Software, Apps, Subscriptions and You.
APPS HAVE CREATED THE ECOSYSTEM FOR SUBSCRIPTIONS TO THRIVE, AND IN THE PROCESS SOFTWARE PUBLISHERS HAVE HAD TO TURN INTO SERVICE PROVIDERS.
Over the past few years we have seen nearly all software publishers, in some way, turn into app publishers. Whether through the release of scaled down versions of their applications or new IP in app form, nearly all mainstream publishers have been forced to release apps. When I refer to an app vs. a “software application”, I mean a title that is typically, but not always mobile, often under $9.99 if not free to the consumer, and with a simplified number of features.
The meteoric rise of the App has had many impacts upon software development, particularly its business model. The app ecosystem dramatically expanded the long tail software market and in the process caused software pricing to plummet. Our friends in the US Government and AEI* recently released data on the price of consumer goods over the last 10 years. In their analysis they cite a 50% drop in prices for services such as cell phones as well as a 66% drop in the price of software.
Apps have dropped the price of software, and publishers must diversify
The drop in price for consumer software forced publishers to refactor their product IP and how they priced their consumer experiences. This pricing change also coincides with the rise of the subscription billing model, although it’s a bit of a “chicken and egg” scenario. It’s easy to rationalize that the drop in price promoted the subscription as publishers seek models to grow their diminishing per customer revenues, however it is becoming more and more apparent that the lifetime value of a subscriber is greater than that a single instance purchaser. Since the subscriber is ultimately worth more, publishers have dropped recurring price points to acquire more customers.
Subscriptions aren’t new, however the major impact of the model on the software publishing business is just starting to be apparent.
Subscriptions mean more than just recurring payments, and to software publishers, subscriptions mean a shift from delivering a product to delivering a service. As a business model, subscriptions have been growing exponentially as both a response to drastic pricing changes, as well as evolving consumer habits and expectations.
The most successful response to market demands for lower software pricing has been the subscription model and the adoption of a service centric approach to customer engagement. The key transactional difference between product centric approaches and service centric approaches are that product purchase experiences are associated to a one time transaction, while services are linked to recurring payments. The overall value of the customer is linked to retention, no longer just conversion. And in order to retain a customer, the product experience must be there and be good… a win-win for both customer and publisher.
