There’s been a lot of debate since Adobe switched from a sales to subscription business model for their software. Reactions, as you can expect, were mixed, with the loudest voices coming from those who were opposed to the switch. Since then, other developers – most notably Red Giant with Universe – have experimented with this approach.
NOTE: The concept of subscribing to software has been around for a long time in the business world; I’m thinking about accounting software specifically, but subscriptions are new in the media industry.
I was reflecting on this today and wanted to share my thoughts – because there’s more than just the issue of “renting” vs. “buying” software that’s worth talking about.
Here’s my thesis:
Most developers live in a feast-and-famine revenue cycle where money rolls in with a new release then quickly tapers off as existing users finished upgrading. Marketing to find new users is a never-ending activity, but the farther a company gets from a launch, the less revenue they have to work with. The emphasis is always on “what are we doing next?”
Subscription revenue, on the other hand, is steady and can be easily projected on a monthly basis by extrapolating from the current subscriber base.
One of the complaints I hear frequently is: “Why don’t developers spend more time fixing bugs and less time adding new features?” And the answer is: They can’t afford it. Finding and fixing bugs is ridiculously time-consuming and often isolated to specific systems or system configurations. Fixing bugs is necessary, true; but really, really difficult. And we all expect that upgrades to fix bugs will be free.
This puts developers in the worst possible situation: undertake really difficult work and know, going in, that they won’t make any money from it.
Clearly, every developer wants to create great products and they all dedicate resources to finding and fixing bugs. Just as they dedicate resources to creating new products and new features. But, like any business, they need to “go where the money is.”
Speaking only from my personal point-of-view, the difference between sales and subscriptions is striking.
I’ve been selling video training for about eight years and offering online subscriptions for almost three (January marks our third anniversary). When we release new training, our sales spike on the day of release. However, the next day – only 24 hours later – sales volume falls by 50%. The next day it falls again by 50%. Looking at new release sales for the last three years, that 50% daily drop is absolutely predictable. Within a week, our sales volume is back to the same level it was before the new products were announced.
Granted, we now have a pile of cash we didn’t have before – but, essentially, this means we are funding our business for the next several months on revenue generated in 48 hours.
Sheesh…!
Because revising our training is totally dependent upon how often other developers upgrade their software, we realized several years ago that we needed to figure out a way to smooth this revenue flow, which is why we added subscriptions to our Video Training Library.
NOTE: We could, like other publishers, expand the subjects we cover, but we decided to focus on applications related to media, rather than try to be “all things to all people.” We opted for “deep,” rather than “broad.”
Subscriptions provide access to all of our video training – currently close to 800 movies – for one low monthly fee. While the revenue per day from subscriptions is far, FAR less than when we release a new title, we can count on subscription revenue from month to month. Subscriptions haven’t stopped me from creating new training, but I discovered that it changed my thinking on the type of training to create.
While I am interested in creating new training for major new software releases, I am even more interested in creating training that broadens the subjects available to our subscribers, without worrying about whether these titles will generate big sales. Subscriptions give us the revenue we need to sustain the company so that we can explore these subjects more intensively.
For example, video compression, media management and color correction always draw a crowd. But there also needs to be training on double-system sound, audio mixing, 3rd-party plugins, multicam editing and other subjects which are vitally important, but will never generate a profit if we had to sell them solely as a stand-alone title.
Our company offers products for sale and subscription. I have no intent to change that as there are large audiences for both. New products generate excitement. Subscriptions allow us to remain in business.
As always, I’m interested in your thoughts.
P.S. And, I would be remiss if I didn’t suggest you click here to learn more about our video training subscription service.
8 Responses to Commentary: Sales vs. Subscriptions
Your point about the benefits of subscription is great. Now the real challenge is: do companies actually change they way they do this? I know that the first Premiere release available only thru subscription broke a couple of things that worked. But that was early in the process.
Since the prosumer market has never charged maintenance fees, it would be nice if subscription solved the support versus new buzz problem.
The commercial fly in the ointment is the need for companies to show growth. In other words, Adobe is unlikely to say, great we have a dependable revenue stream and our need for new customers is lessened. Wall street is still going to want to see numbers that say, subscription revenue went up by 40% last quarter, i.e. attract new customers to this model.
I wish I knew where this was going to go! I’m personally still stuck on FCP7 and planning to jump to FCPX and the new Mac Pro later in the year.
Hi Larry, Thanks for yet another great review. While I can appreciate your comments I would like to make a few comments from a hobbyist.
Video is purely a hobby for me although I embrase it with a passion, your records will confirm that I have purchased many of your excellent products although I have never joined your subscription service. Why, you may ask, well being retired I have many, many other interests and video may occupy only a six week period of the year.
I prefer to own my home and motor vehicle rather than rent or lease. I guess that makes me feel more secure! On the other hand, utilities such as gas & electricity are on a subscription type basis. They are, of course, used all year.
Unfortunately we are all caught-up in consumerism. The changes in hardware and software are coming all too quickly and often offer only minor, and possibly unnecessary tweaks. For those in the industry, does constantly upgrading give them increased profits, more family time or simply keep them in the game?
Greetings Larry,
Well done. I appreciate the insight as well as the explanation for your selected approach. I am a subscriber, and am grateful for the service you provide. The only suggestion I would make is something I have mentioned before. You cover so much material in your videos which takes time to access. And there are certain things in each one that especially are noteworthy, new or better ways to do things, etc which I take notes on because there is no way I am going to remember it all. And going back through a bunch of video looking for stuff is painfully time-consuming. But taking notes is time consuming also. I would much prefer a book. Your past books have been the best stuff out there on FCP. I understand the difficulties in keeping up with the changes, and inventory problems, but an ebook similar to what you do in your articles would solve that. At the least, Just making the notes on screen during the video available in a format that could be copied and pasted into a note document would be a huge help. Anyway, I am not complaining, just trying to make better use of my little available time.
Jac:
Thanks for your comments.
Providing additional written material is a lot of work. We are currently thinking about if and how to create this.
Larry
Great suggestion Jac. I am a dinosaur and love books. Having said that I keep all my camera manuals etc on my iPad along with Larry’s courses. I have been involved with computers since 1979, long before many of Larry’s subscribers were born although I was raised on books. Books will probably pass with my generation so I can understand why they are in decline.
I keep a paper copy of the contents of Larry’s courses so I can more quickly get to what I want!
Interesting,
I got my first computer about that time. It was a Comodore Pet with a whopping 32K of memory and a cassette tape for storage.
Wrote my first program on it.
Guess that makes me a dino too, huh?
Jac
One important point about software Larry…the end user never “owns it”. Virtually all license models involve use rights only. The author owns the code and is granting you access to use it as long as you behave by the EULA terms. My point is that whether the payment is monthly or ‘one-time’ is somewhat immaterial and more of a business decision; it’s always a ‘rental’ type agreement.
As a software publisher, we have considered the subscription model from the standpoint of ‘keeping everyone up to date’. It’s heartbreaking to see someone struggle with a bug that’s already been fixed. On the other hand, a lot of people are cynical and suspect that a subscription plan is simply a way for us to make more money. Yet no one wants to be the last to buy version that next week is out of date.
Some additional thoughts…
As it stands today, our feature changes that cause paid upgrades every 18 months or so, are typically driven by external forces (new cameras, OS changes, etc.) and user suggestions for improved workflows.
Also, as you already know I’m sure, recurring credit card charges add a new level of complexity to the economic process too. And that is not without it’s pitfalls (remember Adobe being hacked within months of starting the subscription service?).
Dan:
These are excellent comments. Thanks for sharing them.
Larry