Who wins as subscriptions for software, services take off?
Adobe announced the latest version of its Creative Suite line of software on April 11, including updated versions of Photoshop, Illustrator, and InDesign. But it's not what Adobe's selling that caught my interest. Rather, it's how they're selling it.
You see, Adobe makes some pretty expensive software. New copies of its flagship image editor Photoshop can cost hundreds of dollars. The various Creative Suite bundles, which include additional design programs, can cost thousands.
But now Adobe plans to add a subscription option with a much lower initial cost. Instead of paying the one-time purchase price, customers will soon have the option to pay for access to software through a monthly subscription fee.
"Essentially it's a rental," according to Adobe's vice-president of Creative Suite design, Dave Burkett. "So you're subscribing for a period of time, and make either a month-to-month subscription or an annual commitment. When you have made that commitment, you're free to use the product as long as you're continuing to subscribe."
Subscription-ification seems to be booming.
Adobe's move is just one more example of a trend that I've seen a lot lately. I call it "subscription-ification." Rolls right off the tongue, doesn't it?
Subscription-ification seems to be booming. Netflix is a good example. Instead of buying a DVD box set of my favourite TV show, I could pay $7.99 per month for access to the same programming. Another example is Rdio. I recently became a paid subscriber its service, which lets me stream as much music as I like for a flat monthly fee. With Netflix or Rdio, I don't own any of the music, movies, or TV shows. I'm simply paying for access to them. If I let my subscriptions lapse, no more TV, movies, or music.
Subscription-ification happens outside of the digital media world, too. Car-sharing services like ZipCar and Autoshare let you pay a membership fee in exchange for access to vehicles. BIXI allows its subscribers in Montreal (and soon Toronto) to share a fleet of bicycles. These are all examples of what Ron J. Williams calls the access economy, which emphasizes access to products and services, without ownership.
So what do companies like Adobe stand to gain from subscription-ification? According to pricing expert Andrew Gregson, subscription-based services can help businesses stabilize cash flow.
Andrew told me that when businesses sell products on a one-off basis (say, a $700 software program), they get an injection of cash up front. But that also means businesses are constantly chasing new customers. With a subscription model, a business's cash flow becomes more regular and predicable. Companies can worry less about finding new customers, and focus more on keeping existing subscribers subscribed.
"From a business point of view, if you can smooth out the lumps in demand and supply, you can make more money and you can reduce your costs," Gregson said. "Lots of people will take on a subscription and never ever end it."
For the customer, price seems to be a major selling point for these subscription offerings. With yearly-commitment prices ranging from $35 US a month (for Photoshop) to $129 US a month (for the CS5.5 Master Collection), subscriptions certainly offer a less expensive entry point for consumers.
That lower entry point may also help persuade people using pirated versions of Adobe's software to pay for legit copies. According to Adobe V.P. Dave Burkett, "Piracy is certainly always a factor. This certainly provides a lower cost of entry and so will have some aspect of dealing with that problem, for sure."
Subscriptions have been successful at curbing piracy in the video game business, too. World of Warcraft and Microsoft's Xbox Live are good examples.
Adobe's subscription model also ensures that customers have access to the most up-to-date versions of its software, without additional upgrade costs.
Flexibility is another consideration. If you only need a piece of software for two months out of the year, it's much cheaper to rent it for those two months than paying hundreds for a full version.
But the subscription-ification of software isn't without its potential downsides.
For instance, Adobe's subscription-ified software is tied to the internet. The software has to "dial home" at least once every 30 days, otherwise it stops working.
Also, you don't really "own" the software in the traditional sense. By subscribing, you're entering into an ongoing relationship with a company that could change its policies or pricing at any time. The subscription terms clearly state: "Adobe may at any time, upon notice required by applicable law, change the price of your subscription or any part thereof, or institute new charges or fees."
If I bought Photoshop in a box 10 years ago it would still keep working, even if Adobe went out of business. Not so with these new subscription-based software licences. And, if I wanted to sell my 10-year old copy of Photoshop on eBay, I could. A clear secondary market exists for used software. Again, not so with subscriptions.
So, it's a trade-off. What subscription-based software offers customers in price, flexibility and freshness, it takes back in access and control.
So, when when does it make sense to subscribe to a software, music, or bicycle service, and when does it make sense to buy outright? Obviously, the decision has a lot to do with the type of subscription and your own personal habits, but I think there are a few good questions you can ask yourself when deciding:
- What's the real difference in price between a subscription and buying outright?
- How much or how often will I actually use the product or service?
- What will I do if the terms of my subscription change? Do I have a fallback plan?
As the access economy continues to grow, I think we'll be asking these questions more and more often.
Andrew Gregson thinks we'll continue to see businesses experiment with subscription model. "Just let your mind roam through the yellow pages and say, 'Yup, that could be done by subscription... that could be done by subscription.' Virtually anything could be."
Personally, I'm waiting for a hamburger subscription.