The subscription model economy bust

Independent software companies are rapidly getting into a financial bind. The prices for software they work on are continuously being pressed down because many people believe software shouldn’t cost above a certain amount. Because of this they are lowering their prices but are not seeing the profits after they drop the price. These developers then have to try to find a way to even the cash flow so they can keep the lights on and pay the few employees they have.

The latest example of this is Smile Software and their decision to switch TextExpander to a subscription model. They are beginning to charge $5 per month. As with all software subscription models they are adding some value to the software and as long as you are subscribed you won’t have to pay for an upgrade when the next big version rolls around.

There are a lot of people who are enraged by the idea they will now need to pay monthly for a product they used to have to buy once every few years. Speaking as a happy user of TextExpander I respect their decision but I don’t know if I will be joining them on this new endeavor. However just because I don’t know if I am joining them, I wish them success. In fact this tweet really summarizes how I feel:

The Subscription Economy

Not to go too Andy Rooney on you but did you ever notice how many things we rely on are becoming subscriptions? No, I haven’t  gathered them on my desk for this blog post. Amazon Prime, iCloud Drive, Microsoft Office, Adobe Creative Cloud are all examples of some services that are subscription. We are even seeing networks have separate subscriptions for their content. You may even use a subscription for your IT services at work in the form of a Managed Service Provider.

It seems to me that we are in the middle of a bubble for the subscription economy.  Is this a good thing and is the model sustainable for people or companies? I don’t think that it is sustainable. Here is an example on the IT consulting side Tom Bridge (once a client of mine and now someone I consider a friend) wrote about in his weekly newsletter:

Lately, in the rush toward managed services in the consulting industry, I’ve felt a bit hesitant to adopt the practice. I looked at our stable of clients, many of whom we have worked with for almost a decade, and I did some math to figure out what they were paying now versus what they might pay if we went all-in on the MSP model.

I didn’t like what I found.

These are people that I consider friends now, that I work with through hard times and good, and in some cases it might’ve been a tripling or quadrupling of their annual bill. How is that fair to them? I may be good, but I don’t see that I’m worth four times what I’ve been charging just to match the new fancy model.

(Tom also has a new podcast focused on Mac IT Administration. If that is your thing or have an interest in it I suggest checking it out.)

I think the point Tom is making can be expanded to a point about subscription services in general. When you begin to add them up, they become quite costly. Think about people who are “cord cutters” and how much they will pay monthly to get Netflix, Hulu, Amazon Prime Video, HBOGo and other services I can’t remember. They are still paying the same amount and in some cases even more than they were before!

Sooner than later this bubble is going to burst. I don’t think it is a bad thing because I hope this will allow independent software development companies to charge what the software is really worth and not to use other models.