sadly money doesn’t grow on trees, even if the subscription psychos really think that it should and try to make you pay for it.
The reason that the subscription model is so appealing to software vendors is that there are three things which stress them out more than competitors.
Vendors hate people pirating their software, they hate people who use old versions of software without paying to upgrade and the most of all they hate the never-ending pressure of having to continuously innovate and produce real new features, so that you do see sense in buying an upgraded copy.
It is these three things that keep a software vendor up at night more than anything else and none of them are really a problem for startups, they are only really a problem for mature software vendors with large customer ecosystems who have been using the same software forever.
Piracy Is Annoying
Piracy is annoying for mature software vendors and this is doubly so if the ‘upgrades’ the vendor pushes out do not add to core functionality. The longer software can be used without updating it, the more it is pirated.
The only real way for a software vendor to escape the annoyance is to convince their user base that either their software needs to connect to a cloud server in order to work, or that the software is much better now that it lives on their cloud. This gives them control and the ability to shut you down when you fall behind on your forever subscription payments.
The subscription psychos go about this in a very predictable way, first off they like to make a big hay about the CLOUD when launching their new subscription service, usually giving you X months of the cloud subscription service for FREE, followed by very small monthly payments. These small payments always increase, but only after the mass of their customer base has been converted over to subscriptions and locked in to the new model.
If they are really psychopathic they frame their reason for the software suddenly needing ‘to be cloudy’ in a very innocuous and simple way, one that you can easily get on board with initially and that they can easily change the scope of at a later date when they make new plans.
The subscription psychos call this one the bait and switch.
The problem with signing up to new subscription agreements is that the vendor can modify a subscription agreement at any time, your rights can change at any time and you probably do not have a service level agreement or any recourse (beyond cancelling the service) if things go wrong.
Rather than swallow the small percentage of users who pirate the software and write it off as a cost of doing business, the subscription psycho prefers to inflict never-ending payments on their customers, using piracy as an excuse.
I Am Fine On The Old Version
Software vendors hate hearing this, because they typically hear it when they have passed the point of true innovation and stopped being able to deliver genuinely useful product features any more. When a vendor hears this, it means he has done his job, delivered what the customer wanted and now any new feature can only ever be a new fancy bell or a whistle.
Software vendors tend to react by dreaming up new features you don’t need or by redesigning the user interface so it doesn’t look like it was made in the 80’s anymore, in an attempt to persuade you to buy a new version of the same software you have probably already bought twice as ‘upgrades.
Now imagine how psychopathic your software vendor is going to be when they absolutely must keep adding new features in order to justify you giving him forever payments, what do you think that product is going look like in just a few years time? Bloated, slower than it was and harder to use because of the new interface. No thanks, I'm fine on the old version.
Or at least I will be until a psycho figures out how to cripple it.
Because Life Is Tough
Like practically any other industry and business, the software vending game can be really hard and it can be a long tough slog to become successful. Just like designing any other kind of product, developing a new kind of software to the point you make money is time consuming and expensive.
The more complex your software is, the bigger your team, the more chance you have of running out of money before you can get to market. To attempt to bring any kind of product to market is a risky and expensive business and some software developers have decided that they simply cannot swallow it.
Like any other business facing risk they set about looking for ways to minimize that risk and that is when a subscription psycho points out its much less riskier to bill people forever for software. But of course it is.
When your perpetual license software vendor suddenly wants to foist a subscription on you, its usually because they have nothing else to really offer you in the way of innovation or features that make you want to upgrade.
Why Are Subscription Psychos Bad For Business?
It should be fairly obvious, but in a world of quarterly results, yearly bonuses and share options, combined with the fact that most psychos do not plan to stick around for more than a few years, means that the short term mentality of modern business really plays into the hands of a subscription psycho.
Subscription psychos don’t care that the move to a subscription model infuriates and alienates some of your most loyal customers, they don’t care that over the long term treating customers this way means that you tarnish and devalue your brand, they don’t care for the notion that it strengthens the hand of their competitors who gain the customers and goodwill you lose.
They dont care because they are psychopaths who think they can be the next Adobe, or they are planning to sell the business in the near future.
Who Exactly Are The Subscription Psycho’s
Good question and this is the part of the article where I am going to upset some people, but that’s ok, I will survive and I am only listing them here because of somthing they already did, not something I just made up.
- TomTom — After a lifetime selling good sat nav devices, before then going mobile and selling what was easily the best mobile GPS app, they then injected subscription juice directly into their veins. I paid between $75–$150 for their apps and they just issued and end-of-life notice, pushing their lifelong loyal customers to a subscription version. They also sold our GPS data to the police for use in speed traps which is just spiteful.
- 1Password — I have actually just written about these guys in much more detail, they were the people who inspired me to write this article in the first place. After ten years of faithful service to a large, loyal customer base, they decided to juice their revenues with a subscription and push ‘their cloud’.
- Adobe — The original subscription psychos in my book, purely because we had bought a whole bunch of their expensive software before they decided we didn’t own it anymore and that we needed to pay them their Creative Cloud money for ever in case we need photoshop twice this week.
- Microsoft — Do you remember when Word, Excel and Windows were software you bought on a perpetual license and which barely ever changed? I do! All of them are available on a subscription basis now because Microsoft are brilliant at selling you the same software again and again, it comes naturally to them. In fact it comes so naturally that they decided were going to rent you the software that you thought you had already bought forever.
- Nutanix — Nutanix, is a star alumni of the Subscription Psycho Academy Zuora, those good people who advise anyone with enough money to listen how to seek rents in a digital economy. Before mulling over subscriptions and coming under the influence of the never-ending payment (surprise surprise) Nutanix built their business on the back of perpetual licenses.
I came up with these examples off the top of my head and I am sure that there are plenty more, this is the part where you guys tweet me your own good examples of a #SubscriptionPsycho by sending them to me on twitter @GuiseBule, when I get them I will update this list with new entrants.
The best advice I can give you if your vendor starts up the subscription shuffle is to give one of their competitors a chance, one who is probably struggling to compete against a much larger and better funded subscription psycho, or better yet take a chance on a brand new startup like I do.
If you decide that you do not want to pay strangers forever payments for something you already bought, there is always an alternative to every piece of software on the market, investigate and you will be pleasantly surprised.
The alternatives may not be as pretty as the software you decided not to subscribe to, but don’t let that deter you because the alternative is to let subscription psychos who decide they want a piece of you forever win.