Software as a service

And why it is the only reasonable way to consider the software development and editing in our era.

I’ve had an argument on DPReview.com with a couple of dense people whining about subscription, while apparently they didn’t even needed the software they were complaning about. The discussion concerned Adobe’s Photography plan (which is ridiculously cheap honestly) and why I believe subscription models are a necessity for the developers and (generally) a blessing for the users.

But let’s dissect the problem of perpetual licenses.

First, a perpetual license is, as its name suggests, perpetual. You purchase your software for a certain price and you’re entitled to use it “forever” or at least as long as there are working computers capable of running it. You eventually get to pay for iterative upgrades, but you’re not forced to if you don’t need them. Usually perpetual licenses prices are not the cheapest, relatively to how important the software is.

But there is a big issue. Inflation. A software company like any other will see its expenses increase (higher rent, higher services fees, higher salaries, higher everything). The average inflation rate between 2000 and 2018 was 2.12%, which leads to a cummulative inflation of 45.82% over 18 years. 45.82%. At the same time, the internet has awaken and risen. It made piracy easier than ever. Shareware (a name I haven’t heard in a long time) progressively disapeared. Smartphones and social media have hit the market and with them a new economic model where everything is either dead cheap or “free”. Of course nothing is free, but from the average user point of view, it feels free. That induced in the new generation that software is worth basically nothing, and hardware is everything (computing devices prices are higher than ever).

So software companies saw their expenses increase significantly and they needed to find a way to compensate with a higher income. For long established companies, the fight as been about increasing the user base. And that worked, for some time… At some point any company reaches a pinnacle from where sales are either stalling or increasing insufficiently rapidly to cover up the inflation (or worse decline but let’s assume the company is doing ok). The company can still tries to diversify, to outsource programming in cheaper labor countries, but that only works for so long and finally we’re back with the same problem: Inflation keeps on growing at a steady pace and the software is still priced the same, with a user base not increasing fast enough.

That’s what many companies did. They outsourced, tried to increase the sales volumes, adopted a yearly paid upgrade pace, diversified… But that couldn’t make it up for inflation in the long run. Diversification in particular may increase sales, but also the company’s expenses in labor and marketing. And as far as I know, the rare attempts companies made in increasing their products’ price wasn’t received very well. Some users reluctantly complied as they had not much of a choice, but many just jumped ship with another company with a price advantage (an advantage they usually have because they’re newer and smaller, and it’ll fade away with time).

So what in the world can they do? Admit defeat? Of course not. A company delivering a product that has a demand has the right to demand just retribution for its work.

Looking at the smartphone apps market, streaming services etc, it was quite clear that a lot of people were willing to either pay a flat small fee every month, or see a bunch of ads floating around. Ads or obviously not (yet) an option for professional grade software. But rental… It has many benefits.

The first benefit is that for the user the price is easier to swallow. A few bucks a month, everyone can do that. This benefit is listed as one for the company as it is much easier to sell software for cheap than for what it’s actually worth.

The second benefit, the company can recalculate the ideal software price based on its expenses and user base without inflating an already large number significantly (+50%…).

The third benefit is a steady source monthly or yearly (or both) income that guarantees for the existing user base that the company can keep developing the products at a normal pace and without feeling overwhelmed by the market pressure.

The fourth benefit, any requirement for a price increase is now marginal. A +50% over 18 years again would put a starting monthly plan of $30 to $45. After almost 20 years. Assuming the company can increase its user base sligthly during that time, it should manage to keep the price below $40. If the company decided to follow a yearly increase that matches an inflation of roughly 2%, the prices would increase like this:

Year 1: $30
Year 2:$30.60
Year 3: $31.21
Year 4: $31.83
Year 5: $32.47

Obviously no company is going to do that, and most likely what’s gonna happen is that after a decade, the price will be $35. Slightly below inflation. Tell me about an easy to swallow price increase. The company keeps its increasing expenses under control, and so do the users! Because their wage (normally) increase as well, even if sadly, not at the inflation rate.

And finally the fifth benefit: An enticing alternative to piracy and all the problems that come with it. Just to name a few: potential legal issues, complex, non-working or partially working cracks, no update, dependency on a “community” of crackers who do whatever the hell they want, having to block the software in a firewall… Yeah, just to name a few.

It’s not really a benefit but if you consider the $1000 software of our example, which yearly updates cost around $300 (typically a third of the software price), here is your cummulative cost after 5 years with and without paying for upgrades versus subscription:

Perpetual w/o upgrades               Perpetual w/ updates               Subscription
Year 1:                                  $1000                                          $1000                               $360
Year 2:                                  $1000                                          $1300                               $720
Year 3:                                  $1000                                          $1600                              $1080
Year 4:                                  $1000                                          $1900                              $1440
Year 5:                                  $1000                                          $2200                              $1800

You would have to go all the way up to year 12 to start having paid $20 bucks more under subscription compared to perpetual with updates. But that comparison does not even take into account any discount you may get from paying annually (typically 2 months off), loyalty discounts or other freebies. As for the people who didn’t pay any update, usually after 3 full version they are no eligible for any update discount and have to repay the software in full. Meaning after 12 years they would have paid only a couple hundred bucks less, and have not benefited any new features for 4 years after each purchase.
Naturally, if they never ever need to update, they’re the big winners! But if that is so, they really didn’t need the software at all and should have gone with a much less expensive one in the first place.

But the benefits are not only for the companies, the users can see many benefits too, if they care to see beyond the – sometimes difficult to comply with, engagement they make with their software provider.

The first benefit is similar as to the company’s one: Controlled expenses. A small fee every month or a medium fee once a year. It’s very easy to integrate in a budget.

The second benefit is that subscription software, as it requires internet to operate, usually provides an automatic updates management that keeps the software up to date very regularly (for some more than one update a week). You are certain to benefit from the very latest version on the click of a button. No more installers to download or DVDs to get delivered.

The third benefit is that if for any reason you suddenly don’t need the software, you are not losing any (or not much) money. While with a full retail price perpetual license that is generally either fobidden to resell/transfer or the process is long and complex… Yeah you can cry. With subscription on a monthly plan, the worst that can happen is that you cancel your subscription the same day or your billing and you lose one month worth of subscription. In our example (which is a very common amount for professional grade software), you “lose” $30.

The fourth benefit is more sublte, but for some being legit to use their tool is important. Supporting the company that allows you to make a living with the best tool of your choice is a pleasant feeling.

The fifth benefit is that the company having you paying regularly and being able to leave anytime normally is more commited to keep you happy. What this means is that you are more likely to have some weight when it comes to seeing your features requests considered and implemented.

Now it’s not all benefits, of course. If you are not in regular need for the software, paying every month just for an occasional use does not make sense and you should probably look for a cheaper (or free) alternative. You’re unlikely to get the same level or comfort, the software is unlikely to be as powerful, but it’s the most reasonable choice.

Another disadvantage, although minor, is the necessity for the software to validate your plan through regular (if not permanent) online checks. For some people this is a deal breaker, whether it is for security reasons if their computers is not allowed to connect to internet, or privacy paranoïa. Those inconveniences are however more than reasonable and usually companies have options for professional who are unable to use a subscription plan for security reasons. This normally comes at a price however, the price you would have paid for perpetual + a good bonus to account that the company may never see you again.

In conclusion, I personally consider the Software As A Service (SAAS) economic model the only reasonable way to pursue software development in our time. After all, nearly everything computer-related these days are considered services. Whether it is streaming video, smartphone apps, internet… And soon enough video games won’t escape that fate: Physical supports will entirely disapear, so will the perpetual license to use a single game and you will pay a flat monthly fee for access to a large catalog of games.
I believe SAAS is profitable in term of content quality as well, as the steady and foreseable revenue allows for a much clearer view of the resources that can and should be allocated to development. This can prevent companies to go head first into the development of a program or feature that will take a long time and plenty of resources in the hope that it will make a difference for them on the market. Updates are incremental, frequent and the software keeps on improving. From a user point of view the changes feel minor one upgrade after another, but if you look back for a year, it is very clear the changes have been many, and more important to the users than when a company wraps a set of features in advance they intend to release as a point release and it finally does not appeal the users so much.

I was reluctant to subscription software, but I saw the various companies adopting it have set a very reasonable pricing overall which is good for everyone. Cheers to the dense people at DPR.

Software as a service

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